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(RISK-1419) Managing Risk and Contingency from the Earliest Stages of Capital Planning

Primary Author: Mr Joseph M. Poskie

Audience Focus: Basic
Application Type: Application
Venue: 2013 AACE International Annual Meeting, Washington, DC, USA

Abstract: Capital facility owners and developers are faced with an environment of stringent funding requirements, demand for visibility and expected efficiency in the use of capital funds. Owners are expected to have reliable estimates and budgets early in the development continuum, prior to any design. Parametric estimating techniques leveraging values from historical projects and experience can be effective. Organizations that have established a collection of reliable and historic costs and estimates, using consistent cost and work breakdown structures, can leverage the statistical sample to derive expected costs for similar future scope. Doing this has inherent statistical risk which can be calculated and planned for as contingency. Furthermore, the calculated contingency can be effectively applied to allow for contingency drawdown and release as risk is mitigated over the course of the project or program. This paper will discuss calculation of contingency for estimates derived from a historic sample along with the management of the contingency in connection with a risk mitigation plan for a project or program.