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(RISK-3078) Cost and Schedule Risks Interact in Megaprojects

Level: Intermediate
Venue: 2019 AACE International Conference & Expo, June 16-19, 2019, New Orleans, LA, USA

Abstract: Megaprojects can be described as both complex and fragile. They are technically challenging and may stress the organization’s resources and systems to execute successfully. They are often schedule-driven, magnifying the need for contractors to be closely coordinated and mutually successful. Oil and gas megaprojects are sometimes located in areas where there is a need to create an environment and infrastructure stable enough to support project execution. Management may fail to appreciate the extent to which problems in one area affect other areas. Risks that affect the duration and costs of these projects interact with each other and produce effects that are magnified beyond the impacts of the risks considered individually.

The thesis of this paper is that, for these megaprojects, risks often occur in series rather than parallel and can have a compounding effect on each other. For example, labor productivity may be worse than planned and workplace security risks (work actions or worker safety) may cause work to be suspended. These two risks together reduce the number of days left to execute the plan within schedule, driving up labor costs and jeopardizing the finish date. Using Monte Carlo simulation, we will demonstrate that risks occurring in series, causing the impacts to be worse than the original assessments, are often at the root of extreme overrun.