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Risk Management for Design and Construction

ISBN: 978-0-470-63538-4
288 pages
June 2011
Risk Management for Design and Construction (047063538X) cover image
The essential risk assessment guide for civil engineering, design, and construction

Risk management allows construction professionals to identify the risks inherent in all projects, and to provide the tools for evaluating the probabilities and impacts to minimize the risk potential. This book introduces risk as a central pillar of project management and shows how a project manager can be prepared for dealing with uncertainty. Written by experts in the field, Risk Management for Design and Construction uses clear, straightforward terminology to demystify the concepts of project uncertainty and risk.

Highlights include:

  • Integrated cost and schedule risk analysis

  • An introduction to a ready-to-use system of analyzing a project's risks and tools to proactively manage risks

  • A methodology that was developed and used by the Washington State Department of Transportation

  • Case studies and examples on the proper application of principles

  • Information about combining value analysis with risk analysis

"This book is a must for professionals who are seeking to move towards a proactive risk-centric management style. It is a valuable resource for students who are discovering the intricacies of uncertainties and risks within value estimation. For professionals, the book advocates for identifying and analyzing 'only' risks whose impact are of consequence to a project's performance."
JOHN MILTON, PhD, PE Director of Enterprise Risk Management, Washington State Department of Transportation

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PREFACE xi

ACKNOWLEDGMENTS xix

CHAPTER 1: WHY AND WHAT IS RISK MANAGEMENT? 1

Introduction 1

What Is an Estimate? 3

What Is Uncertainty? 4

What Is Risk? 4

What Is Risk Management? 4

Why Risk Management? 5

The Limitations of Risk Management 6

Objective of This Book 8

CHAPTER 2: PROJECT COST AND SCHEDULE ESTIMATES 11

Introduction 11

Cost Estimating Methodology 14

Cost Estimating Process 14

Cost Estimating Data 18

Cost Estimating and Project Development Level 18

Estimate Documentation 24

Basis of Estimate 24

Conclusion 25

CHAPTER 3: THE RISK-BASED ESTIMATE 27

RBE—The Process 27

Risk-Based Estimate—How It Works 42

Base Cost and Schedule 43

Risks as Events 63

The Micro-Project 87

Eastside Corridor Program 90

RBE and Estimate Accuracy 100

Conclusions 105

CHAPTER 4: RISK ELICITATION 109

Importance of Elicitation for Project Risk Management 109

Elicitation and Biases 111

Risk and Base Variability 121

Risk Conditionality 124

Summary 146

CHAPTER 5: RISK MANAGEMENT 149

Introduction 149

Risk Response Planning 153

Value Engineering and Risk Management 157

Risk Monitoring and Control 164

Summary 168

CHAPTER 6: RISK-BASED ESTIMATE SELF-MODELING SPREADSHEET 169

Overview 169

Model Accuracy 172

RBES—Cost and Schedule Data Input and Output 174

Risk Conditionality and RBES 183

Model Outputs 198

Risk Management 200

Critical Issues 207

Tutorials/Case Studies 208

Summary 229

CHAPTER 7: RISK-BASED ESTIMATE WORKSHOP 231

Introduction 231

Preworkshop Activities 234

Conditioning Workshop Par ticipants 236

Workshop Objectives 237

Risk Identification Process 237

Postworkshop Activities 244

Everyone Has Duties 245

Helpful Hints 249

Sample Questions to Ask 249

INDEX 253

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Ovidiu Cretu, PhD, PE, is Cost Estimating and Modeling Unit Manager at the Washington State Department of Transportation. With more than forty years of experience, Cretu earned the Extra Mile Award with Washington State for his development and support of cost risk assessment with strategic thinking and innovation.

Robert B. Stewart, CVS-Life, FSAVE, PMP, is President at Value Management Strategies, Inc., where he has been practicing the management of value and risk for more than twenty years. During this time, he has led more than 300 value and risk studies for clients in both the private and public sectors on a wide range of products, services, and facilities—from simple product studies to multibillion-dollar transportation projects. He has authored several books on the management of value and risk.

Terry L. Berends, PE, is an Assistant State Design Engineer at the Washington State Department of Transportation, where he is responsible for the statewide cost estimating, risk analysis, and value engineering programs. Berends is the cofounder of the self-modeling spreadsheet and the implementation of the risk reserve budgeting process.

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"In summary, this is a good and an easy to read book. It provides a general overview on project costs and schedule estimates, and touches on a couple of risk management tools." (Construction Management and Economics, July 2012)
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