The document analyzes the Panama Canal expansion program's approach to risk management and contingency modeling. It discusses how the Panama Canal Authority took an early and comprehensive approach to risk management, producing detailed cost and schedule estimates. It also developed an integrated contingency model that combined the cost estimate and schedule model, linking associated costs and activities. This allowed them to include important risk factors and their effects on multiple cost elements. While complex, through implementation and testing the model provided an accurate, numerical description of project risks and contingencies.
The document analyzes the Panama Canal expansion program's approach to risk management and contingency modeling. It discusses how the Panama Canal Authority took an early and comprehensive approach to risk management, producing detailed cost and schedule estimates. It also developed an integrated contingency model that combined the cost estimate and schedule model, linking associated costs and activities. This allowed them to include important risk factors and their effects on multiple cost elements. While complex, through implementation and testing the model provided an accurate, numerical description of project risks and contingencies.
The document analyzes the Panama Canal expansion program's approach to risk management and contingency modeling. It discusses how the Panama Canal Authority took an early and comprehensive approach to risk management, producing detailed cost and schedule estimates. It also developed an integrated contingency model that combined the cost estimate and schedule model, linking associated costs and activities. This allowed them to include important risk factors and their effects on multiple cost elements. While complex, through implementation and testing the model provided an accurate, numerical description of project risks and contingencies.
Running head: ANALYSIS OF THE PANAMA CANAL EXPANSION PROGRAM 1
Analysis of the Panama Canal Extension Program
William Taylor Pittman PJM380-1 Project Management Tools Colorado State University Global Campus Professor Michael Laverty May 16, 2014
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Analysis of the Panama Canal Expansion Program Introduction In Risk Planning and Management for the Panama Canal Expansion Program, a case study is offered of the cost and duration contingency model developed for the Canal Expansion Program (reference). Within this study, we will examine the approach to comprehensive risk management taken by The Panama Canal Authority, the contingency model itself, and its relevancy to my own experience. Approach to comprehensive risk management The Canal Authority took an early approach to producing accurate estimations and produced schedule and cost estimates not typical of the level of engineering design completed. Personally, I have used early estimation techniques to help bid on large or complex projects. In addition to reducing risk in planned projects, risk in bidding inefficiently can also be reduced. The early approach and resulting detailed estimations resulted in a perception that the risk and related contingencies may be artificially low due in part to the high level of detail. Although high level of detail is provided at this point, the level of complexity and size of the projects results in the addition of more risk. In my own experience, there is a point where, as you increase in complexity and size, level of detail has a diminishing return on risk analysis and other factors, such as external variables, begin to have an equal or greater impact on risk assessment. Rather than taking the traditional approach to establishing contingencies, based on a percentage of cost or schedule estimates, an integrated methodology of schedule and cost estimates are combined with risk factors to create the risk model. The integrated risk model, up to this point, I have been unfamiliar with, however seems to be a valuable to large projects. As ANALSIS OF THE PANAMA CANAL EXTENSION PROGRAM 3
my responsibilities grow along with the company I work for, larger projects than the typical ten to fifty million dollars are on the horizon and the integration of cost and schedule estimates may be an option for better contingency allocation. Contingency Model The structure of the contingency model was created by the combination of the cost estimate and a simplified schedule model to create an integrated model. Linkages between associated cost and activity duration were built and tested. In my work experience, I have never been involved with a complete integration of schedule and cost to produce contingencies. However, I have assessed individual task duration and their associated costs for relationships between them. I can see that in the future, as a PM, an integrated approach such as the one implemented be the Canal Authority could be applicable to many projects, regardless of size. Within this model, fourteen variables assessed to be most important are included as stochastic variables. Several of the risk factors affect multiple different cost elements, thus, they were included for each element with its own individual assessment. Using excel to generate the model provided staff with valuable tools available in @Risk to help create, operate and report the model. Several risk factors effecting multiple cost elements is not uncommon even in smaller projects. I see this effect most commonly with design or schedule change. The level of analysis and repeated testing of relationships is an important in assessing the feasibility of the model. Conclusion Although comprehensive and intended to produce more accurate contingencies, the highly detailed, integrated approach the Canal Authority took came with its own challenges. However, through implementation and testing within the development of the model, an accurate, ANALSIS OF THE PANAMA CANAL EXTENSION PROGRAM 4
numerically based description of project risks and their related contingencies was formed effectively. The steps taken and the resulting model will be assessed for their effectiveness and implemented into future projects. This method of learning from historical events is an effective tool in the project managers tool bag. It is represented by the canal authorities elaboration on existing methods and also by the future elaboration and modification by others.
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References Alarcon L. F., Ashley D. B., Hanily A. S., Molenaar K. R., Ungo, R. (2011). Risk Planning and Management for the Panama Canal Expansion Program: American Society of Civil Engineers Retrieved from https://csuglobal.blackboard.com/bbcswebdav/pid-827856-dt-content-rid- 4765073_5/library/Article%20Reserve/PJM380/Risk%20planning%20and%20manange ment%20for%20the%20Panama%20Canal%20expansion%20program.pdf