Determining and monitoring the contingency funds required for any construction project is a process that must account for many uncertainties. French risk management consultancy PragmaRisk turned to Palisade’s DecisionTools Suite to help it tackle this issue and ensure that it makes realistic recommendations to its clients.
Using @RISK (part of the DecisionTools Suite), PragmaRisk performs integrated cost and schedule quantitative risk assessment (QRA) throughout the life of a project, which can run over several years.
It first identifies the probability of meeting the estimated budget if there is no contingency fund, and then selects the amount of contingency for the project depending on the risk profile as well as the contractor’s ‘risk appetite.’ Using a Monte Carlo approach does not predict what will actually happen, but it applies reasoning under conditions of risk and uncertainty so that these two key aspects to be distinguished.
The main uncertainties and risks affecting the budget of the project are then outlined. This allows mitigating action to be taken to reduce risks where possible. The completed risk profile highlights areas on which to focus and the risks to be mitigated.