Has your project ever gone over budget, over time, or both? What were the consequences? Was there a roll-on effect to other projects? Would the outcome have been different if you’d had access to tools and methods to set realistic budgets while managing team expectations and lowering the risk profile?
In 2016, the Grattan Institute undertook a comprehensive analysis of cost overruns on 836 transport infrastructure projects valued at more than $20 million, spanning a 15-year period. They found at least 24% of large road and rail projects were systematically underestimated, poorly executed and didn’t allow for risks early enough in the project, resulting in spectacular time overruns and massive cost blowouts. In a more detailed Grattan Institute investigation of 51 Australian transport infrastructure projects completed between 2008 and 2013, scope changes only accounted for 11% of overruns. ‘Scope creep’ is the usual scapegoat for budget overruns, yet scope creep is often just a symptom of not performing risk analysis upfront. A massive 89% of extra expenses are attributable to other causes.
Manage risk with the right tool
Today’s techniques of quantitative risk analysis provide a powerful solution to this billion-dollar problem. Engineers now have opportunities to make better decisions using data sets and processing power from a holistic perspective, building in social, environmental and economic goals and wider considerations like cyber security and climate change. Engineers are expected to know how to manage all these risks and more, from planning to project execution.
The key? Using the power of cutting-edge computing applied to smart quantitative risk analysis thinking. Combining these elements allows engineers to improve outcomes using science, not just a ‘gut feel’ that relies on subjective perspectives and optimism bias. And where this was expensive and slow years ago, software is now readily available and cost-effective. It takes seconds instead of hours to process complex data.
Take an ‘all-hazards’ view
Traditionally, cost and schedule risk has been front-of-mind for a cost engineer. But the best outcomes mean performing due diligence and asking the right questions of all the right people to map all potential risks. This means the quality, credibility and reliability of the cost and schedule plans will be much more valid and effective because innovation happens in the process. The more diversity of expertise involved, the better the decisions made, leading to the right projects being selected and improved project outcomes.
Laurie Bowman leads Engineering Education Australia (EEA)’s Quantitative Project Risk Analysis course. With 30 years’ experience leading complex multidiscipline engineering projects around the world, Laurie has a clear view on how a holistic ‘all-hazards’ view of analysis leads to genuine project success.
“Risk management is essentially the balance of competing project goals between social, environmental and economic goals. It requires a human-based approach that includes stakeholder risk tolerance.”
Choose the right approach
If the project is large, part of a portfolio of concurrent projects, or similar to previous projects, then quantitative risk analysis is an excellent approach. Quantitative risk analysis based on historical project data gives project managers a better picture of the historical distribution of cost and schedule outcomes, providing a starting point to analyse contingencies and work towards more successful outcomes.
Laurie gives the example of turning around a complex systems integration project in the aerospace industry. The project was suffering huge delays and cost overruns, with the team struggling to achieve their goals using the deterministic critical path methodology. The new project director took the controversial step of completely stopping work, and took the time to workshop a new plan based on quantitative risk analysis.
“Sometimes you have to slow down in order to speed up. The result of quantitative risk analysis meant that every team could visualise a range of possible outcomes. Once they knew the outcomes, they could devise appropriate contingencies to make risk-based decisions.”
From a deterministic approach that basically set the project up for failure due to unrealistic expectations, the new transformational methods empowered teams with the correct resources and timing to deliver excellent results.
Join the course
Engineering Education Australia’s upcoming workshop with Laurie Bowman updates and equips engineers in any industry with powerful techniques and tools to understand both the why and how of quantitative risk analysis.
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