Applying Risk Analysis, Value Engineering, and Other Innovative Solutions for Project Delivery (2017)

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2017 N A T I O N A L C O O P E R A T I V E H I G H W A Y R E S E A R C H P R O G R A M NCHRP RESEARCH REPORT 850 Applying Risk Analysis, Value Engineering, and Other Innovative Solutions for Project Delivery Robert B. Stewart Greg Brink Mark Watson April Hiller Mariah Brink Value ManageMent StrategieS, inc. Portland, OR Tugrul Daim Rafaa Khalifa Portland State uniVerSity Portland, OR Subscriber Categories Highways • Administration and Management • Construction Research sponsored by the American Association of State Highway and Transportation Officials in cooperation with the Federal Highway Administration

NATIONAL COOPERATIVE HIGHWAY RESEARCH PROGRAM Systematic, well-designed research is the most effective way to solve many problems facing highway administrators and engineers. Often, highway problems are of local interest and can best be studied by highway departments individually or in cooperation with their state universities and others. However, the accelerating growth of highway transportation results in increasingly complex problems of wide inter- est to highway authorities. These problems are best studied through a coordinated program of cooperative research. Recognizing this need, the leadership of the American Association of State Highway and Transportation Officials (AASHTO) in 1962 ini- tiated an objective national highway research program using modern scientific techniques—the National Cooperative Highway Research Program (NCHRP). NCHRP is supported on a continuing basis by funds from participating member states of AASHTO and receives the full cooperation and support of the Federal Highway Administration, United States Department of Transportation. The Transportation Research Board (TRB) of the National Academies of Sciences, Engineering, and Medicine was requested by AASHTO to administer the research program because of TRB’s recognized objectivity and understanding of modern research practices. TRB is uniquely suited for this purpose for many reasons: TRB maintains an extensive com- mittee structure from which authorities on any highway transportation subject may be drawn; TRB possesses avenues of communications and cooperation with federal, state, and local governmental agencies, univer- sities, and industry; TRB’s relationship to the National Academies is an insurance of objectivity; and TRB maintains a full-time staff of special- ists in highway transportation matters to bring the findings of research directly to those in a position to use them. The program is developed on the basis of research needs identified by chief administrators and other staff of the highway and transporta- tion departments and by committees of AASHTO. Topics of the highest merit are selected by the AASHTO Standing Committee on Research (SCOR), and each year SCOR’s recommendations are proposed to the AASHTO Board of Directors and the National Academies. Research projects to address these topics are defined by NCHRP, and qualified research agencies are selected from submitted proposals. Administra- tion and surveillance of research contracts are the responsibilities of the National Academies and TRB. The needs for highway research are many, and NCHRP can make significant contributions to solving highway transportation problems of mutual concern to many responsible groups. The program, however, is intended to complement, rather than to substitute for or duplicate, other highway research programs. Published research reports of the NATIONAL COOPERATIVE HIGHWAY RESEARCH PROGRAM are available from Transportation Research Board Business Office 500 Fifth Street, NW Washington, DC 20001 and can be ordered through the Internet by going to http://www.national-academies.org and then searching for TRB Printed in the United States of America NCHRP RESEARCH REPORT 850 Project 19-11 ISSN 2572-3766 (Print) ISSN 2572-3774 (Online) ISBN 978-0-309-44648-8 Library of Congress Control Number 2017946962 © 2017 National Academy of Sciences. All rights reserved. COPYRIGHT INFORMATION Authors herein are responsible for the authenticity of their materials and for obtaining written permissions from publishers or persons who own the copyright to any previously published or copyrighted material used herein. Cooperative Research Programs (CRP) grants permission to reproduce material in this publication for classroom and not-for-profit purposes. Permission is given with the understanding that none of the material will be used to imply TRB, AASHTO, FAA, FHWA, FMCSA, FRA, FTA, Office of the Assistant Secretary for Research and Technology, PHMSA, or TDC endorsement of a particular product, method, or practice. It is expected that those reproducing the material in this document for educational and not-for-profit uses will give appropriate acknowledgment of the source of any reprinted or reproduced material. For other uses of the material, request permission from CRP. NOTICE The research report was reviewed by the technical panel and accepted for publication according to procedures established and overseen by the Transportation Research Board and approved by the National Academies of Sciences, Engineering, and Medicine. The opinions and conclusions expressed or implied in this report are those of the researchers who performed the research and are not necessarily those of the Transportation Research Board; the National Academies of Sciences, Engineering, and Medicine; or the program sponsors. The Transportation Research Board; the National Academies of Sciences, Engineering, and Medicine; and the sponsors of the National Cooperative Highway Research Program do not endorse products or manufacturers. Trade or manufacturers’ names appear herein solely because they are considered essential to the object of the report.

The National Academy of Sciences was established in 1863 by an Act of Congress, signed by President Lincoln, as a private, non- governmental institution to advise the nation on issues related to science and technology. Members are elected by their peers for outstanding contributions to research. Dr. Marcia McNutt is president. The National Academy of Engineering was established in 1964 under the charter of the National Academy of Sciences to bring the practices of engineering to advising the nation. Members are elected by their peers for extraordinary contributions to engineering. Dr. C. D. Mote, Jr., is president. The National Academy of Medicine (formerly the Institute of Medicine) was established in 1970 under the charter of the National Academy of Sciences to advise the nation on medical and health issues. Members are elected by their peers for distinguished contributions to medicine and health. Dr. Victor J. Dzau is president. The three Academies work together as the National Academies of Sciences, Engineering, and Medicine to provide independent, objective analysis and advice to the nation and conduct other activities to solve complex problems and inform public policy decisions. The National Academies also encourage education and research, recognize outstanding contributions to knowledge, and increase public understanding in matters of science, engineering, and medicine. Learn more about the National Academies of Sciences, Engineering, and Medicine at www.national-academies.org. The Transportation Research Board is one of seven major programs of the National Academies of Sciences, Engineering, and Medicine. The mission of the Transportation Research Board is to increase the benefits that transportation contributes to society by providing leadership in transportation innovation and progress through research and information exchange, conducted within a setting that is objective, interdisciplinary, and multimodal. The Board’s varied committees, task forces, and panels annually engage about 7,000 engineers, scientists, and other transportation researchers and practitioners from the public and private sectors and academia, all of whom contribute their expertise in the public interest. The program is supported by state transportation departments, federal agencies including the component administrations of the U.S. Department of Transportation, and other organizations and individuals interested in the development of transportation. Learn more about the Transportation Research Board at www.TRB.org.

C O O P E R A T I V E R E S E A R C H P R O G R A M S CRP STAFF FOR NCHRP RESEARCH REPORT 850 Christopher J. Hedges, Director, Cooperative Research Programs Lori L. Sundstrom, Deputy Director, Cooperative Research Programs Lawrence D. Goldstein, Senior Program Officer Anthony P. Avery, Senior Program Assistant Eileen P. Delaney, Director of Publications Kami Cabral, Editor NCHRP PROJECT 19-11 PANEL Field of Administration—Area of Finance Norman P. Marzano, Jr., Rhode Island DOT, North Scituate, RI (Chair) Troy Tusup, California DOT, Sacramento, CA Majed N. Al-Ghandour, North Carolina DOT, Raleigh, NC Ovidiu Cretu, Washington State DOT, Olympia, WA Steve M. Holmes, Ontario Ministry of Transportation, St. Catherines, ON Evangelos I. Kaisar, Florida Atlantic University, Boca Raton, FL Hanan Kivett, KivettConsult, Chevy Chase, MD Kurt G. Lieblong, Florida DOT, Tallahassee, FL Llans E. Taylor, Missouri DOT, Jefferson City, MO C. K. Leuderalbert, FHWA Liaison

NCHRP Research Report 850: Applying Risk Analysis, Value Engineering, and Other Inno- vative Solutions for Project Delivery examines the state of the art in managing project develop- ment and delivery. It addresses these concerns through application of Value Engineering (VE), a systematic process that combines creative and analytical techniques to achieve a common understanding of project requirements, stimulating innovation and maximizing the use of resources to meet critical needs. At the project level, the goal of VE is to achieve balance between project needs (e.g., quality, safety, operations, environment) and resources (cost, schedule, materials, etc.). The products of this study include a detailed analytical report, a set of seven training videos, a comprehensive Excel-based Value Management System Tool, and a sample project application of that tool. The system tool and the sample project application are available on the TRB web site. The seven training videos, also accessible on the TRB web site, address a range of issues from initial project setup through analysis of risk and uncertainty and consideration and selec- tion of effective project delivery methods. Within the transportation sector in general and the highway sector in particular, innovative strategies aimed at improving the reliability of project planning, development, and delivery include alternative delivery methods, risk-based cost and schedule estimating, VE, construc- tability reviews, and other technical procedures. Most of these strategies involve teams col- laborating, thinking differently, generating alternative solutions, estimating costs and benefits, championing new ideas, and group decision making. All of these strategies involve risk trans- fer and assignment; however, risk has not always been allocated in a logical or deliberative fashion. VE, as presented in this report, is a structured process that can be integrated effectively with these other techniques to stimulate innovative strategies for identifying, managing, and allo- cating risk associated with project delivery. This process recognizes that budget constraints, coupled with increasing project complexity and stakeholder involvement, are driving an ongoing need to increase innovation in project development and delivery. As the demand for innovation grows in an environment characterized by increasing competition for lim- ited financial resources, there is a continuous need to identify and use appropriate tools and processes effectively. In addressing that need, the research team, led by the firm Value Management Strategies, Inc. (Portland, Oregon), working together with the Department of Engineering and Tech- nology Management at Portland State University, presents tools and techniques designed to assist project managers in applying usable and improved practices. These practices combine risk analysis, constructability reviews, VE, and other processes designed to improve project F O R E W O R D By Lawrence D. Goldstein Staff Officer Transportation Research Board

outcomes by framing information in a way to aid project teams in making decisions that optimize project value. A significant conclusion is that implementing proposed methods and tools emerging from this research requires extensive communication and training, fostering a change in thinking and behavior within existing organizational frameworks. This study also includes a comprehensive review of current practices gathered through available documentation as well as extensive interviews with practitioners. Experience in other industries was included in the analysis, drawing on a broad range of practices to identify, build, and apply innovative analytical techniques for effective project delivery. Supplement- ing the written guide is a set of seven training videos that provide in-depth instruction on implementing the detailed Value Management System Tool. This guide will serve as a valu- able resource for project managers as well as decision makers as they continue to improve the complex and difficult process of project delivery.

1 Summary 8 Chapter 1 Value Management System Tool 8 Overview and Structure 11 Stakeholder Analysis 15 Decision Analysis 26 Risk Analysis 34 Constructability Review 36 Value Engineering 43 Project Delivery Method Selection 46 Example Project 47 Customizable Worksheets 53 Implementation and Training 54 Chapter 2 Value Engineering Research Results 54 Value Engineering Literature Review 56 Review of Value Engineering Study Reports 56 Analysis of FHWA Value Engineering Program Results 64 Value Engineering Surveys 65 Summary and Conclusions 66 Chapter 3 Risk Analysis Research Results 66 Risk Analysis Literature Review 68 Risk Analysis Surveys 70 Summary and Conclusions 73 Chapter 4 Constructability Review Research Results 73 Constructability Review Literature Review 75 Constructability Review Surveys 77 Summary and Conclusions 79 Chapter 5 Innovative Methods Research Results 79 Innovative Methods Literature Review 81 Bibliography 83 Summary and Conclusions 88 Chapter 6 Project Delivery Methods Research Results 88 Summary of Innovative Project Delivery Methods Literature 88 Summary of DOT Project Delivery Guidance Review 90 Comparison of DOT Project Delivery Processes 90 Project Delivery Survey 94 Summary and Conclusions 96 Acronyms C O N T E N T S