Project Controls International

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Interesting Stuff

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4. Risk/ Contingency Management

 

Introduction

 

Risk/ Contingency management is the process of managing the contract risks and operations uncertainties such that the current forecast and schedule always accurately reflects remaining risk and known uncertainties. It includes understanding risks identified and quantified in the proposal, and each subsequent estimate, as well as planning the reduction of contingencies or risk funds over the life of project to match expected reduction of risks.

 

The process includes the evaluation of remaining risks at regular intervals and ensuring that remaining contingencies cover these risks. It also identifying new or potential risks as the project progresses and choosing to estimate new contingencies needed, or retaining existing funds when the originally associated risk item does not materialize.

 

 

4.1 Contingency Management

 

There are two components of Contingency, Operations Contingency, and Fixed Contingency, and they are managed according to different guidelines. Fixed Contingency covers contract risks associated with potential contract liabilities and is assessed quarterly as part of Project Financial Status Review and revised at that time. Operations contingency is evaluated and adjusted as part of the Cost Control Process. Work Content and Forecast adjustments, as well as trends and discovered risk items are used as part of the basis to adjust retained contingencies. An Operations Contingency Drawdown Plan should be prepared and a structured review held monthly and the results used as a basic input into each monthly Cost Report forecast update.

 

 

4.2 Project Team Roles for Risk/ Contingency Management

 

Project Manager

 

- Review contingencies and the contingency drawdown plan in light of contract conditions and make adjustments as needed. Ensure that contingencies conform to approved strategy and are at all times commensurate with contract risks and known uncertainties.

- Ensure that contingencies are used only for their designated purpose.

- Thoroughly document any reallocation of contingencies.

- Ensure that contract risk and operating contingencies at any point in time reflect remaining risk; adjust drawdown plan as necessary.

- Reallocate operations contingency and contract risk funding only in proportion to the diminishing risks. Avoid both premature and late contingency reallocation.

- Document deviations from plan.

 

 

Project Controls

 

Should provide the following to the Project Manager:

 

- Recommended operations contingency drawdown curve.

- Current Forecast and actual commitment information.

- An analysis of remaining contingencies as project progresses, and an adjusted drawdown curve or table for PM's approval.

- Analysis of established or evolving trends.

- Monthly analysis of operations contingency.

- Amount of remaining operations contingency in monthly cost report.

 

 

Risk Manager

 

- Provide PM with risk analysis as requested during project execution.

- Review drawdown plan for actual contract conditions as requested, and provide to PM

 

 

Estimating Services

 

- Assists with risk analysis as requested during project execution.

- Assists with drawdown plan for actual contract conditions as requested.

 

 

Project Financial

 

Review approved contingencies and drawdown curves with Director of Finance and Director of Project Management. Reallocation of contract risk requires approval of senior management for example of the responsible Director of Project Management, Director of Finance and Sr. VP Project Management.

 

 

Link to Section 1. Overview and Function of Project Controls

Link to Section 2. Project Cost Control

Link to Section 3. Project Planning and Schedule Control

Link to Section 4. Risk/ Contingency Management

Link to Section 5. Project Performance Measurement

 

Project Controls Procedure - Risk and Contingency Management

Communication

The importance of good communication. Or telepathy as the alternate!

Selected Articles

An “armchair scheduler” or frontline messenger?

Why Project Controls
P6 vs. MS Project

The two contenders. But which one is better?

Email: Friend/colleague?subject=Interesting link - Project Controls Procedure&body=Interesting link from Project Controls International:        http://www.projectcontrolsinternational.com/project-controls-procedure.html
Meetings

Love them or hate them. How to conduct successful productive meetings.

Funny, but true. Video on the functions of Project Controls.

Enjoy!

Settings do matter: pick the wrong settings and your schedule’s output will be meaningless.

What the text books didn’t tell you
Primavera P6 Settings
Video - Project Controls

Selected Articles

Tips on Scheduling

50% Science, 50% Art, 100% Communication

Why Project Controls?