Quantitative Method for Updating Cost Contingency throughout Project Execution

Xie, Hong; AbouRizk, Simaan; Zou, Junhao

doi:10.1061/(asce)co.1943-7862.0000457

Cited by 17 publications

(7 citation statements)

References 6 publications

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“…The risks are quantified and the summation of risks' impact (probability × consequence) forms the "known unknowns" contingency. The "unknown unknowns" contingency is determined on a percentage of BC depending on the risk profile of each project (to cater for unforeseen events and the ambiguities and the variability Mak and Picken (2000), Thal et al (2010), Lee et al (2017), Panthi et al (2009), Lhee et al (2011), and Khamooshi and Cioffi (2009) Developing quantitative methods to estimate cost contingency in the preconstruction phase Xie et al (2011), and Barraza and Bueno (2007) Developing quantitative methods to manage cost contingency throughout the project execution phase Hammad et al (2016) and De Marco et al (2015) Developing methods to estimate and manage the cost contingency in both preconstruction and execution phases of a project Second category…”

Section: Methodsmentioning

confidence: 99%

Cost Contingency and Cost Evolvement of Construction Projects in the Preconstruction Phase

Hoseini

Bosch‐Rekveldt

Hertogh

2020

J. Constr. Eng. Manage.

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The current literature discusses the methods to estimate the costs and cost contingency. The literature also distinguishes "known unknowns" and "unknown unknowns" contingencies. Little is written, however, about the evolvement of total project cost estimates during the preconstruction phase of construction projects. Moreover, not many studies are investigating the "known unknowns" and "unknown unknowns" contingencies in real construction projects. Practice expressed the need for getting more insight into the development of the estimated costs of the projects in the preconstruction phase. This paper, therefore, discusses the estimate of the total project costs (and cost contingency) in the preconstruction phases of 29 Dutch flood defense projects using a case study approach. Altogether, the projects have experienced an 11.51% increase in the estimated costs compared to the initial estimates, which is low compared to previous studies. This increase in the cost estimates of the flood defense projects can be explained by "technical" reasons. The investigation of "known unknowns" and "unknown unknowns" contingencies shows that the percentage of the "unknown unknowns" contingency has increased in the preconstruction phase while a reduction was expected. This increase suggests that the projects were not confident about their estimates and the increase can be explained by a lack of experience, organizations' culture, or the phenomenon of "pessimistic bias." Practitioners can avoid "pessimistic bias" behavior by asking for opinions about their estimates and using historical project data. Further research is suggested into realized cost contingency after project execution.

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Section: Methodsmentioning

confidence: 99%

Cost Contingency and Cost Evolvement of Construction Projects in the Preconstruction Phase

Hoseini

Bosch‐Rekveldt

Hertogh

2020

J. Constr. Eng. Manage.

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“…Wysocki (2004) stated that frequency of project review meetings is irregular and they should be held at every milestone of the project to make necessary adjustments for achieving set goals. Agreeing to this insight, Xie, AbouRizk, and Zou (2011) suggest updating the project cost contingency during execution at major milestones. This updating involves reassessment, re-estimation, and reallocation of funds.…”

Section: Literature Reviewmentioning

confidence: 98%

Contingency Release During Project Execution: The Contractor’s Decision-Making Dilemma

Ayub

Thaheem

Ullah

2019

Project Management Journal

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Risk is inherent in construction projects and managed through contingency. Dynamic management of contingency escrow accounts during project execution poses decision-making challenges. Project managers use key performance indicators (KPIs) for contingency release decisions. However, their subjective mental models influence risk perception, exacerbating the decision-making dilemma. This research integrates project KPIs with future risk perception to develop a mathematical model for facilitating such decision making. Results suggest timely completion, project cost, stakeholder satisfaction, quality and safety as top KPIs, and the influence of managerial pressure as a significant decision contributor. The proposed model helps project managers in dynamic decision making for cost contingency.

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“…To this end, two distinct approaches are employed: deterministic and probabilistic [11]. In deterministic approaches, project risks are characterized by predefined probabilities and impact values [12]. In contrast, probabilistic approaches recognize the inherent uncertainty associated with project risks, assigning probability distributions to each level of potential impact [13].…”

Section: Literature Reviewmentioning

confidence: 99%

Risk Perception-Based Project Contingency Management Framework

Ottaviani,

De Marco,

Rafele

et al. 2024

Systems

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Project risk management (PRM) involves identifying risks, assessing their impact, and developing a contingency plan. A structured contingency management (CM) approach prevents subjective biases in analyzing risks and developing responses. Previous studies have either focused on improving the accuracy of risk estimates or analyzed, from a qualitative perspective, the relationships between perceived risk and project performance. This study aimed to improve PRM by providing a risk-perception-based contingency management framework (CMF). The CMF guides contingency depletion based on two short- and long-term cost overrun indicators and their respective thresholds. Thresholds and the initial contingency reserve amount are determined by applying the Monte Carlo method to a stochastic, discrete-event, finite-horizon, dynamic project simulation model. The study developed the CMF through a structured approach, validating the simulation model on eight specific project configurations. The results prove that the framework can be applied to any project, shaping the risk response strategy. This study contributes to PRM by explaining the relationships between risk perception and risk responses and providing a prescriptive CM tool.

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Quantitative Method for Updating Cost Contingency throughout Project Execution

Cited by 17 publications

References 6 publications

Cost Contingency and Cost Evolvement of Construction Projects in the Preconstruction Phase

Cost Contingency and Cost Evolvement of Construction Projects in the Preconstruction Phase

Contingency Release During Project Execution: The Contractor’s Decision-Making Dilemma

Risk Perception-Based Project Contingency Management Framework

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