Greiman
- 1. Megaproject Risk Management: Lessons
from the Big Dig
Presented by Virginia A. Greiman
NASA PM CHALLENGE 2011
February 9-10, 2011
Long Beach, CA
© 2010
Used with permission
- 2. Topics
Overview of Risk Management
Structure and Costs of Mega Project in
Comparison to Risk
Catastrophic Loss
Role of Risk Management in a large
Mega Project
The Big Dig
– Key Facts
– Benefits of an Owner Controlled
Insurance Wrap-up Program
– Risk Mitigation
– Allocation of Known and Unknown Risk
– Success Factors
Virginia A. Greiman © 2010
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- 3. What Is Risk Management?
Risk Management is an Organization’s strategy to prevent and
reduce exposures to losses and accidents by:
Identification
Assessment
Allocation
Typical costs associated with an Organization’s risk management
functions include net insurance premiums for:
retained losses
risk control
loss prevention expenses
administrative costs
Emerging Trends – The rise of Enterprise Risk Management (ERM).
– A comprehensive program for managing the risks of the entire
organization including:
Business environment, compliance, governance, operations, audit,
information, financial and transactional risks.
Virginia A. Greiman © 2010
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- 4. Major Elements of a Risk Analysis
A Three-Step Process
Risk
Identification
Risk Risk
Allocation Assessment
Virginia A. Greiman © 2010
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- 5. Risk Management Process
Risk Policy
Legislation
Strategy
Risk Control Risk Management Risk Assessment
Evaluation Objectives and Goals Identification
Monitoring Risk Information Perception
Reporting Risk Communication Qualitative v.
Quantitative Analysis
Risk Allocation
Avoidance
Prevention
Reduction
Separation
Duplication
Transfer
Virginia A. Greiman © 2010
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- 7. Classification of Catastrophic Losses
Natural Perils
– Cave-in, Earthquake, Fire, Flood, Ice
– Landslide, Sea and Tidal Waves, Settlement,Water, Wind
Human Perils
– Human Error
– Terrorism
– Embezzlement
– Pollution
– Explosion/Chemical Leakage
– Utility Disruption
Economic Perils and Political Risk
– Funding
– Depression/Recession/Inflation
– Political Risk (Regulatory Risk)
Technological Advances
Source: Insurance Institute of America
Virginia A. Greiman © 2010
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- 8. Major Catastrophic Losses
Element Estimated Loss ($,MM)
World Trade Center (2001) $30-40B
Earthquake in Chile (2010) $30B ($8B insured)
Hurricane Andrew (1992) $18B
California Earthquake (1994) $12.5B
Hurricane Hugo (1989) $ 4.2B
Japan Typhoon Murielle (1991) $ 6.4B
Hurricane Georges (1998) $ 2.9B
Hurricane Floyd (1999) $ 2.0B
Oakland, CA fire (1991) $ 1.7B
Missouri Hail Storm (2001) $ 1.2B
IRA Bombing, London (1993) $ 1.0B
Sources: Insurance Services Office Inc.,Virginia A. Re, Lloyds2010
Munich Greiman © of London 8
and Global Reinsurance
- 10. Central Artery/Tunnel Project Facts
Excavation and Tunneling
– Construction of:
161 lane miles of highway in a 7.5 mile corridor, about half in tunnels.
Four major highway interchanges
– Excavation and transport of 13 cubic yards of dirt and soil mix construction
– Placement of 3.8 million cubic yards of concrete.
– Installation of more than 26,000 linear feet of steel-reinforced concrete slurry walls
– Demolition of 7 miles of existing elevated artery
Ted Williams Tunnel
– Construction of:
Concrete Immersed Tunnel Tubes and Jacked Vehicle Tunnels
Seven building ventilation system
– Connection between water-based and land-based approach
Leonard Zakim Bunker Hill Bridge
– Design and Construction of the widest cable-stayed bride in the world
Parks and Open Space
– Creation of more than 150 acres of new parks and open space
Virginia A. Greiman © 2010
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- 14. CA/T’s Risk Management Mission
To protect the Commonwealth of Massachusetts, CA/T contractors,
consultants, workers and the general public against
catastrophic loss by:
Operating a world-class Risk Management Program for:
– Engineering and construction
– Loss control
– Safety program
Insuring all identified loss exposures through and beyond
Project completion
– Past
– Current
– Future.
Virginia A. Greiman © 2010
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- 15. Project Structure and Cost
Element Current Estimate ($MM)
Construction $ 9,496
Design $ 1,034
Project Management $ 1,977
Force Accounts $ 608
ROW Settlements $ 576
Insurance Premiums $ 609
Contingency $ 498
TOTAL $14,798
Source: CA/T Project Finance Plan 2007
Virginia A. Greiman © 2010
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- 16. Conventional Costs of Risk Management
Premiums
Expected Losses
Broker Compensation
Safety and Health
Administration
Consultants
Audit Expenditures
Source: Essentials of Risk Financing, Insurance Institute of America, 1996
Virginia A. Greiman © 2010
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- 17. Why did the CA/T Project Choose an OCIP? 1
Key Programmatic Factors
Uniform Coverage for All Contractors
– Without OCIP, adequate coverage may be unavailable to small contractors
Coordinated Claims Handling/Management
Centralized Loss Control and Prevention
– OCIP provides a more effective means for
Project-wide safety implementation and favorable loss experience results.
Eliminates Cross Contractor Litigation
– One coordinated insurance program used by all contractors.
1 Owner-Controlled Insurance Program, also known as “Wrap-up Insurance”
Virginia A. Greiman © 2010
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- 18. A Review of Wrap-Up Insurance
In 1998, wrap-up insurance covered about 300 construction projects
nationwide
Advantages
Large Cost Savings from Buying in Bulk
– Project owners can save up to 50 Percent on the cost of traditional insurance.
Avoiding Duplication and Gaps in Coverage
More Efficient Claims Processing and Less Litigation
Centralized Safety Programs
Disadvantages
More Time and Resources needed in administration
Costs to hire additional personnel or pay to contract out the management
Larger premiums at the beginning of the Project
Reduces a contractor’s profits from insurance rebates.
Conclusions
Advantages usually outweigh disadvantages
Source: United States General Accounting Office, GAO/RCED-99-155, June 1999
Virginia A. Greiman © 2010
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- 19. Major Public Project Wrap-Up Programs
Channel Tunnel (U.K./France)
Sydney Harbor Tunnel (Australia)
Great Belt Link (Denmark)
U. S. Nuclear Power Plants
The Central Artery/Tunnel Project
Oregon Tri-Met Westside Light Rail Line
New Jersey Transit Corporation Hudson-Bergen Rail Line
Chicago Transit Authority Green Line Rehabilitation Project
Utah Department of Transportation Interstate 15
New York City Transportation Authority
Sources: Great Projects, James Tobin, 2001, United States General Accounting Office,
GAO/RCED-99-155, 1999, Bechtel Corporation, San Francisco, CA
Virginia A. Greiman © 2010
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- 20. CA/T Project Insurance Wrap-up Coverage’s
($M) (2006 CA/T Project Finance Report)
Administrative Costs and 60
Safety Mitigation
Railroad Protective Liability 5
Airport Contractors’ Liability 8
Professional Liability
11
48
Builders’ Risk
215
General Liability/Excess
Liability 262
Worker's Compensation
0 100 200 300
Virginia A. Greiman © 2010
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- 22. Selected Project Risk Control Techniques
Preconstruction Planning and Videos
Catastrophic Analysis and Prevention
Integrated Risk Management
Building Monitors
Soil Tests
Quality Assurance
Mitigation Program
Risk Control Training
Virginia A. Greiman © 2010
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- 23. CA/T Safety Performance
Recordable
Source: CA/T Project Management Monthly Report
Virginia A. Greiman © 2010
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- 25. Six Steps to Profitability
Enforce the
Contract
Train, Monitor,
Test and Retrain
Zero-Accident
Philosophy
Negotiate Insurance
from Experience
Assess and Mitigate
Risk Exposures
Allocate Risks
Contractually
Virginia A. Greiman © 2010
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- 26. Mega Project Risk Success Factors
Recognition that Risk Management is Central to Project Success or
Failure
Mitigation of Political and Regulatory Risk from the Inception of the
Project
Integration of Stakeholders in all aspects of Risk Management
Back to Back Allocation of Risk to all Project Participants
Wrap-up Insurance Program v. Contractor Controlled Insurance
Safety Incentive Program that Spans the Life of the Project
Virginia A. Greiman © 2010
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