Dammam - Module 5

7/30/2019 Dammam - Module 5

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Construction Cost Management &Construction Cost Management &

The Impact of the Project Schedule on CostThe Impact of the Project Schedule on Cost

Part 5: Cost Risk ManagementPart 5: Cost Risk Management

By Ted Garrison

Garrison Associates

www.TedGarrison.com

www.StrategicPlanningforContractors.com

www.NewConstructionStrategies.com
http://www.tedgarrison.com/http://www.strategicplanningforcontractors.com/http://www.newconstructionstrategies.com/http://www.newconstructionstrategies.com/http://www.strategicplanningforcontractors.com/http://www.tedgarrison.com/


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2(c) 2008 Garrison Associates

Module 1: Fundamentals ofModule 1: Fundamentals of

Cost Risk ManagementCost Risk Management

Murphys Law: If anything can go wrong itwill.

OTooles Commentary on Murphys Law:

Murphy was an optimist.


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How Do You Minimize Risk?How Do You Minimize Risk?

Assign risk to the person/organization bestqualified to manage that risk.

If a person cant manage the risk, then therisk shouldnt be delegated to them becauseit places everyone at greater risk.

Minimizing decisions minimizes risk.

Minimize risk is essential to helping client& the contractor.


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Where Are We At Risk?Where Are We At Risk?

What can go wrong?

How can we prevent the

problem?

Focus on Triple Constraints

Costs

Schedule

Performance (Quality)

What risks due we have that

cant control?


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Managing Projects Is Not

About Being Perfect! By definition a project is something that has

never been done before in other words its aprototype.

It is about getting the job done.

It is about letting people make mistakes.

But one of the most important skills is creative

problem solving.

Its minimizing decisions.

Therefore, keep asking questions.


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How to Manage Risk

Identify the biggest risks to key projectelements.

Then develop a plan to minimize or eliminate

the potential risk. This includes identifying the risks the

contractor cant control, but how it willminimize them

Focus on the most important issues.

80-20 rule 20% of issues will create 80% ofproblems.


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Manage Risk Using DMAICManage Risk Using DMAIC

DEFINE

MEASURE

ANALYZEIMPROVE

CONTROL

Client/Expectations Quality issues Core Business Process

Current Performance Develop a process tocollect data

Implement process

Data collected/process map Determine causes of defects Identify gap between current

and goal performance Identify sources of variation

Target process Design solutions to fix/prevent problems Create innovate solutions Use technology and discipline Develop and deploy implementation plan

Continue improvement process Prevent reverting back tothe "old way"

Require development,documentation andimplementation of anongoing monitoring plan


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Decision Tree:Decision Tree: Managers CodeManagers CodeThe movement of risk.....The movement of risk.....

Dont Mess With It!

YES NO

YES

YOU IDIOT!NO

Will it Blow UpIn Your Hands?

NO

Look The Other Way

Anyone ElseKnows?

Youre SCREWED!YES

YES

NO

Hide It

Can You BlameSomeone Else?

NO

NO PROBLEM!

Yes

Is It Working?

Did You MessWith It?


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Model 2: Risk AssessmentModel 2: Risk Assessment

(RA) Plan(RA) Plan

High performing contractors use the RA Plan to identifyand minimize potential risk before the project/task hasstarted.

High performing contractors used the RA Plan todifferentiate themselves from their competitors (to provethey are not a commodity).

The use of RA Plans quickly identify high performingcontractors.

ExperiencedVendor

Time

InexperiencedVendor

Time


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RA Plan ContentsRA Plan Contents

List major risks unique to Project Prioritize the list (biggest risks first)

You must address how the risk impacts the project to not be completedon time, not finished within budget, or may be a source ofdissatisfaction for the client

Must be a unique risk to the current project

Must explain why the risk is a risk

Explain how to avoid or minimize the risk. Non-technical explanation

Must explain how risk is avoided

Propose options to increase the value (expectation orquality) on the project.


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RA Plan FormatRA Plan Format

The RA Plan must NOT exceed 2 pages.

Should not include brochures, marketinginformation, or product names!

It shouldnt include technical data.

Its not about shifting risk back to client.

However, must identify risks the contractor cantcontrol.


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Module 3: Why You Must Plan

for a Contingency

By definition projects are unique, which meansthere will be problems.

Projects require risk taking. Our job is tomanage the risk because it cant be eliminated.

Projects that seek perfection are usually

disasters because people are afraid to takeaction.

Need to be able to educate the buyer in otherwords manage expectations.


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How to Plan for a Contingency

Keep records.

Dont be afraid of the truth in otherwords manage expectations.

Accept the fact that you must have a

contingency or you are planning to fail.

If they wont give you a contingency

then you must build one in.


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Contingency Methods

2 Common Contingency Approaches:

Percentage of entire project.

Percentage of individual items or tasks.


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Module 4: Weekly ReportsModule 4: Weekly ReportsWhat is it / Why is it importantWhat is it / Why is it important

What is it?

Spreadsheet that tracks unforeseen risks on a project

Why is it important? Allows contractors to track unresolved client issues

Allows contractors minimize risk

Allows contractor a means to document all client

decisions

How much effort?

Minimal (less than 5 minutes), unless vendor did notpreplan, or client making decisions


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Weekly Reporting SystemWeekly Reporting System

Spreadsheet tracks only project unforeseen risks

Tracking the project should begin with notice to

proceed

Contractor should prepare report every week

The accuracy of the report will impact the results


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Self Regulating LoopSelf Regulating Loop(Six Sigma DMAIC Generated(Six Sigma DMAIC Generated)

Actions Minimize data flow

Minimize analysis

Minimize control

Risk Assessment

Preplanning,Quality ControlPlan

Measureagain

50%

Identify value (PPI, RA,Interview, $$$$$)V

50%

Interview Key PersonnelPast PerformanceInformation

M

Requirements(DBB, DB, CMAR, DBO)

M R

MM

R

R

R

= Minimize Risk

= Self Measurement

= Identify Value

M

R

VEfficient

Construction


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Action Steps

Please turn to the inside of the front cover

of the resource guide. Write down 1 to 3

action steps that you want to immediatelyimplement from Part 5 of this program.

Documents

Dammam - Module 5