the big dig: managing risk and complexity on mega projects presentation to pm connect thursday,...

The Big Dig: Managing Risk and Complexity on Mega Projects

Presentation to PM ConnectThursday, December 15, 2011

Virginia A. Greiman, Assistant Professor, Boston UniversityV. A. Greiman Copyright © 2011

Permission as Required

Project Structure and Cost

Element Current Estimate ($MM)

Construction $ 9,496Design $ 1,034Project Management $ 1,977Force Accounts $ 608ROW Settlements $ 576Insurance Premiums $ 609Contingency $ 498

TOTAL $14,798

Virginia A. Greiman © 2010 3

Source: CA/T Project Finance Plan 2007

Why are Mega Projects Consistently Underestimated?

A review of large public works projects over the last century concluded that costs are consistently underestimated, a phenomenon attributed to the desire of the project advocates to have their projects approved.

(Flyvbjerg, Megaprojects and Risk: An Anatomy of Ambition, 2002)

National Transportation Research Board 2006 Cost Estimation Report

Identified 8 Strategies linked to 18 different causes of cost escalation on highway projects in the United States.

Notably, the research concluded that most efforts in cost estimation have focused on creating tools to improve cost estimates with less emphasis on tools for cost estimation management.

(Anderson et. al. 2006).

Risk and Cost Escalation Factors

Engineering and Construction Complexities

Scope Changes

Ambiguous and Conflicting Contract Provisions

Unforeseen Events

Unforeseen Conditions

Virginia A. Greiman © 2010 6

What Makes a Project Complex?

Size and Duration: The Big Dig and The English

Chunnel (FHWA: More than $1Billion)

Numerous Stakeholders with diverse interests

Technology: Hoover Dam and Panama Canal

Extension

Untried: BP Gulf of Mexico Oil Disaster

Integration of Processes: Many Diverse and

Autonomous, but interrelated and interdependent

components or parts linked through many dense

interconnections. Virginia A. Greiman © 2010 7

Major Complexity Challenges on the Big Dig:

Project Integration – (150 Major Employers – One Team) 5,000 workers, thousands of complex processes

Risk Management – World’s Largest Wrap-up Program

Technology Integration – Monitoring the Critical Path

Claims and Changes - Partnering

Project Integration Management

Project Charter

1

CloseProject

7

Integrated Change Control

6

ProjectMgmtPlan

3

MonitorAnd Control

5

Direct and ManageExecution

4

Scope Statement

2

Project Management Institute, PMBOK, 4th ed.

Project Integration

People

Process

Stakeholders

Community

Disciplines

Virginia A. Greiman © 2010 10

PMI Project Management Trade-offs

Design, Risk, Safety, and Quality Decisions!!

Des

What Is Project Risk?

Completion Risks? – Scope, Schedule and Budget

Operational Risks? – Market Demand and Technical Capacity

Political/Sovereign Risks? – Expropriation, Regulatory, Permitting, Change in Law

Financial Risks? – Funding Sources and Sequencing (Debt and Equity)

Force Majeure Events and Catastrophic Loss?

Virginia A. Greiman © 2010 12

CA/T’s Risk Management Mission

Operating a World-Class Risk Management Program for:–Engineering and Construction–Safety and Health–Loss Control

Insuring all identified loss exposures through and beyond Project completion

Virginia A. Greiman © 2010 13

CA/T Project Insurance Wrap-up Coverage’s ($609M) (2006 CA/T Project Finance Report)

0 50 100 150 200 250 300

262

215

48

11

8

5

60

Administrative Costs and Safety Mitigation Railroad Protective Liability Airport Contractors’ Liability Professional LiabilityBuilders’ RiskGeneral Liability/Excess Li-ability Worker's Compensation

Virginia A. Greiman © 2010 14

Major Public Project Wrap-Up Programs

Channel Tunnel (U.K./France)

Sydney Harbor Tunnel (Australia)

Great Belt Link (Denmark)

U. S. Nuclear Power Plants

The Central Artery/Tunnel Project

Oregon Tri-Met Westside Light Rail Line

New Jersey Transit Corporation Hudson-Bergen Rail Line

Chicago Transit Authority Green Line Rehabilitation Project

Utah Department of Transportation Interstate 15

New York City Transportation Authority

Virginia A. Greiman © 2010 15

Sources: Great Projects, James Tobin, 2001, United States General Accounting Office, GAO/RCED-99-155, 1999, Bechtel Corporation, San Francisco, CA

How Is Risk Managed?

Virginia A. Greiman © 2010 16

VisionMissionStrategyOrganization

Risk ManagementObjectives and GoalsRisk InformationCommunication

Risk ControlEvaluationMonitoringReportingRoot CauseLessons Learned Risk Allocation

AvoidancePreventionReduction/MitigationSeparationDuplicationTransfer

Risk Assessment

IdentificationPerceptionQualitative v. Quantitative Analysis

Lessons from Practice

Source: Central Artery Tunnel Project, Photo of Fort Point Channel

Classification of Catastrophic Loss

Natural

EconomicTechnology

Human

Major Catastrophic LossesEvent Estimated Loss ($MM)

Hurricane Katrina (2005) $43B-$60BWorld Trade Center (2001) $30-40BEarthquake in Chile (2010) $30B ($8B insured)Hurricane Andrew (1992) $18BCalifornia Earthquake (1994) $12.5BHurricane Hugo (1989) $ 4.2BJapan Typhoon Murielle (1991) $ 6.4B Hurricane Georges (1998) $ 2.9BHurricane Floyd (1999) $ 2.0BOakland, CA fire (1991) $ 1.7BIRA Bombing, London (1993) $ 1.0BSource: Lloyds, Munich Re, Swiss Re

19

Human Threats to Technology

Virginia A. Greiman © 2010 20

Risk Motivation Conduct

Hacker ChallengeRebellion

HackingSocial EngineeringSystem intrusionBreak-insUnauthorized access

Computer Criminal Destruction of informationDisclosure of confidential or illegal informationMonetary gainUnauthorized data alteration

Cyber stalkingFraudulent actBribery informationSystem intrusion

Terrorist BlackmailDestructionExploitationRevenge

Economic exploitationInformation theftPersonal privacyIllegal access to classified Information

Risk Analysis Events and Condition ChartWhat? How? And Why?

Worker Makes Error

Down-grading Changes

Occur

Worker Fails to Adapt to

Changes

HazardousSituation

Developed

Incident Occurred

21

Accident Occurred

U.S. Dept. Of Energy Events and Causal Factors Analysis, Root Cause Analysis is any analysis that identifies underlying deficiencies in a safety management system that, if corrected, wouldprevent the same and similar accidents from occurring.

Big Dig Safety and Health Programs and Practices

Substance Abuse and Prevention Program

Shared Responsibility

Continuous Improvement PracticesTraining and

Best Practices

Safety Incentive Program (SHARE) Mitigation

Program

Emergency Response

Public Image

Threat Assessment

CommunityInvolvementProgram

Abutter Program

Zero Accident Tolerance

And many more…

Owner Controlled Insurance Program

1,344Environmental Commitments

19921993

19941995

19961997

19981999

20002001

20022003

20042005

20060

2

4

6

8

10

12

14

16

18

Rate

Recordable Rate People

5000

4500

4000

3500

3000

2500

2000

1500

500

0

Peak Manpower/YearActuals per year

National Average

Challenges of Mega ProjectsKeeping the Focus on Risk, Quality and Safety!

Integration of all Project Disciplines throughout the Life of the Project!

Educating and Involving the Public Citizens from the Inception of the Project!

Establishing a strong public owner with independent oversight!

Virginia A. Greiman © 2010 24

Thank Your For Your Participation!Questions???

Virginia A. GreimanAssistant ProfessorBoston University

617-353-6860ggreiman@bu.edu

Virginia A. Greiman © 2010 25