Project complexity, combined with more onerous commercial contracting approaches, has elevated project risk assessment and mitigation identification from a beneficial “nice to have” to a contractual survival skillset.
Implementing and formalizing a qualitative and quantitative risk analysis (QRA) practice is paramount. At Bilfinger, we recognize through experience we must ascertain the probability of performance (cost and schedule), as it is essential to our strategic planning and risk assessment. We have a systematic process for identifying, analyzing and responding to project risk. It includes maximizing the probability and consequences of positive events, as well as minimizing the probability and consequences of adverse events on project objectives.
During the bid stage, the project team builds a level 2/3 schedule in Primavera. The schedule is cost/man-hour loaded, followed by critical path method (CPM) integrity checks and a review to ensure we can meet client milestone dates. Bilfinger conducts extensive interview sessions with key project personnel as well as “cold eyes” to generate three-point estimates (best/likely/worst-case scenarios). We run the compiled data through a Monte Carlo simulation within Oracle Primavera Risk Analysis (OPRA) software to generate a statistical analysis.
The Monte Carlo simulation (quantitative) runs an algorithm with 2,000 iterations. OPRA calculates the probabilities (pre-mitigated) with key points of interests at deterministic (as bid), 50 percent, 65 percent and 100 percent. We generate tornado graphs to depict the main cost and schedule drivers. Our team addresses these drivers and mitigates the schedule by either re-sequencing the activities or adding more resources.
We also perform a qualitative risk assessment via our risk register, whereby each event is given a range. Unlike the OPRA analysis, these risks are not associated with material delays or productivity. Rather, they are events (e.g., labor strike, addition per diem, hurricanes) that may impact the project. Our team discusses opportunities and factors these potential upside events into the equation to balance the overall risk exposure.
Bilfinger focuses on five key risk components: the contract, estimate, schedule, project execution plan and organization chart. We know with any proposed investment where there is a large amount of risk, there is a significant probability either a large profit will be made or a large loss will occur. The amount of uncertainty in a project is also proportional to the risk in that project. The more we know about a project, the smaller our risks are. Risk due diligence provides us with the necessary data to make informed business decisions, allowing key management to better understand the magnitude of the cost and schedule exposure and to apply contingency as needed on major projects prior to making a bid commitment.
Clients depend on accurate schedules to plan shutdowns and bring products to the marketplace as scheduled, while contractors, on the other hand, bid in a very competitive environment that demands tight budgets with aggressive project execution plans. To be a successful contractor, we at Bilfinger believe in “delivering as promised” to both internal and external stakeholders.
For more information, visit www.bilfinger.com or call (636) 391-4500.
