1. Managing Risks in the Project Pipeline Minimizing the Impacts of Highway Funding Uncertainties Larry Redd, P.E. Tim McDowell, WYDOT, P.E. Larry Redd LLC

2. Performance-Based Management “Maximizing Value and Cost Savings” Performance Benefits & Savings Asset Management Efforts Program Trade-Offs Project Optimization Programming Program Optimization Recommended assets, treatments, project timing, maintenance operations Best cost and benefit trade-offs between programs -- performance target-setting, optimized budgets Optimized components, scoping, timing, designs, mix, locations, groupings Minimized risks in the Project Pipeline

3. Uncertainties Can Ruin Your Asset Management Plans Project Programming Project Deliveries STIP— ”Project Pipeline” 2012201620172015201420132017+ Best Laid Plans Optimized project selection Intended performance benefits Assumed revenue by year Unplanned Outcomes Actual Revenue? Missed deliveries Holding Costs Obsolete projects “Hurry-up” projects Low performance Pipeline Uncertainties Scope growth and project cost Labor and Materials price volatility Environmental or ROW issues Unplanned political priorities Construction cost inflation Uncertain or variable revenue Larry Redd LLC Larry Redd, P.E. 970-219-4732 larryredd@earthlink.net

4. Costs of “Being Too Lean”-- -Loss of Stimulus Funds, Block Grants, Special Legislative Funds -”Hurry-up” design and devel. costs -Non-optimum advanced const. Amount of Projects “On-the-Shelf” Ready to Go Holding Costs – -“PE 10 yr Limit List” $Millions at risk, and $Billions in projects may not get done -Lost permit costs -ROW and EA costs -Development costs -Obsolete projects -Redesign costs Costs “Optimum” Range Non-Optimum Project Pipeline Costs

5. Objectives Identify cost elements (holding and hurry-up costs) and uncertainty factors to reduce or trade off or mitigate. Identify controllable factors to optimize (examples) – –How to operate the pipeline (loading, project mix, draining, etc.) –Cost factors to reduce (holding, hurry up) –Reduce time delays in getting projects onto the shelf Bottom line – Determine how to deliver intended projects, with expected performance, on time; in the midst of uncertain and/or variable funding Not “Business as usual…” – Instead, using low impact solutions/methods to manage risks and uncertainties

6. Uncertainty Factors Scope growth Political priorities Material price volatility Labor costs Other construction cost escalation Legal issues Environmental or regulatory issues Right-of-way issues Funding issues

7. Simulation Cartoon Higher Risk if delayed. Lower Risk if delayed.

8. Available Funding – WYDOT Scenario

9. Sensitivity of Losses to Key Parameters ParameterInitial ValueSensitivity ValueReduction in Losses Design Time for 3R4Rs 5 yrs3 yrsUp to 22% or more Pipeline (Shelf) Draining Logic Proportional based on intended Mix “Keep the Critical Projects Moving” Up to 16 % or more Holding Cost factor (per year) 5% for 3R4Rs and 2% for 1R2Rs 2.5% for 3R4Rs and 1% for 1R2Rs 20 to 30% Hurry Up Inefficiency 40% inefficiency20% inefficiency25% or more Use of Projected Revenue No Projections used Projected two years out Up to 30 % or much more “Smoothness” of Funding “Bumpy” or “Blocky” funding Smoothed or flattened funding Ideally this would eliminate losses

10. Observations and Conclusions Latest results verify that total Project Pipeline losses can be about 3% per year or more (off-nominal cost assumptions). – A 3 percent savings is representative based on the findings of the analysis. This would amount to a total savings of $90 million,for example, for a budget of 3 billion dollars over a 10-year period. Multiple methods have been shown to be effective in cutting these losses: –Using (accurate) forward projections of available revenue, or reducing design times in the pipeline (especially for 3R4R projects) –Reducing the values of the factors of Hurry Up and Holding Costs –The “Critical Project Method” of stabilizing the flow of major projects has proven effective. Don’t delay the largest and more complex projects.

11. Questions?????

12. Larry Redd, P.E., larryredd@earthlink.net

13. Research on how highway projects are loaded into the “project pipeline” and delivered has shown that mismatches between available funding and the number of projects that are “ready to go” can result in significant financial costs to a Department Of Transportation. These costs have been defined as “Holding Costs” if there are too many projects on hand and “Hurry-Up Costs” if there are too few projects ready to go. The goal of the research was to identify significant process improvements to ensure projects are delivered on time and as intended, thus maximizing the miles paved and minimizing financial risks to the organization. Overall, a balance between Holding Costs and Hurry-Up Costs or inefficiencies must be maintained in order to deliver the maximum amount of projects over time. In order to explore the various aspects of this problem, a simulation tool was developed to perform scenario analyses to help balance the project pipeline. Significant savings in delivering highway projects can be possible by implementing the recommendations from this research. A 3 percent savings is representative based on the findings of the analysis. This would amount to a total savings of $90 million, for example, for a budget of 3 billion dollars over a 10-year period. By minimizing the amount of projects held “on the shelf” and employing practices that minimize the risks of incurring Holding Costs due to revenue shortfalls, these savings can be maximized. Furthermore, using the Critical Project Method shifts the impact of revenue uncertainties from major rehabilitation projects to minor rehabilitation projects and provides a sound, core strategy for managing the risks in the project pipeline. After considering both the recommended Core Strategies and the System and Organizational Improvement Strategies, management can decide what processes they want to change or improve. Then, the Model, Measure, Manage approach can be used to guide the organizational change process and help the organization move towards a state of continuous improvement. Finally, plans can be outlined for additional research, which may be needed to support the new strategies and process improvements.