Cost and schedule risks
Oct 17th, 2018
We all know that megaprojects including hydroelectric ones are subject to Cost and schedule risks.
Experts recently confirmed this to the Commission of Inquiry Respecting the Muskrat Falls Hydroelectric Project. They said it is common for such projects to evolve with understated early cost estimates.
That was the conclusion of a report which looks at 274 hydro dam projects around the world, including projects in Canada. Reportedly this is the largest academic data set of its kind in the world.
Cost and schedule risks overruns are common
Reportedly the average cost overrun is 96% (median 32%) and the average schedule overrun is 42% (median 27%).
Cost and overruns have plagued dam projects over the last 60 years. Reportedly only nuclear projects stand higher than large dams projects.
All sorts of hazards, including of course optimism and “political” biases contribute to the probability p of cost and schedule overrun. The difference between the final cost and schedule and the initial estimates is the consequence C.
Once again, the equation is simple R=p*C.
The problem is global, as the same “people” afflicted by the same biases build dams everywhere.
Tactical and strategic risks should be clearly evaluated at project inception
We have been called in the past to evaluate contingencies for traditional contracting or for Design, build (and Operate) agreements.
We have noticed that oftentimes project leaders do not identify and quantify risk-transfer opportunities, risk-sharing conditions, contingencies, etc. That opens the way to litigation and waste of time and money, especially if one of the party claims Force Majeure.
In one case we had to deal with an existing project risk assessment based on a FMEA that had almost 2000 records and so many “yellows” that no one knew anymore what to do.
That’s where we launched the use of the “200 yellow syndrome” phrase. We use it to qualify situations where no one can make a decision because they are in the “overwhelming syndrome” acute phase. This is even amplified by the “neglect of probability”, a type of cognitive bias. It affects humans making them disregard probabilities when making decisions under uncertainty.
The result of cumulated “probability neglect” and “200 yellow syndrome” is an unclear, fuzzy road map. This helps explaining over-reactions, and therefore exaggerated mitigations to risks that are actually benign.
Examples of the above abound ranging from terrorism to other industries and government issues. In the specific case of dams we see that oftentimes worst case scenario are studied without really understanding if they actually are worse cases. There is never a serious discussion about this until an accident occurs and an independent panel review occurs, explaining the evident.
Risk assessments raison d’être is to give guidance to stakeholders
In order to reduce cost and schedule risks to tolerable levels good risk assessments should include:
- the definition of a success and failure criteria.
- the effects of automation and human sampling, monitoring, allowing the evaluation of human error and the need for training.
- system’s inter-dependencies and Common-Cause Failures (CCF).
- Information and guidance to the selection of mitigation and defences allowing to increase the project’s RoI.
- A lesson learned system, easy updates and future analyses.
Contact us to learn more.
Tagged with: build and Operate), Cost and schedule risks, design
Category: Consequences, Hazard, Risk analysis, Risk management