Construction contingency reserve
This point will vary with different organizations and different types of projects. In a decision tree calculation, you determine multiple choices and the probability of each occurring as well as the impact. Not all possible risks are going to happen; some may happen and some may not.
Avoid gold plating and request a budget revision for crashing.
First, there is built-in bias from the estimator, who may expect to be criticized more severely for an underestimate than for an overestimate. In this case, there will be less uncertainty.
Equally important are discussions and examples of approaches to setting budget and schedule contingencies. Emphasis added. You should never use the management reserve to compensate for cost overrun.
The thinking is that the project manager can come any time they need extra money, so there is no need for any management reserve. For similar reasons, the next level upward typically also adds a contingency. Although the proper amount of contingency is debatable, if the contingency is set too low upper management will be in the position of micromanaging the project, and if it is set too high management may not be sufficiently involved. However, retainage represents an amount of the contract price that has been earned but remains withheld. Thus, for example, if the contingency allowance for a possible flood is not used because no flood occurs, then this contingency allowance should not be automatically transferred to the base budget to cover overruns in other areas. It is likely that knowledgeable owners can make better decisions about contingencies than owners who are inexperienced or who do not make the effort to become knowledgeable about the costs and duration of the projects they typically undertake. After you complete the planning for crashing, you have to revisit your plan for any new risk. Second, there is a need to cover errors in estimating, which are usually errors of omission; for example, in taking quantities off drawings, a quantity estimator is more likely to undercount than to overcount.
Thus, by itself, contingency is not a cost control method, as its purpose is to ensure adequate funds to pay for uncontrolled costs.
Also, you can revisit your management reserve for a review. The EMV technique has a few drawbacks, which include: In the calculation, you assume that all risks are independent, which is not the case all the time, in reality.
based on 46 review