strategic risk management in the Øresund Bridge project
Thanks to early risk analysis, Europe's Øresund Bridge project came in within budget—five months early.
Night construction on the Øresund Bridge
PHOTOS CLOCKWISE: PIERRE MENS, SØREN MADSEN, PIERRE MENS (2)
BY PER JUEL CHRISTENSEN AND JAN RYDBERG, PMP
Completing a project such as the Øresund Bridge, which connects the Danish capital of Copenhagen with Sweden's third-largest city, Malmö, is an engineering marvel. However, project management and a strategic risk analysis were just as important—they allowed the span to be finished an amazing five months ahead of the original target schedule and within budget.
This four-lane motorway and two-lane railway connection consists of a 4-km immersed tunnel, a 4-km reclaimed island and an 8-km bridge containing a cable-stayed main span of 490 meters. With a subsidy from the European Union of DK1 billion, the Øresundsbron Co. financed the DK19 billion (US$2.5 billion) bridge project. Tolls from the traffic using the span over the next 25 to 30 years will be used to repay the loans.
From the beginning, the project management team worked to identify uncertainties and quantify their possible impact on goals, prioritize risks as the basis for action planning, and establish contingency plans in the event of an unfavorable outcome. During the design phase (1993–95), the team focused on technical and cost optimization. For the risk analysis segment, possible impacts were quantified against project cost. The first contract was signed in 1995. Risk management processes then shifted to the opening date, considered the most critical element to total project success.
According to a risk analysis of the Øresund Bridge Project, the chances of opening in 2000 were considerably less than 50 percent during the period from 1995 to 1997. The successful management of the project and the launch of parallel works significantly improved the picture. The parallel works idea and its implementation was made possible by the partnership between the owner and the contractors, carefully developed from the time of the award of contracts.
The initial risk analysis was performed early in 1993, even before the contract documents were developed.
Three major contracts—for the tunnel, dredging and reclamation, and the bridge—were signed, and the coast-to-coast installation contracts were under development.
Risk analysis results indicated the project might not open when expected. An action-planning process helped mitigate the uncertainties in the project. Management asked for more strategies to deal with possible risks, and the team returned with an updated analysis.
In April, the planning group began developing a new foundation for a third risk management process, based on actual progress. During late May, risk analyses were performed for the four main contracts: tunnel, dredging, bridges, and coast-to-coast installations. In June, this summary report was presented to management, but meeting the expected opening date was still seen as too risky. Based on another summary report that detailed actions to facilitate an October 2000 opening, the team decided that “parallel works” would allow the project to be completed ahead of schedule.
The idea to work in parallel was analyzed internally until March 1998, and contractors were included during the second quarter. In early June, a fourth risk analysis was performed, and change orders were signed based on the positive results. Work continued.
Queen Margrethe II of Denmark and King Carl XVI Gustaf of Sweden opened the link on 1 July 2000.
The span across the Øresund includes the building of new motorway and railway in both Sweden and Denmark, the tunnel, the artificial island and the bridge that connects Copenhagen and Malmö.
During the implementation of risk management processes, the project team discovered some valuable lessons:
■ Management commitment to the process and willingness to implement actions are crucial.
■ The process must focus on a prioritized set of main objectives—in this case, date of opening.
■ Risk management processes must be separated from detailed planning processes—this exercise tests the strategies within the project.
■ The size of a model for a project strategic risk management process is limited to 50 to 100 activities or issues.
■ Risk management must start early, when uncertainties are greatest and there is the most to be gained.
■ Dedicate time for the action-planning process.
Time and Cost Concerns
Top management initiated and supported all of the risk management processes as they were applied to the entire organization, including the final action-planning process. The project management team carried through. Risk management for the project included:
■ Mitigation action planning.
Quantification was based on the Successive Principle, which is used intensively in Scandinavia. Developed by Steen Lichtenberg, a globally recognized project management authority, researcher, consultant and lecturer based in Denmark, this method enables identifying, modeling and accessing uncertainties in both estimates and schedules.
The technique also includes soft issues in the modeling process, thereby creating a complete overview of all the uncertainties involved in the decision-making process. [See Proactive Management of Uncertainties Using the Successive Principle, Steen Lichtenberg, Polyteknisk Press, 2000.]
The most important aspect for management, however, was the mitigation action planning. These processes, together with the partnership concept that was implemented before signing the contracts, made it possible for the owner to have a very active role. This proactivity throughout the owner's organization and the close cooperation with the contractors led to the timely discovery of potential hazards, anticipating and preventing the need for any expensive last-minute solutions.
Eyeing the Great Divide
The initial risk analysis focused on cost and time schedules and was aimed at supporting the funding and approval process, as well as the bidding process. The project costs were presented through a cumulative curve and their related uncertainty profile, showing the 10 largest uncertainty factors influencing project cost. The greatest uncertainties were the design process and associated costs, market conditions, and the owner's organization.
In 1995, three major contracts were signed: the tunnel, dredging and reclamation, and the bridge. Implementation of the coast-to-coast installation contracts then began.
Early in 1996, using information available from the civil engineering contractors, individuals directly involved in each major contract performed the analyses. The summary report, which included the graph shown in Exhibit 1, indicated only a 10 percent chance of opening on target, with the greatest uncertainties being the overall interface management, element fabrication process and owner's organization. To improve the likelihood of project success, an action-planning process was necessary.
Exhibit 1. The cumulative distribution curve relates different opening dates with probabilities. In the 95/96 analysis, a 10 percent probability of meeting management objectives existed. The uncertainty profile lists the 10 greatest contributors to the uncertainty of the opening date.
Exhibit 2. This graph describes the summary results of the analyses made in 1996, 1997, and 1998. The 10, 50 and 90 percent probability figures for opening date and the development of management's objectives are shown.
The action-planning processes helped create a common understanding of the uncertainties pertaining to each contract. It also helped to focus all activities on avoiding and mitigating the effects of the identified risks.
A second summary report included the influences from a set of defined actions. Management requested that the contract directors identify additional actions that could safeguard a realistic opening date in 2000, and this process helped each main contract director focus on the opening date even more rigorously.
In 1997, based upon actual progress in all of the contracts and input from each of the teams, the planning group began developing a new foundation for a third risk management process. Risk analyses were performed for the tunnel, dredging, bridges and coast-to-coast installation contracts. Participation was more limited than in the initial analyses, and only those who had direct contact with bridge production participated.
In 1998, when construction work on the link peaked, a workforce of approximately 4,500 was employed by øresundsbro Konsortiet and its contractors for the coast-to-coast link and the land works.
The øresund Bridge's revenue for the first half of 2001 was DK203.5 million against an expected DK393.7 million. Although proceeds from the road traffic were approximately 30 percent below expectations, significantly lower financing costs make up for the shortfall in traffic revenue.
Based on the summary report, management still considered the uncertainties too large and the chances for opening in 2000 too slim. As a result, team members for the main contracts were asked to create new action plans to secure the opening in 2000.
All departments were asked for actions that could make a 1 October 2000 opening date possible. A second summary report, including these action plans, generated discussion of a “parallel works” idea for the installation and finishing work.
Working in parallel meant that all slack in the schedule would be put to productive use. Using this strategy, the team felt it was able to guarantee a 1 July 2000 opening.
As part of discussions with the contractors concerning the parallel works idea, a fourth risk analysis was performed for the three main contracts, and the results confirmed that it was safe to plan to open the link on 1 July 2000. Change orders to implement new contract milestones were signed with all contractors. Exhibit 2 compares the outcome of the analysis (expected opening date with related uncertainty shown as the standard deviation) and management objectives for the opening date.
No additional risk analyses were performed or required after June 1998—two years before the opening date. The contractors and the owner's organization focused on and worked toward the same goal. From that point, all deviations from the program were handled rapidly and in a cooperative manner, assisted by a subsequent “musketeer” (all for one and one for all) bonus agreement. Queen Margrethe II of Denmark and King Carl XVI Gustaf of Sweden opened the link on 1 July 2000.
To fully implement risk management, the project required both external consultants (1,200 hours) and internal resources (1,500 to 2,500 hours), but the cost of resources was only a fraction of the benefit of opening ahead of schedule for both the contractors (who worked more effectively) and the owner (who derived early income). In addition, because the project was completed within budget and ahead of schedule, management had no difficulty concluding that the risk analysis had been integral to the successful completion of the Øresund link. PM
Per Juel Christensen is managing director for Metier Denmark and a risk management consultant. He has worked as consultant for the Øresund Consortium and the Danish infrastructure part of the entire Øresund project. He has 20 years of experience as a facilitator within the area of risk analysis and with the development of risk analysis methodology and systems.
Jan Rydberg, PMP, was the project coordinator, planning for the Øresund Consortium and responsible for the planning set-up, including the risk analysis within the organization. He has 19 years of experience in different positions in the Swedish construction industry.
PM NETWORK | NOVEMBER 2001 | www.pmi.org
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