Cost and Schedule Risk Analysis
Tools available for download:
USACE Publications:
In accordance with EC Bulletin No. 2007-17, dated Sept. 10, 2007, "Cost risk analysis methods will be used for the development of contingency for the Civil Works Total Project Cost estimate. It is the process of identifying and measuring the cost and schedule impact of project uncertainties on the estimated total project cost. When considerable uncertainties are identified, cost risk analysis can establish the areas of high cost uncertainty and the probability that the estimated project cost will or will not be exceeded. This gives the management team an effective additional tool to assist in the decision making process associated with project planning and design."
The EC Bulletin further states, "A formal cost risk analysis shall be prepared for all decision documents requiring congressional authorization for projects exceeding forty million dollars. This applies to USACE commands having design and/or construction responsibilities for Civil Works."
Memorandum CECW-CE (1110), dated July 3, 2007, from Major General Don T. Riley "...directs the use of specific cost risk analysis methods for the development of contingency on Civil Works Total Project Cost. This is applicable for all decision documents requiring Congressional authorization for projects exceeding $40 million."
The Command intention is that any document going forward to Congress requesting funding requires a formal risk analysis if the Total Project Cost is greater than $40 million. Engineer Regulation 1110-2-1302 has been revised to address this requirement. Cost risk analysis is the process of determining the probability of cost and schedule overruns and assigning a studied growth potential as a percentage of a value applied as a contingency. It is a formal process that includes involvement of the PDT, utilizing nationally-recognized software based on the Monte Carlo principles.
A risk analysis should be provided on the Total Project Cost, including all features of the project, but excluding escalation and contingency. Too often, risk focuses on just the construction activities, which can result in critical risk elements remaining unidentified. Through early determination of potential project risks, management can then focus efforts in those areas for potential risk mitigation, resulting in cost and schedule savings. A formal risk analysis should be accomplished as a joint analysis between the Cost Engineer and the other PDT members that have specific knowledge and expertise on all possible project risks for all features, internal risks and external project risks.
|