Major Projects and the (FPRA) Methodology by Using @RISK for Cost Contingency

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Presented by

Pedram Danesh-Mand, Director Risk Consulting at KPMG

About this talk

The full impact of COVID-19 on the Australian construction sector, including major disruption to supply chains and possible difficulty sourcing materials and skilled workers and services, will depend on a number of factors, especially the time and scale availability of its vaccine. On the other side, as recovery post-COVID-19 investment on infrastructure projects over the next decade is increasing by Australian governments for economic recoveries, both public and private decision-makers depend on accurate and reliable risk assessment methodologies to give them confidence in their decisions ensuring the right projects will be delivered for the right money at the right time. There has also been much speculation regarding the outcomes for the industry and potential risk mitigation strategies as well as opportunities to make the sector more resilient against its future challenges. The use of Quantitative Risk Analysis (QRA), including probabilistic cost and schedule risk analysis, is a good practice during both the development and delivery of major projects. Under current policy settings by the Department of Infrastructure, Transport, Regional Development and Communications (DITRDC), a probabilistic cost estimation process must be used for all projects, for which Commonwealth funding is sought, with a total anticipated outturn cost (including contingency) exceeding $25 million. Probabilistic simulation methods generate distributions of possible outcomes. The First Principles Risk Analysis (FPRA), recommended by the DITRDC Guidance Note 3A (Nov 2018) and the 2nd Edition of Risk Engineering Society (RES) Contingency Guideline for contingency determination at key decision points, e.g. Final Business Case or during execution, is a bottom-up risk-based cost contingency determination approach.
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