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(EST-2827) Allocating Probabilistic Contingency

Contingency management is necessary in any mid or large project. Calculation of contingency should include concepts such as uncertainty and scenario thinking, blended into a probabilistic model. This final contingency number responds to a simulated scenario used as a reference for calculating the potential economic and duration extensions for the project.

From the budgeting side, funding the contingency requires a different number of business units to contribute, each one of them with a different magnitude. Finding that number, a percentage most of the time, is a task that should be carefully considered as each unit has a different level of risk exposure through time. Contingency managers have the duty of proposing a somewhat fair solution for the participant units as the project progresses, deriving a set of different calculations and prorating schemes that sometimes conflict between each other.

This initial research approaches the contingency allocation problem recognizing the need of disaggregation, model robustness and creativity in order to generate a set of valid alternatives to be applied to different industries, projects and realities.