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(EST-2201) Parametric Contingency Estimating on Small Projects

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Primary Author: Mathew Schoenhardt, P.Eng.
Audience Focus: Advanced
Application Type: Research
Venue: 2016 AACE International Annual Meeting, Toronto, ON, Canada

Abstract: Recommended practice 43R-08, Risk Analysis and Contingency Determination using Parametric Estimating applies historical empirical data to estimate contingency. This Parametric contingency method has clear advantages over other AACE recommended practices for mega-projects including speed, accuracy and cost effectiveness. While mega-projects capture the attention of executives, shareholders, media and researchers, the sheer quantity of many companies’ “small projects” can eclipse the capital spend of a single mega-project. For most companies, small projects are the foundation of sustained and incremental profitability. The size of “small projects” often precludes detailed contingency assessments by project managers while their puny stature renders them unattractive to academic research. As a result, many firms solve this problem by simply applying 10% contingency across the board to small projects, regardless of the project’s actual risk profile. This paper outlines a pioneering solution: a small-project systemic contingency tool. This paper will review how a Canadian midstream oil and gas company solved the problem of small-project contingency assessments using a parametric approach using in-house data.