Cost Risk Analysis

What is Cost Risk Assessment?

Cost Risk Assessment (CRA) is a term used to describe a broad program of risk based assessment being conducted within Washington State Department of Transportation. CRA is also a term that describes a workshop process similar but less intense than a Cost Estimate Validation Process® (CEVP).  Risk managment is an integral part of the WSDOT Project Management Process.

Statement of Purpose

To provide a useful, sound and objective, analysis and report that the Project Team will own and act upon to improve, validate/confirm their project cost and/or schedule. CEVP® and CRA Applications Cost Estimate Validation Process® (CEVP) and Cost Risk Assessment (CRA) Workshops are the applications to use with your projects. An Estimate is not a single number.

• The ultimate cost and time to complete a project is subject to many variables that cannot all be known beforehand.
• A cost estimate represents only one possible outcome of multiple variables.
• These variables are not all directly controllable or absolutely quantifiable.
• Therefore cost estimating and the cost validation process must consider probabilities in assessing cost, using a recognized, logical and tested process.
  

A key difference between conventional estimating and CEVP/CRA is the expression of project cost and schedule as a distribution (range) rather than as a single number. To develop this outcome, some of the components of an estimate are described as variables, or risks. A major part of the CEVP/CRA is to take a conventional project estimate and to separate out the parts of the estimate that represent base from those representing risk. The risk elements are then described in terms of their possible consequences and likelihood of occurrence.

• Structuring the project (flowchart)
• Identifying base cost and schedule
• Evaluating significant risks and estimating uncertainty.

CEVP/CRA results are helpful in typical applications like:

• Project communication
• Developing risk management strategies
• Analysis of project alternatives
• Project and program management.

NOTE: 
CEVP is iterative in nature and represents a “snapshot in time” for that project and under the conditions known at that point in time. Additionally, CEVP normally deals with identifiable and quantifiable project-type risks – i.e. those events that can occur in planning, design, bidding, construction and changed conditions. CEVP could also consider the larger, more difficult risks – political and management continuity and “acts of God” that can have very high impact in cost and schedule – but at this point, these types of risks have not been included. This is an area for review and development – in particular how to characterize such events in a useful manner for better management of the projects.

On Call CEVP/CRA Consultants

• Risk Analysis Services On-Call List

• Subject Matter Expert On-Call List

More Information

Managing Cost and Schedule - CEVP and Risk Management Poster (pdf 297 kb) 2005
This poster provides an overview of the CEVP process. It includes information on the workshop process for projects and the results, features and benefits.

Risk Assessment and Allocation for Highway Construction Management
http://international.fhwa.dot.gov/riskassess/index.cfm
2006-October FHWA Scan Report; Risk Assessment and Allocation for Highway Construction Management.

www.wsdot.wa.gov/publications/fulltext/NCHRP/NCHRP8-49Guide.pdf

Link to NCHRP 8-49 "Procedures for Estimation and Management For Highway Projects during Planning, Programming and Preconstruction", July 10, 2006 (7MB)

Association for the Advancement of Cost Engineering (AACE) International
Since 1956, AACE International, the Association for the Advancement of Cost Engineering, serves cost management professionals: cost managers and engineers, project managers, planners and schedulers, estimators, etc. 

Final NCHRP Report 574 Procedures for Estimating and Management for Highway Projects During Planning, Programming, and Preconstruction.  
Project Management Institute (PMI)
Focused on the needs of project management professionals worldwide.

Transportation Estimators Association (TEA)
TEA Objectives:

• Improve cost estimating techniques and publish guidelines used by transportation estimators (cost based, historical based and parametric); and
• Develop innovate new cost estimating techniques; and
• Disseminate experiences in cost estimating and new practices through yearly meetings; and
• Publish a newsletter to transportation cost estimators; and
• Sponsor a yearly cost estimating workshop

Trns.port Users Group (TUG)
TUG Objectives:

• To provide a forum for a unified voice to direct the course of Trns.port, hereinafter called the products, or any products which may supersede these products; and
• To provide cooperative technical support of the products; and
• Provide input to the Product Management Task Force on product effectiveness, product deficiencies, and needed product enhancements;
• Define product training and support needs;
• Prioritize maintenance, enhancements, and support needs; and
• Submit recommendations to the Product Management Task Force

2006-June Roads & Bridges Article: "Lifting the Veil"
Roads and Bridges 2006-06 Lifting the Veil.pdf (pdf 47 kb)
Reilly, J. and Gabel, M.
The article summarizes the risk based estimating efforts of WSDOT.  This article also provides a summary of benefits and the value of open and robust review of project cost and schedule estimates. 

Underestimating Costs in Public Works Projects - Error or Lie?  Article by Bent Flyvbjerg, Mette Skamris Holm, and Soren Buhl, A study of cost escalation in Transportation Projects.

The Development of CEVP® - WSDOT's Cost-Risk Estimating Process (pdf 593 kb)
Final Draft, February 22, 2004 Article by John Reilly, Michael McBride, Dwight Sangrey, Douglas MacDonald, and Jennifer Brown
The Washington State Department of Transportation's work to build public confidence and improve project management by using a new method to validate and communicate the probable cost and schedule of its projects. Cost Estimating and Risk - Management for Underground Projects (pdf 159.7 kb)
International Tunneling Association Conference, May 2005 Paper by John Reilly
This paper gives examples of cost estimation problems for large, complex infrastructure and underground projects, compares differing cost estimating approaches for two such projects and describes a cost validation and risk elicitation/identification process recently developed by the Washington Department of Transportation (WSDOT) with the author and colleagues. The paper builds on previous papers (e.g. Reilly & Brown, 2004) which described the cost estimation problems and proposed a suggested solution which was subsequently implemented by WSDOT in its Cost Estimate Validation Process (CEVP®). Recommendations are given for those owners of complex projects who wish to know a “more realistic probable cost” for their projects. Management and Control of Cost and Risk for Tunneling and Infrastructure Projects (pdf 202.4 kb)
International Tunneling Conference, Singapore May 2004 Paper by John Reilly and Jennifer Brown
This paper presents a recently developed risk based method for the estimation and management of cost for complex, infrastructure projects. Chronic problems in estimating realistic cost estimates for complex infrastructure and tunneling projects are referenced. A methodology to better estimate the cost of such projects, developed by the author and others, and implemented by the Washington State Department of Transportation (WSDOT), is described. The procedure, called the Cost Estimate Validation Process, or CEVP® uses risk and uncertainty methods to structure a project cost estimate to produce a “range of probable cost”. The concept incorporates principles similar to those which have been applied to several specialized tunneling projects using risk analysis processes.

Presentations

2007 WSDOT PE Conference and Design & Construction Conferences
07-Feb-2007 2007 OR D & C.pdf
14-Feb-2007 2007 SCR D&C.pdf
27/28-Feb-2007 2007 NWR D&C.pdf

20-March-2007 PE Conference in Yakima (coming soon)

2006 TRB Conference
Mark Gabel, CREM Office presented an overview and update of the WSDOT Cost Estimate Validation Process (pdf 1005 kb), CEVP® and Cost Risk Assessment for risk based design estimates in a session on Improving Cost Estimates in Project Development Process.  He spoke about the fact that our approach to probabilistic risk-based estimating (stochastic estimating) recognizes that an estimate is not a single number but rather a range.  He further described how we are committed to mastering the fundamentals of project delivery and project management and that two of the fundamental questions for project management are: How much will it cost? and How long will it take?  There are two follow-up questions you can usually count on:  Why does it cost that much? and Why does it take that long?  Our CEVP®/CRA workshops help us answer these questions.

Cost Estimate Validation Process (CEVP™) 2006 Update (pdf 275 kb)
The Cost Estimate Validation Process (CEVP™) provides a means to identify, assess and evaluate the risks and opportunities that may effect project cost or schedule.

2005-September Paper presentation in Beijing
Management and Control of Cost and Risk for Tunneling and Infrastructure Projects, in China perspective, for the South to North Great Western Diversion (pdf 213 kb)
Reilly, J. and Gianni, A.
The paper addresses management of cost and risk  for China - it includes CEVP and risk mitigation plus considerations for the tunnels of the great western water diversion - the first stage of which is about 240km of large diameter tunnels high in the mountains. 

2005-May-11 ITA Tunneling Conference
Cost Estimating and Risk Management for Tunneling and Infrastructure Projects (pdf 934 kb)
Presentation by John Reilly
This presentation explores examples of cost growth and factors influencing project success and failure. It also presents information about risk and the WSDOT response in the form of the Cost Estimate Validation Process (CEVP).

Education

Introduction to Project Cost Estimating
Course Code CZV (1-Day)

Course Description: This course offers guidance on how to prepare estimates.  The purpose of the course is to provide approaches to improve consistency and accuracy of cost estimates with the objective of increasing the knowledge and understanding of the cost estimating process and how this process is applied in the context of WSDOT project delivery and project management. The course presents a systematic approach to cost estimate preparation including a process flowchart that describes estimating activities and the inputs and outputs of the estimate process. The cost estimating process is further described in relationship to planning, scoping and design. Specific techniques and tools are presented for application during planning, scoping and design.

Objectives: Participants in this class will achieve the following objectives:

1) increased understanding of the importance of cost estimating; 2) know how cost estimating fits into Project Development and Project Management; 3) recognize the factors that influence consistency and accuracy of cost estimates 4) know how to apply cost estimating process steps 5) know how to apply methods, techniques, and tools used to prepare cost estimates  Back to top