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Executive Summary Project development is a core function of state DOTs, yet as a discipline project management is too often ignored. DOT executive leaders are understandably preoccupied with myriad other management priorities, such as funding, labor issues, maintenance and constituent relations. At the same time, there are specific institutional challenges to effective project management by state DOTs, such as ever-changing state and federal regulations, the attrition of experienced senior staff, and the financial lure of private sector employment for the most effective DOT project managers. All of these in themselves are risks to be managed by DOT executive leadership! It is time for DOTs to understand and embrace risk management, because it is elemental to a DOTâs core function, and risk management can avoid mistakes which cost agencies time, money and credibility. Risk management is good project management, and FHWA has been promoting risk management for number of years. As indicated earlier, formal guidance was provided by FHWA through a memorandum to Division Administrators in 2007 and many FHWA project management guidance documents include risk management principles. The National Highway Institute offers a course in risk management (FHWA- NHI-134065) and private sector guides, such as the Project Management Instituteâs Project Management Body of Knowledge (PMBOK®) Guide, offer very good resources for project management in any field. Perhaps the biggest misconception is that risk management is only suited for âmega projects,â such as those exceeding $500 million, or unique programs such as the development of a new aircraft. But every highway project is unique in its own right, regardless of cost, and while the risks involved in developing an $80 million project may indeed be less involved than the risks involved in a âmega project,â the consequences to schedule, budget, quality and agency credibility are every bit as real. Project risk management is not a new field of study, and the complexities of federal-aid project development beg for risk management solutions. DOT executive leaders are encouraged to embrace risk management as part of their overall program delivery processes, and use the guidance in this report to examine their own programs and processes for risk management opportunities, as part of improving overall service to the public. Case in Point: $4.2 Million in Design Costs and Six Years Lost Why Should DOT Leaders Embrace Risk Management? The subject of managing risk in project development can be abstract. The following actual case from a state department of transportation (DOT) is meant to provide a real-world example of decisions made during the NEPA process which had serious budget and schedule consequences. The anonymity of the DOT was protected in this narrative. The case involved a project to replace a bridge over a large river in the Midwestern United States. The project was not particularly unique, with an estimated construction cost of $80 million, but issues during
2 | P a g e project development resulted in a complete redesign of the structure, at a cost of $4.2 million in design fees and a schedule delay of six years. During the NEPA phase of project development, there were a series of decisions which affected the projectâs design: ⢠The communities on either side of the river did not agree on the optimum alignment for the new structure, which led to an alignment with a 20 degree skew over the river. ⢠A navigable barge channel was a controlling factor in the structure design. Clearing the shipping channel, at the skew dictated by the alignment decision, required a bridge span of 900 feet. ⢠There was political concern raised about dislocating a business on the south side of the river, so a decision was made to avoid a property take of that business. This decision created additional complications for the structure design due to the lack of space available for the structureâs back span. These issues and decisions, made as part of the NEPA process, introduced risks which eventually led to the projectâs cancellation and redesign. First, the skewed alignment and length of the clear span dictated the selection of a cable stay bridge type. Then, designers were forced to develop a solution with a single tower. The resulting design was a cable stay structure, with a single tower of over 500 feet in height. The project went to bid in 2006 with an engineerâs estimate of $80 million; however, the apparent low bid was $110 million. The reason for this $30 million difference was that the ultimate bridge design, dictated by seemingly minor decisions made during the NEPA process, introduced significant risks to the projectâs construction. A key determinant of the construction scheduleâand hence the contractorâs bidâwas the height of the single tower and the delays the contractor would incur when high winds prevented the tower crane from working. The lowest bidder responded to this risk by lengthening the construction schedule and increasing the bid price to account for the time and productivity that would be lost when high winds disrupted construction. Executive managers of the DOT were surprised by the cost from the apparent low bidder. But more importantly, the bid reflected the risk inherent in the projectâs design. DOT engineers and managers were so concerned about the constructability of the design, they made the decision to redesign the structure rather than bid the single tower cable-stay bridge. During the redesign, project managers revisited a few critical design constraints. The DOT decided on a partial property take of the business on the south side of the river, which resolved the problem of limited space for the structureâs back span, and allowed for designing a cable stay bridge with two towers. Also, the DOT worked with the Coast Guard to model the placement of a second pier in the river, and simulate the impact on barge navigation. This effort demonstrated not only that the second pier location would not be a hindrance to navigation, but that there was greater flexibility in locating a second pier than was originally assumed. Today, the DOT is in the final design phase of a two tower, cable stay structure which is estimated to cost $100 million, and slated for bid in 2012.
3 | P a g e A failure to identify risks and quantify their impacts led to a bridge design which the DOT considered too costly to build. But it is also important to note that decisions made during the NEPA process seemed innocuous at the time, and technical specialists (bridge designers) were able to offer solutions to every design constraint posed by a planning or environmental concern. Had there been a risk management process in place, however, project developers could have identified risks, quantified their likelihood and impact, and made better decisions which would have avoided the costs experienced by the original design. This case study illustrates that risks are inherent to all sizes of projects, not just the âmegaâ projects that receive such prominent media attention when cost overruns or schedule delays are reported.