W1 - Piero_Anticona_Pros&Cons of Hiding Contingency

1)      Step 1- Problem or Opportunity Statement-

Public Capital Projects are not excluded from uncertain events which when they occurred, they create overruns. Public companies are restricted by the fact that they can do a risk assessment and register risk or opportunities and implement a risk management process but they cannot include a contingency in the project budget. Therefore, when money is required project managers have to justify a budget increase and start over a process to ask for funds when in other projects that have a contingency, they only have to activate a change management process for use of contingency. What are the advantages or having contingency approved in the budget or ask for funds when required?

The following post will analyze the Pros and Cons of Hiding Contingency.

  

1)      Step 2 – Feasible Alternatives

The following options will be taken into consideration:

1.       Do not include contingency

2.       Include Contingency

                                                               i.      Include it and show it and put it in a contingency project account

                                                             ii.      Include it but Bury it in project accounts

2)      Step 3- Develop the outcomes for each alternative

1.       Do not include contingency

·   Less Probability to Meet Budget

·   No money allocated

·   Needs the approval to ask for funds

·   Strong Monitoring of Risk Management Plan

·   Involve more people in making decisions

·   Not so easy to shift or transfer money into accounts

2.       Include Contingency

                                                               i.      Include it and show it and put it in a contingency project account

·         Less Probability to Meet Budget

·         The tendency to Use Buffers

·         Needs to activate process for request use of contingency

·         Weak Monitoring of Risk Management Plan

·         Fewer people to make a decision

·         Easy to Shift to Project Account Required

                                                             ii.      Include it but Bury it in project accounts

·         More Probable to Meet Budget

·         Buffer ignored

·         Do not need the approval to use it

·         Weak Monitoring of Risk Management Plan

·         No people needed to make decisions

·         No need to shift

3)      Step 4- Selection of the acceptable criteria.

The following attributes will be considered as the selection criteria

a.       Reliability

b.       Accuracy

c.       People Involved

d.       The effort to Monitor Risk

e.       Allocation

4)      Step 5- Compare the outcomes from each alternative analysis done in Step 3 against the minimum acceptable criteria from Step 4.

We are going to use Multi-Attribute Decision Making methods.

Non Compensatory Models

1.       Dominance

Conclusion

Nothing is eliminated. Buried dominates Buffer. The buffer could be the best choice.

2.       Satisficing

Conclusion

Nothing is already eliminated, Buried could be unacceptable. Therefore Buffer satisfies as the best choice

3.       Lexicography

Conclusion

Buried better than Buffer

Compensatory Models

1.       Non Dimensional Scaling

2.       The additive weighting technique

       

5)      Step 6- Selection of the “best”.
       Buried Contingency is 4 out of 6 models a better choice.

6)      Step 7- How to plan on tracking/reporting on the recommended choice. 

This approach needs to be documented to avoid that a new member of a team or for some reason persons who knew about this who left the project, know about this approach.

A Plan on tracking this is the best choice is to establish an adequate frequency in assessing a contingency in order to do not drawdown contingency and then reallocate it again.                                                            

7)      REFERENCES.

Guild of Project Controls. (2016, January 05). 08.0 Managing Cost Estimating & Budgeting. Retrieved September 15, 2018, from http://www.planningplanet.com/guild/gpccar/conducting-a-cost-risk-analysis

Sullivan, W. G., Wicks, E. M., & Koelling, C. P. (2012). Decision making Considering Multiattribute. In Engineering Economy (15th ed.). Harlow, England: Pearson Education Limited.

GAO Cost Estimating and Assessment Guide- Best Practices for Developing and Managing Capital Program Costs. Page 6-7.