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Strategies to include Contingency in Public Project Estimates

 

FEATURED PAPER

By Piero G. Anticona Tello

Lima, Peru

 


ABSTRACT

In some countries, Public Projects do not allow Contingency. As Private Projects, they also finish with cost overruns, because they are not exempt from the same problems during the execution of activities.

Can we determine a good strategy to include a contingency in their budgets and meet point estimates to avoid cost overruns?

The author has analysed different tools and techniques to respond strategically or tactically to an event and especially that can adapt to Public Projects Policies if we want a high confidence level of probability to meet project point estimates.

In addition, there is an analysis of what tools and techniques can help projects to monitor if these alternatives are helping to meet criteria like tendency charts or accuracy and precision of final estimates in order to accomplish projects’ objectives.

A preliminary assessment can be conducted when preparing Estimates during Sensitivity Analysis, therefore, we can evaluate what strategy can be implemented for specific cost drivers and their potential impacts.

We can conclude that Buffer and Contingency strategy from the Guild of Project Controls is a good technique that meets all the criteria to prevent exceed Public Projects’ Estimates.

Keywords:  Management of Contingency, Allocation of Contingency, Budget Transfer, Budget Shift, Trends and Contingency, Public Projects Point Estimates, Buffer Contingency, Buried Contingency, Risk or Opportunities Responses, Monitoring Risk, Sensitivity Analysis Factors.

INTRODUCTION

It is well known that indistinctly, private or public projects finish with cost overruns. Causes for cost overruns have been listed by many authors who have done research in different sectors and different project sizes, founding justification on bad estimates, poor tracking and analysis,  bad forecast, bad contracts, poor project definition, final costs incurred were not based on the initial BOE, true cost was not revealed because cost-benefit analysis hurdles, bad control of project changes, unsettle requirements during quotation phase, project complexity, regulatory issues, type of ownership, etc.

Focusing on bad estimates, reasons to get results that do not match with what really happens in real life can also be listed as the bad definition of scope, early estimates are biased over-optimism, inaccurate initial estimates of overall cost and schedule reflecting technology development to accomplish the original work scope; ratios or unit prices are not updated, estimates are a function of the stage of the development of the subject article, escalation indexes that not reflect reality, lack of experience of estimator, bad estimation of contingency, contingency was not estimated, etc.

What is really surprising on the previous list is that Contingency is not estimated in some cases. A couple of reasons that it cannot be estimated are, poor knowledge of estimation methods or policies of public entities does not allow Contingency.

The author has noticed that most public projects in Peru do not allow contingency because “the government does not make mistakes”[1] (sic). This phrase is so far away from reality. Any Public Project executed is not exempt from the same problems as the private sector.

Why is important to have a contingency in public projects? To help Public Entities to have a more realistic estimate, avoid cost overrun and to meet best practices in preparing point estimates.

The risk management process integrates the analysis of the contingency, which can be estimated in time or cost, to finance the response plans during the occurrence of known events that were identified previously.

More…

To read entire paper, click here

 

How to cite this paper: Tello, P. G. A. (2019). Strategies to include Contingency in Public Project Estimates; PM World Journal, Vol. VIII, Issue III (April).  Available online at https://pmworldlibrary.net/wp-content/uploads/2019/03/pmwj80-Apr2019-Anticona-strategies-to-include-contingency-in-public-project-estimates.pdf

 


 

About the Author

Piero G. Anticona Tello

Lima, Peru

 

 

Piero Anticona is a project controller with 15 years of professional experience in the sectors of Mining, Energy and Oil and Gas. He worked as Owner, EPCM and Contractor in different projects in Peru, Spain and France. Piero is a Certified Cost Professional from AACE International and Project Management Professional from Project Management Institute. Piero graduated from SKEMA (France) with a Master in Program and Project Management. In addition, he has a major study in Mechanical Electrical Engineering from Universidad Nacional de Ingeniería (Peru). He is currently president of AACE International Peru Section (2018-2019) and he is attending a distance learning mentoring course, under tutorage of Dr Paul D. Giammalvo, CDT, CCE, MScPM, MRICS, GPM-m Senior Technical Advisor, PT Mitrata Citragraha, to attain Guild of Project Controls certification.

Piero lives in Lima, Peru and can be contacted at piero.anticona@gmail.com

 

[1] Author Unknown

 

 

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