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(RISK-3294) Some Key Points of Contingency Drawdown Curves

Level: Intermediate
Venue: 2019 AACE International Conference & Expo, June 16-19, 2019, New Orleans, LA, USA

Abstract: The fundamentals of risk quantification used for estimating the amount of contingency for a project are well defined. An important step after quantification is the need for developing a forecast. This forecast is typically represented graphically by a downward-sloping curve. This curve is commonly referred to as a drawdown curve and it demonstrates when the contingency is expected to be used throughout the project’s lifecycle. This paper will present positions on certain key points with respect to the drawdown curve including: 1. the value of creating separate curves for cost and schedule contingency; 2. whether the profile should represent expenditure, i.e. cash flow, or obligation, i.e. when a risk is realized. 3. the most representative slope of the curve; and 4. how to treat management’s desire to use the project’s risk contingency funds for other purposes. 5. generally explore the traditional myths and misunderstandings of contingency drawdown curves.