Level: Intermediate
Venue: 2024 AACE International Conference & Expo
Abstract: Risk-adjusted cost estimates are needed to understand the potential range of actual costs through execution. Cost risk analysis produces uncertainty distributions which can be used to calculate an expected cost as well as contingency, which can be thought of as the difference between expected cost and a higher confidence level chosen for planning purposes. In a portfolio of projects, allocating uncertainty at the portfolio level will result in a different risk-adjusted cost than applying the same allocation at the project level, and so it is unclear whether a portfolio should allocate and manage risk-informed contingency at the portfolio or project level.Thistopic will examine best practices for calculating and managing contingency, using EM 5-22 as a tangible example.
Venue: 2024 AACE International Conference & Expo
Abstract: Risk-adjusted cost estimates are needed to understand the potential range of actual costs through execution. Cost risk analysis produces uncertainty distributions which can be used to calculate an expected cost as well as contingency, which can be thought of as the difference between expected cost and a higher confidence level chosen for planning purposes. In a portfolio of projects, allocating uncertainty at the portfolio level will result in a different risk-adjusted cost than applying the same allocation at the project level, and so it is unclear whether a portfolio should allocate and manage risk-informed contingency at the portfolio or project level.Thistopic will examine best practices for calculating and managing contingency, using EM 5-22 as a tangible example.