Managing Risks on Construction Projects - Victor Allen, DTE Energy

Generation Summit 2012Generation Summit 2012Managing Risks on Construction Projects

Victor AllenFebruary 8, 2012

DTE Energy Overviewgy

Headquartered Detroit MIHeadquartered Detroit, MINumber of Employees ~ 10,000Geographical Area 26 StatesCustomer Base ~ 3.3M

Electric Gas Coal ServicesElectric Gas Coal Services

Biomass Energy Trading

2

Major Enterprise Projects (MEP) –Our Staff and ProjectsOur Staff and Projects

Number of Employees ~ 200Number of Employees ~ 200Number of Concurrent Projects ~ 15 ($100M - $600M)

~ 160 ($50K - $100M)Average Annual Capital Budget ~ 800M+

Environmental Renewable NuclearEnvironmental Renewable Nuclear

Smart Grid Facilities

3

Major Enterprise Projects (MEP) –Project Execution OrganizationProject Execution Organization

Centers of Excellence

Project

Excellence

Management &

Engineering(138)

Program Office(50)

(138)

Quality Management

(12)

4

What are risks?

Project Management Institute definition of risk:

What are risks?

j g“an uncertain event or condition that, if it occurs, has a

positive or negative effect on at least one project objective“ (i e scope time cost quality safety etc )objective (i.e. scope, time, cost, quality, safety, etc…)

My Definition of risk:My Definition of risk: “A risk event is something that has not yet happened on

your project, but if it did happen it would negatively i t j t t th t t th t it ld bimpact your project to the extent that it would be worthwhile to reduce the likelihood that it will occur or reduce the impact if it occurred” p

5

Risk/Issue/Action?Risk/Issue/Action?

(Risk)

(Issue) An undesirable event that has h d d

(Action)An undesirable event that has

not yet happened

happened and needs attention

Work that needs to be

donehappened

6

Why do we manage risks?Why do we manage risks?

“The first step in the risk management process is to acknowledge the reality of

T i h f j t

yrisk. Denial is a common tactic that substitutes deliberate ignorance for thoughtful planning” ~ Charles Tremper

To improve our chance of project successMeeting your objectivesMeeting your budgetMeeting your scheduleWorking SafelyDelivering with qualitySatisfying your customers and stakeholdersAvoid surprises

“If you don’t manage the risks the risks will manage you” ~ Victor Allen

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If you don t manage the risks, the risks will manage you ~ Victor Allen


Try explaining this to your boss!

8

Try explaining this to your boss!


What’s wrong with this picture!

9

What s wrong with this picture!


The stairway to nowhere!

10

The stairway to nowhere!


Who ordered replacement windows?

11

Who ordered replacement windows?


Good News - no door-to-door salesman!

12

Good News no door to door salesman!


Your new addition is ready!

13

Your new addition is ready!


Views are overrated!

14

Views are overrated!


15

I can’t put my finger on it, but something isn’t right!


Engineers got to lo e them!

16

Engineers – got to love them!


Works well if you under 2 feet tall!

17


D k B idDenmark Bridge Collapses During Construction

Deaths = 0Injury = 0

18


19


T l d SkToledo Skyway Bridge Crane Collapse (2004)


Toledo SkywayToledo Skyway Bridge Platform Collapse (2007)


20


C Th B idCan Tho Bridge Vietnam Accident During Construction

Deaths = 60Injury = HundredsHundreds

21


A t tApartment Building Fell Over During Construction


22


D I t ti lDenver International Airport


16 Months Late$2B Over Budget$2B Over BudgetMany Case StudiesHBS Premier Collection

23

Risk Management Framework

Program Risk Manager Risk Management Database• Risk Register

Risk Management Framework

• Risk Register • Risk Assessment Reports• Risk Scorecard

Processes and Methods

Project Risk Manager(s)• Project 1• Project 2• Project 3

Risk Response Planning

Reviews

External• Audit• DOE

Internal• Corporate Risk• General AuditRisk Response Planning

• Mitigation Planning• Contingency Planning

• Expert • Compliance

24

Risk Management ProcessRisk Management Process

QuarterlyMonthly

Team Reviews

Monthly Program

Leadership Review

QuarterlySenior

Management Review

Combined Risk Plan reviewUpdated Risk Plans created for individual projects

Top 10 Risks reviewed

DOE Report issuedShare with Corporate

Risk Group• High Company Exposure

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• High Company Exposure• Non-Project Risks

Monthly Program Leadership ReviewMonthly Program Leadership Review

Leadership ReviewObjective:

XYZ ProgramObjective:To understand overall program risk exposure and ensure that program top risks are being responded to appropriately.

• Review top 10 risks • Review program level risk exposure• Review common risks• Review and agree on risks to be sent to DOE

R i d d i k f l• Review recommended risks for closure

Team Reviews*Objective:

P j 3

Objective:To effectively identify and manage risks for the project(s).• Identify new risks• Review existing risks

Project 1 Project 2 Project 3• Discuss risk response strategy and progress

• Link risks to schedule and budget when appropriate

• Recommend risks for closure ITS*

* Note: IT risks are integrated in each area and IT actively participates in all monthly risk meetings.

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Recommend risks for closure

The Risk RegisterThe Risk RegisterProject X: Risk Plan

Impacts

Risk Event DescriptionCategorySub-project, ho

oddu

le

st lity

ety pe Scor

e Risk Event Drivers What are the conditions, actions, or events

Response/ Mitigation Strategy What action(s) will be taken to limit the

#Risk Event Description What is the event? Project Phase,

Location etc.(Optional) Li

kelih

Sche

dC

osQ

ual

Safe

Sco

Tota

l S

, ,that are likely to trigger the risk event to occur or is a leading indicator to the risk event occurring?

What action(s) will be taken to limit the likelihood of these event occurring or limiting the impacts?

1 Contracted vendor under performs resulting in schedule delays rework and cost

Contract H H M M M L 75 Drivers to monitor:- Schedule slippages and missed milestones

Planned Actions:- Conduct weekly monitoring of schedule adherencedelays, rework and cost

overrunsmilestones.Drivers that have occurred:- Re-work occurring.- Change orders issued.

adherence.- Implement change review process to manage scope, time, cost changes effectively.- Develop and implement quality management plan for vendor work.Completed Actions:- Negotiate cost plus incentive fee contract based upon milestone completion

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Risk Register Impacts DefinedRisk Register – Impacts Defined

Risk impact level Matrix

Likelihood Low Medium High

Unlikely Likely Almost Certain

Impacts Low Medium High

Schedule No Impact to Critical Path or Field Work

Potential to Affect Critical Path or Field Work Certain to Affect Critical Path or Field Work

Cost Less Than $ 250,000 $ 250,000 to $1,000,000 Greater Than $ 1,000,000

Quality Minor impact to product deliverables Moderate impact to product deliverables Major impact to product deliverables

Safety No Impact to worker safety Minor impact to worker safety Major impact to worker safety

Scope < 1% 2% to 5% > 5%

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The Risk RegisterThe Risk Register

Risk Event Description What is the e ent?

Contingency Plan What action(s) will be taken if this

OwnerRisk

TimeframeCritical date(s) on

al o

r Cro

ss-

ct Im

pact

s

Comments

#What is the event? ( )

event occurs?Critical date(s)

or period of exposure

Org

aniz

atio

Proj

ec

1 Contracted vendor under performs resulting in schedule delays, rework and cost overruns

- Negotiate contract with alternate vendor to perform services.- Complete work with internal resources.

Jane Doe On-going No (01/12) Vendor has repeatedly failed weld inspections on structural steel.

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Financial Analysis

Risk Event DescriptionWhat is the event?

view

Req

uire

d?

$ Impact Source Probability Source EMV Comments

#FA

Rev

1Contracted vendor under performs resulting in schedule delays, rework and cost overruns

Y $ 500,000 PM input 0.9 Default $ 450,000

30


Schedule Analysis Risk Closurey

Risk Event DescriptionWhat is the event?

edul

er R

evie

w

Req

uire

d?Critical Path ? Scheduler

Response\

Comments(Activity #, Quantified

impact etc.)Closure Statement Notes / Lessons Learned

# Sche R

1Contracted vendor under performs resulting in schedule delays, rework and cost overruns

Y Critical Path Built into Schedule

Steel Erection Work Package delays will impact

Siding and Roof Construction Work

Packages.

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Total 150

120

140

160

Active and Closed Risks

Total 60

60

70

Active and Closed Risks by Project

60

80

100

120

Num

ber o

f Risks

Total 33Total 25

Total 32

30

40

50

Num

ber o

f Risks

All Risks0

20

40

N

Project 1 Project 2 Project 3 Project 40

10

20

N

Closed 30

New 10

Existing 110

Total 150

Closed 13 9 3 5

New 5 3 2 0

Existing 42 21 20 27

Total 60 33 25 32

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Total 120

100

120

140

Active Risks

Total 473

40

45

50

Active Risks by Group

40

60

80

100

Num

ber o

f Risks

Total 24 Total 22 Total 27

15

20

25

30

35

Num

ber o

f Risks

All Risks

75+ 16

50 74 32

0

20


75+ 7 2 4 3

50 74 13 5 9 5

0

5

10

50‐74 32

0‐49 72

Total 120

50‐74 13 5 9 5

0‐49 27 17 7 21

Total 47 24 22 27

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Quarterly Senior Management ReviewQuarterly Senior Management Review

100110120

Active Risks Average Score

90

100

110

120

Active Risks Average Score by Project

5060708090

100

rage Risk Score

40

50

60

70

80

90

verage

Risk Score

Program Level010203040

Aver


b

0

10

20

30

40Av

October 60

November 52

December 40

October 18 60 65 37

November 22 50 58 37

December 43 37 52 37

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Net Changes in Risk ScoreCumulative Net Changes in Risk

2

4

Net Changes in Risk Score

4

Cumulative Net Changes in Risk Scores October ‐ December

Program Project 1 Project 2 Project 3 Project 4

‐2

0

Chan

ge Program

Project 1

Project 2

4

‐3

0

‐6

‐4

Net C Project 2

Project 3

Project 4

‐6‐7

Total

‐8

6

October November December

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Average Risk Score Top 10 Risks

100110120

g p

405060708090

Risk Score

Top 10 Risks Average Score

October 90

010203040

October 90

November 86

December 78

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Tips for Successful Risk Management

1. Executive Champion who understands Risk Managementp g2. Risk Manager who owns process, coaches and mentors3. Good set of processes, tools, and templates4. Risk Training for the team (concept and processes)5. Make Risk Management a priority

ff6. Benchmark your process and effectiveness regularly7. Establish Historical Risk Database and leverage the past8 Work the Risk Plan8. Work the Risk Plan9. Develop Contingency Plans for high risk items10.Don’t sweat the small risks10.Don t sweat the small risks

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Managing Risks on Construction Projects - Victor Allen, DTE Energy

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