Project Management: Implementation Opportunities

and Challenges

Ivan Damnjanovic Associate Professor and The Beavers/Urban ’41 Fellow in Construction

Engineering and Management

Zachry Department of Civil Engineering

Texas A&M University / Texas Transportation Institute

Perspectives Change

Perspectives Change

Project Manager as Integrator in Project Planning

District Engineer vs. Project Manager

• Head of the continuous business/organizational unit.

• Objective

Manage the system to produce the most benefits to the overall organization

• High level of risk aversion

• Head of one-time project effort

• Objective

Manage the project to deliver a facility that meets its intended function at the minimum cost within the acceptable time limits

• Medium level of risk aversion

Refinery Manager as Project Manager?

Why should Owners have Project Management Divisions?

• Internal project management resources allow for more efficient procurement (cost, schedule & other requirements/features)

• Application of standard project management process creates project ownership and a link between all phases of project development and execution

• Allows for program and project risk management

Advances in Project Risk Management

• One of the most important aspect of project management – Relates to the bottom line (costs and benefits)

• Increase Cost at Risk

• Increase Duration at Risk

• Increase Quality/Function at Risk

– Allows for contingency planning and control

– Provides basis for risk-informed decision-making

• External Risk: Contracting as a mitigation solution

• Internal Risk: Estimating the risk event likelihood

External Risks: Cement, Steel, and Oil

With external risks cost of all projects in program go up or down at the same time.

(Commodity Price Roller Coaster)

Very difficult to budget and manage project!

Construction Programs

• All projects are affected by external risk factors

• Contractors include contingencies (premiums) in the bid prices if they have to retain this risk (no price escalation adjustment clauses).

High variance High premium

• Agencies would like to minimize cost while taking on an acceptable level of risk exposure.

• This can be done using adjustment clause that allows price adjustment based on the current commodity prices.

Price Adjustment Clauses

Contract (duration)

Material prices ($)

0

0S

Barrier1

Barrier 2

Path 1

Path 2

Path 3

Options for the adjustment clauses are triggered if commodity price reaches a trigger level.

Adjustment clauses or not?

Time

Port

folio

Exp

end

itu

res

Without adjustment clauses

With adjustment clauses

Project 1 Project 3 Project 2

Project portfolio

Premium 1 Premium 2 Premium 3

Diversification

Adjustment clause 1

Adjustment clause 2

Adjustment clause 3

Objective – Minimize portfolio cost while accepting a certain level of risk exposure

Portfolio Decision-making

Balanced Portfolio Decision-making

Time

Port

folio

Exp

end

itu

res

Balanced Portfolio

Risk Management & Prediction Markets

“How do we estimate the probabilities of the project risk events?”

Option 1: Data and Statistical Analysis – Data intensive – where do I find a enough similar projects?

Option 2: Expert Opinion – How do we aggregate different opinions?

– Why would people share their opinion?

Information Prediction Markets (Example Basketball)

A participant buys shares that Houston Rockets will win with a 20 point difference before the game starts. If they win with 20 or more, he/she can exchange the shares for a “reward” of 100 units; on the other hand, if they win with 20 points or less, the value of the share becomes 0.

Information Prediction Markets (Example Construction)

A Participant can buy/sell shares that Project A (or part of it) will be completed by a specific date, meet specific standards of quality/cost, or perform in a specific way. If the outcomes are likely, the price of shares will go up (as demand grows) and vice versa, as the outcomes seem less likely, the price will go down.

Vet Imaging and Cancer Treatment Center

Construction Site

DATA Project Plans & Schedule

Weekly Progress Reports

Weekly Problem Logs

Construction Site Photos

Minutes of Meetings

Revised Schedules

Price Changes at Prediction Market

Will the contractor meet the “substantial dry-in” project milestone?

Price/100 = Probability

Questions and Comments?