effective contingency management - contractor management forum - pd july 2013
DESCRIPTION
Effective Contingency Management • Good practice of project contingency assessment • Risk driven methodology vs. traditional methodology • Integrated Project Controls • Joint Confidence Level (JCL) • Good practice of project contingency managementTRANSCRIPT
Contractor Management Forum22 & 23 July 2013, Melbourne, Australia
P E D R A M D A N E S H - M A N D
R E G I O N A L M A N A G E R – P R O J E C T C O N T R O L S
Effective Contingency Management
• Good practice of project contingency assessment
• Risk driven methodology vs. traditional methodology
• Integrated Project Controls
R E Q U I R E D T I M E / C O S T C O N T I N G E N C Y
2
• Joint Confidence Level (JCL)
• Good practice of project contingency management
Effective Risk Management
H O W M U C H I S E N O U G H ?
3
Agenda
• Introduction
• Industry performance worldwide
• Project Based Business Model
4
• Joint Confidence Level (JCL)
• Bid Estimating, Scheduling, Risk Assessment
• Case Study
Aquenta Consulting
A S PA R T O F A M E C G R O U P
5
Aquenta Consulting
S E R V I C E S
6
BUILDING & F ITOUT
TRANSPORT UTIL IT IES INFRA-STRUCTURE
OIL & GAS
Est imat ing, Cost Management , P lann ing & Contro ls , Fac i l i t ies Management , Contracts & D ispute Services, R isk Management
Project Delivery
• We have a good project controls in place, don’t worry!
• Trust our very experienced planning team. Everything’s fine!
• No problem, everything is under control!
T Y P I C A L M Y T H S
7
• All performance indicators are green, don’t worry!
• Please, we don’t need anything new!
• Another new manager, new system, new process, again!
Project Delivery
S O M E FA C T S
Engineering Projects42% behind schedule
Oil and Gas Projects81% behind schedule
8Ref: Managing the Risk of Delayed Completion in the 21st Century, Survey by Chartered Institute of Building (CIOB), 2007
Project Delivery
S O M E FA C T S
Power Generation Projects66% behind schedule
High-rise Buildings67% behind schedule
9Ref: Managing the Risk of Delayed Completion in the 21st Century, Survey by Chartered Institute of Building (CIOB), 2007
Project Delivery
• REQUIREMENTS: Unclear, lack of agreement, lack of priority,
contradictory, ambiguous, imprecise
• RESOURCES: Lack of resources, resource conflicts, turnover of key
resources, poor planning
T O P 5 C A U S E S O F FA I L U R E
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resources, poor planning
• SCHEDULES: Too tight, unrealistic, overly optimistic
• PLANNING: Based on insufficient data, missing items, insufficient
details, poor estimate
• RISKS & OPPORTUNITIES: Unidentified or assumed, not managed
Ref: Strategies for Project Recovery,A PM Solutions Research Report, pmsolutions survey, 2011
Project Based Business Model
B I D – E X E C U T I O N – C O R P O R AT E O B J E C T I V E S
Bid Estimating
11
Corporate Objectives
Project Execution
Joint Confidence Level (JCL) – Bid Phase
JCL is:- The probability that cost will
be equal or less than the targeted cost AND schedulewill be equal or less than the
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targeted schedule date- A process and product that
helps inform management the likelihood of a project’s programmatic success
- A process that combines a project’s cost, schedule, and risk into a complete picture.
NASA HQ – Office of Program Analysis and Evaluation (PA&E) Cost Analysis Division
Joint Confidence Level (JCL) – Execution Phase
JCL is:- The probability that cost will
be equal or less than the targeted cost AND schedulewill be equal or less than the
13
targeted schedule date- A process and product that
helps inform management the likelihood of a project’s programmatic success
- A process that combines a project’s cost, schedule, and risk into a complete picture.
NASA HQ – Office of Program Analysis and Evaluation (PA&E) Cost Analysis Division
Effective Contingency Management
• How to assess optimum contingency allowance (time and cost) for
desired JCL during Bid Phase?
• How to monitor and maintain the desired JCL during Execution Phase
i.e. Contingency Management?
C H A L L E N G E S
14
i.e. Contingency Management?
Bid Phase – Traditional Approach
E P C C O N T R A C T
Estimating Scheduling R&O’s
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PROJECT INFORMATION % of Cost % of Sell VALUE RECOVERY
TENDER NO: TC-3218 Total man Hours Man Hours
PROJECT TITLE: Weddell Unit 3 Civil 3,364
CONSULTANT/CLIENT: Power & Water Corporation, NT Mech 11,854
POST TENDER NEGOTIATION DATE: 16-Jan-12 Elect 6,164
CONSTRUCTION PROGRAMME DURATION (Weeks) 34 8 Months Manning Average Peak
CONSTRUCTION SITE DURATION (Weeks) 34 8 Months Civil 10 16
DEFECTS LIABILITY PERIOD (Weeks) 104 24 Months Mech 28 45
REVISION AND ISSUE REVA0-1 Elect 17 28
Value Recovery
(1-4) TOTAL DIRECT JOB COSTS (items 1-4) TOTAL COST DJC (items 1-5) 51.17% 44.85% $6,338,802.81
(1) PROJECT ELEMENTS, DIRECT COSTS Total for section (1) 40.79% 35.75% $5,053,352.81
1.1 Civil Works Input from File 07-Jun-11 9.13% 8.00% $1,131,041.30
1.2 Mechanical Input from File 30-May-11 18.16% 15.92% $2,249,906.72
1.3 Electrical Input from File 01-Jun-11 12.79% 11.21% $1,584,404.79
1.4 Recruitment
1.4 Final Negotiation figure generally for wet w eather increase 0.71% 0.62% $88,000.00
1.5 File
(2) ENGINEERING (Refer SHT-2) Total for section (2) 8.12% 7.12% $1,005,350.00
2.1 UGL Engineering Engineering 09-May-11 7.62% 6.68% $943,522.00
2.2 Geotechnical Report & O&M Manuals 09-May-11 0.50% 0.44% $61,828.00
(3) General Specification Requirements (Refer SHT-3) Total for section (3)0.81% 0.71%
$100,100.00
3.1 Preliminary Costs UGLi Prelims File 0.81% 0.71% $100,100.00
3.2 Preliminary Costs other File
(4) COMMISSIONING (Refer SHT-4) Total for section (4) 1.45% 1.27% $180,000.00
4.1 Commissioning costs UGLi Admin Included in Admin below
4.2 Commissioning Materials Comissioning File 1.45% 1.27% $180,000.00
4.3 Commissioning costs other File
(5-9) TOTAL INDIRECT JOB COSTS (items 5-9) TOTAL COST INDIRECTS (items 5-9) 42.79% 37.49% $5,302,192.18
(5) ADMINISTRATION (Refer SHT-5) Total for section (6) 28.90% 25.33% $3,580,535.30
5.1 Site Admin and Site Supervision Costs Admin 10.92% 9.57% $1,352,868.94
5.2 Site Engineering and Site Support Staff Admin 7.44% 6.52% $921,581.16
5.3 Site Commissioning labour Costs Admin 7.71% 6.76% $955,220.13
5.4 Head Office Support Admin 2.44% 2.14% $302,654.865.5 Other admin costs Recruitment Costs 0.39% 0.34% $48,210.20
(6) MOBILISATION Plant & Buildings (Refer SHT-6) Total for section (7)12.75% 11.16%
$1,579,350.00
6.1 ( 7a) MOBILISATION & DEMOBILSATION Mob & Demob 8.04% 7.05% $996,060.00
6.2 (7bi) SITE BUILDINGS 0.69% 0.60% $85,010.00
6.3 (7bii) SITE CONNECTIONS 1.00% 0.87% $123,550.00
6.4 (7biii) PLANT AND TOOLS 2.09% 1.83% $258,880.00
6.5 (7biv) VEHICLES 0.23% 0.20% $28,900.00
6.6 (7bv) SITE RUNNING COSTS 0.44% 0.38% $54,150.00
6.6 Other - Principal's Site Office + Utility Power & Water Connections (PWC Mtg Darw in Addition) 0.26% 0.23% $32,800.00
(7) COMMUNITY & ENVIRONMENT (Refer SHT-7) Comm & Env Total for section (8)0.09% 0.08%
$11,700.00
(8) HEALTH & SAFETY EQUIPMENT (Refer SHT-8) Health & Saf ety Total for section (9)1.05% 0.92%
$130,606.88
(9) HEDGING (re fer to SHT-9) BG & Hedge Total for section (10)Hedging Not
Considered
(10-13) TOTAL ALLOWANCES (items 10-13) TOTAL COST ALLOWANCES (items 10-13) 4.33% 3.79% $535,918.23
(10) ESCALATION (re fer to SHT-10) Escalation Total for section (11)0.76% 0.66%
$93,861.25
10.1 Escallation for Project Management and Supervision 0.57% 0.50% $70,900.00
10.2 Escallation for Engineering 0.19% 0.16% $22,961.25
10.3 Escallation for Labour (Not req'd - Mid Point calc)
10.4 Escallation for Materials (Not req'd)
(11) Contingency R&O Total for section (12) 3.07% 2.69% $379,643.29
(12) Wet Weather Allow ance (Refer to SHT-12) Wet Weather Total for section (13) 0.50% 0.44% $62,413.69
12.1 CIVIL WET WEATHER ALLOWANCE 0.20% 0.18% $25,358.59
12.2 ELECTRICAL WET WEATHER ALLOWANCE 0.08% 0.07% $10,323.82
12.3 MECHANICAL WET WEATHER ALLOWANCE 0.15% 0.13% $18,006.91
12.4 SUPERVISION WET WEATHER ALLOWANCE 0.07% 0.06% $8,724.38
12.5 OTHER WET WEATHER ALLOWANCE
(13) PROVISIONAL SUMS Total for section (14)
(14) MISC COSTS (LSL, BONDS, INSURANCES ETC) TOTAL COST MISC ITEM (14) 1.69% 1.49% $209,427.60
14.1 A 0.57% 0.50% $70,160.00
14.2
14.3 Long Service Levy (LSL) .35 % on contract value (inc GST) 0.50% 0.62% 0.55% $77,176.00
14.4 Securities Bonds Insert Final Total Selling Price $14,032,000 0.22% 0.19% $27,011.60
14.5 Warranty Provision .25 % on contract value (inc GST) 0.25% 0.28% 0.25% $35,080.00
14.6
14.7 Other costs
TOTAL COST (items 1-14) PROJECT TOTAL COST ITEMS 1 TO 14 100% 87.62% $12,386,340.82
(15) OVER-HEADS & Margin (item 15) 12.00% TOTAL O-H and Margin ITEM (15) 12.35% $1,745,046.48
15.1 UGLi Overheads 54.17% 6.50% of Selling Mark up 7.39% 6.47% $914,900.17 $914,900.17
15.2 UGLi Prof it 45.83% 5.50% of Selling Mark up 6.25% 5.48% $774,146.30 $774,146.30
15.3 Additional Recovery FX Rate 0.45% 0.40% $56,000.00 $56,000.00
15.4 Mark up
15.5 Partner 3 Profit & O/H Mark up
(16) TOTAL SELLING (items 1-15) (16) TOTAL SELLING PRICE EXCLUDING GST 100% $14,131,387.30 $1,745,046.48
GST Value $1,413,138.73
PRICE APPROVED BY : DATE : 16-Jan-12 RECOVERY TO COST : 14.09%
Tender No : TC-3218 Estimator :GRG / RS RECOVERY TO SELLING : 12.35%
Insurances excluding construction risk / construction w orks "A" .45% of CV, Including construction r isk /
construction w orks "B" .9% of CV (Worn by Business)
Monday, 16 January 2012
Liability Charges "U" uncapped Liability (1%), "A" Contract sum Liability (.5%) "B".5 of
contract sum liability ( .25%)
Risk Driven Approach
QUALITY
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QUALITY
TIME
SCOPE
COST
COST
Cost Management
• Cost Estimating – developing an approximation of the costs of the
resources needed to complete project activities.
• Cost Budgeting – aggregating the estimated costs of individual activities
or work packages to establish a cost baseline.
P R O C E S S
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or work packages to establish a cost baseline.
• Cost Control – influencing the factors that create cost variances and
controlling changes to the project budget.
Cost Management
• Available organisational process
assets
• Available quantities, resources
and productivity rates
I N P U T S
All these assumptions add UNCERTAINTIESwhich reduce the cost confidence
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and productivity rates
• Available work/scope statements
• Work Breakdown Structure
(WBS), and
• Other assumptions/documents
e.g. PMP, etc.
cost confidence level. What about other R&O’s and events?
Cost Management
• (Deterministic) Activity Cost
Estimate
• (Deterministic) Total Project Cost
O U T P U T S
What is your CONFIDENCE LEVEL in such a deterministic cost estimate?
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• (Deterministic) Cost Model Data
• (Deterministic) Cost Baseline
• (Deterministic) Resource
Requirements
estimate?
TIME
Time Management
S C H E D U L I N G
22
Time Management
• Logic-based Scheduling Methods
(LSM)
• Deterministic Techniques e.g.
CPM, Critical Chain, etc.
S C H E D U L E D E V E L O P M E N T M E T H O D S
Which method and tool will suit
your project requirements the
most
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• Stochastic Techniques e.g. PERT,
PNET, Monte Carlo Simulation,
etc.
• Repetitive Scheduling Methods (RSM)
• Line of Balance (LOB)
• Flowline Method
most
Scheduling
• Available templates
• Available quantities, resources
and productivity rates
I N P U T S
All these assumptions add UNCERTAINTIESwhich reduce the
schedule
24
• Available work/scope statements
• Available construction logic, and
• Other assumptions e.g.
calendars, PMP, etc.
schedule confidence level. What about other
R&O’s and events?
Scheduling
• (Deterministic) Project Schedule
• (Deterministic) Schedule Model
Data
O U T P U T S
What is your CONFIDENCE
LEVEL in such a deterministic schedule?
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• (Deterministic) Schedule
Baseline
• (Deterministic) Resource
Requirements
schedule?
Integrated Time/Cost Risk Management
JCL is:- The probability that cost will
be equal or less than the targeted cost AND schedulewill be equal or less than the
TIMECOST
26
targeted schedule date- A process and product that
helps inform management the likelihood of a project’s programmatic success
- A process that combines a project’s cost, schedule, and risk into a complete picture.
NASA HQ – Office of Program Analysis and Evaluation (PA&E) Cost Analysis Division
Joint Confidence Level (JCL)
RISK
Joint Confidence Level (JCL)
• Step 1 – Identify goals of JCL for specific project
• Step 2 – Review built schedule (i.e. Schedule Health Check)
• Step 3 – Cost loaded schedule (both Time Dependent / Independent)
P R O C E S S
27
• Step 3 – Cost loaded schedule (both Time Dependent / Independent)
• Step 4 – Implement Risk Register (through R&O’s Workshop)
• Step 5 – Conduct uncertainty analysis
• Step 6 – View results
• Step 7 – Analyse results
Validation and Health Check
• Validation of
• Quantities (most likely)
• Productivity Rates (most likely)
C O S T A N D S C H E D U L E
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• Durations (most likely)
• Resource Cost Rates (most likely)
• Constraints (Contractual or Management)
• Logic network and Work Statements, and
• Reasonable Critical Path
Risk Register
• The identified risks & opportunities
• Likelihood of the identified risks and opportunities
• Impacted activities and/or cost elements
K E Y E L E M E N T S
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• Uncertainties
• Existing controls and residual risks
• Schedule and/or Cost Consequences and required Contingency
• Correlation of risks and opportunities to one another
Case Study 1 – Bid Phase
Scope:
• Project Management
• Engineering & Design
• Procurement & Delivery
$ 1 0 0 M P O W E R P L A N T E P C C O N T R A C T
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• Procurement & Delivery
• Installation
• Earthwork & Civil
• Mech, Elec, & Control Systems
• Two Gas Turbine Generator Units
• Balance of Plant (BOP)
• Testing & Commissioning
Effective Contingency Management
• How to assess optimum contingency allowance (time and cost) for
desired JCL during Bid Phase?
• How to monitor and maintain the desired JCL during Execution Phase
i.e. Contingency Management?
C H A L L E N G E S
31
i.e. Contingency Management?
Case Study 1 – Bid Phase
S C H E D U L E H E A LT H C H E C K
Confidential
32
Case Study 1 – Bid Phase
R I S K C R I T E R I A & R I S K M AT R I X
33
Consequence Table
Likelihood Table
Escalation Table
Risk Matrix
Case Study 1 – Bid Phase
R I S K R E G I S T E R
34
RiskIdentification Controls
Assessw/Controls Treatment
Assessw/Treatment
Cost ImpactSchedule Impact
Case Study 1 – Bid Phase
S C H E D U L E C O S T R I S K A N A LY S I S
Confidential
35
Confidential
Case Study 1 – Bid Phase
S C H E D U L E C O S T R I S K A N A LY S I S
36
Case Study 1 – Bid Phase
C O N T I N G E N C Y A S S E S S M E N T
37
Case Study 1 – Bid Phase
Scope:
• Project Management
• Engineering & Design
• Procurement & Delivery
$ 1 0 0 M P O W E R P L A N T E P C C O N T R A C T
38
• Procurement & Delivery
• Installation
• Earthwork & Civil
• Mech, Elec, & Control Systems
• Two Gas Turbine Generator Units
• Balance of Plant (BOP)
• Testing & Commissioning
Effective Contingency Management
• How to assess optimum contingency allowance (time and cost) for
desired JCL during Bid Phase?
• How to monitor and maintain the desired JCL during Execution Phase
i.e. Contingency Management?
C H A L L E N G E S
39
i.e. Contingency Management?
Case Study 2 – Execution Phase
C O N T I N G E N C Y M A N A G E M E N T
40
CONFIDENTIAL
Case Study 2 – Execution Phase
• Updated “Project Execution Plan”
• Effective Change Management
• Consistent WBS between cost control & scheduling
K E Y L E S S O N S L E A R N E D
41
• Independent Schedule Health Check
• R&O Workshop every month for both Events and Uncertainties
• Desired time/cost Contingency vs. Available time/cost Contingency
• Early warning (early bad news is actually a good news!)
Proactive Risk Management
What about your projects? Don’t they need a proactive risk management
platform in place? THINK again.
W H AT I S N E X T F O R Y O U ?
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Good luck and enjoy your risk management challenges.
+61 432 041 560