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The Big Dig: Managing Risk and Complexity on Mega Projects Presentation to PM Connect Thursday, December 15, 2011 Virginia A. Greiman, Assistant Professor,

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Presentation on theme: "The Big Dig: Managing Risk and Complexity on Mega Projects Presentation to PM Connect Thursday, December 15, 2011 Virginia A. Greiman, Assistant Professor,"— Presentation transcript:

1 The Big Dig: Managing Risk and Complexity on Mega Projects Presentation to PM Connect Thursday, December 15, 2011 Virginia A. Greiman, Assistant Professor, Boston University V. A. Greiman Copyright © 2011 Permission as Required

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3 Project Structure and Cost Element Current Estimate ($MM) Construction$ 9,496 Design$ 1,034 Project Management$ 1,977 Force Accounts$ 608 ROW Settlements$ 576 Insurance Premiums$ 609 Contingency$ 498 TOTAL$14,798 Virginia A. Greiman © 2010 3 Source: CA/T Project Finance Plan 2007

4 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)

5 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).

6 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

7 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 Technology: Hoover Dam and Panama Canal Extension Untried: BP Gulf of Mexico Oil Disaster 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

8 Major Complexity Challenges on the Big Dig: Project Integration – (150 Major Employers – One Team) 5,000 workers, thousands of complex processes Risk Management – Worlds Largest Wrap-up Program Technology Integration – Monitoring the Critical Path Claims and Changes - Partnering

9 Project Integration Management Project Charter 1 Close Project 7 Integrated Change Control 6 Project Mgmt Plan 3 Monitor And Control 5 Direct and Manage Execution 4 Scope Statement 2 Project Management Institute, PMBOK, 4 th ed.

10 Project Integration PeopleProcessStakeholdersCommunityDisciplines Virginia A. Greiman © 2010 10

11 PMI Project Management Trade-offs Design, Risk, Safety, and Quality Decisions!! Des

12 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

13 CA/Ts 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

14 CA/T Project Insurance Wrap-up Coverages ($609M) (2006 CA/T Project Finance Report) Virginia A. Greiman © 2010 14

15 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

16 How Is Risk Managed? Virginia A. Greiman © 2010 16 Vision Mission Strategy Organization Vision Mission Strategy Organization Risk Management Objectives and Goals Risk Information Communication Risk Management Objectives and Goals Risk Information Communication Risk Control Evaluation Monitoring Reporting Root Cause Lessons Learned Risk Control Evaluation Monitoring Reporting Root Cause Lessons Learned Risk Allocation Avoidance Prevention Reduction/Mitigation Separation Duplication Transfer Risk Allocation Avoidance Prevention Reduction/Mitigation Separation Duplication Transfer Risk Assessment Identification Perception Qualitative v. Quantitative Analysis Risk Assessment Identification Perception Qualitative v. Quantitative Analysis

17 Lessons from Practice Source: Central Artery Tunnel Project, Photo of Fort Point Channel

18 Classification of Catastrophic Loss

19 Major Catastrophic Losses Event Estimated Loss ($MM) Hurricane Katrina (2005)$43B-$60B World Trade Center (2001)$30-40B Earthquake in Chile (2010)$30B ($8B insured) Hurricane Andrew (1992)$18B California Earthquake (1994)$12.5B Hurricane Hugo (1989)$ 4.2B Japan Typhoon Murielle (1991)$ 6.4B Hurricane Georges (1998)$ 2.9B Hurricane Floyd (1999)$ 2.0B Oakland, CA fire (1991)$ 1.7B IRA Bombing, London (1993)$ 1.0B Source: Lloyds, Munich Re, Swiss Re 19

20 Human Threats to Technology Virginia A. Greiman © 2010 20 RiskMotivationConduct HackerChallenge Rebellion Hacking Social Engineering System intrusion Break-ins Unauthorized access Computer CriminalDestruction of information Disclosure of confidential or illegal information Monetary gain Unauthorized data alteration Cyber stalking Fraudulent act Bribery information System intrusion TerroristBlackmail Destruction Exploitation Revenge Economic exploitation Information theft Personal privacy Illegal access to classified Information

21 Risk Analysis Events and Condition Chart What? How? And Why? 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, would prevent the same and similar accidents from occurring.

22 Big Dig Safety and Health Programs and Practices Substance Abuse and Prevention Program Shared Responsibility Continuous Improvement Practices Training and Best Practices Safety Incentive Program (SHARE) Mitigation Program Emergency Response Public Image Threat Assessment Community Involvement Program Abutter Program Zero Accident Tolerance And many more… Owner Controlled Insurance Program 1,344 Environmental Commitments

23 Rate Recordable Rate People 5000 4500 4000 3500 3000 2500 2000 1500 500 0 Peak Manpower/Year Actuals per year National Average

24 Challenges of Mega Projects Keeping 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

25 Thank Your For Your Participation! Questions??? Virginia A. Greiman Assistant Professor Boston University 617-353-6860ggreiman@bu.edu Virginia A. Greiman © 2010 25


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