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Planning Uncertainties Survey of Techniques

IP.com Disclosure Number: IPCOM000219823D
Publication Date: 2012-Jul-17

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PLANNING FOR UNCERTAINTIES, APPLIED TECHNIQUES

John T. Thiem*, M., A.A.C.E.; M., P.M.I.

Robert E. Templet~n**, Fellow M., A.A.C.E.; M., P.M.I.

Introduction

A major concern for both Owner and Contractor management in making business decisions is that a capital project will fail to meet the planned scheduled completion date and/or overrun the base estimate cost plus contingency allocated to that specific project. Schedule plans and capital cost estimates of necessity forecast the future. Therefore, contingency must be added to both the schedule and the base estimate to minimize the risk of possible time and/or cost overruns.

The Contractor on lump sum projects must provide for the risk of uncertainties that are within his area of responsibility, but must remain completitive in order to be awarded the project. On open cost projects, the Owner, irrespective of whether his management is providing the capital funds or a third party is financing the project, does not want to have to request addititional funds nor pay the added costs attendant with overfunding. Therefore, it
is highly desirable for Contractor Management to have a sound approach which quantifies the uncertainty in the plan of scheduled work activities as well as the cost estimate of a capital project, and enables selection of an appropriate contingency so as to avoid either major time and/or cost overruns or unnecessary funding costs.

The objective of this paper will be to present a schedule contingency selection method, building on the ~revious discussion of how contingency costs are calculated. This method quantifies the planning and scheduling elements at risk within the cost estimate by using an input data model in order to produce an output project schedule profile which is a graphical s~ary plot of expected schedule duration versus overrun probability.

*Manager, Project Controls Department,


The M. W. Kellogg Company
Three Greenway Plaza, Houston, Texas 77046-0395

**Manager, Cost Management Services,

Project Controls Department

The M. W. Kellogg company


Three Greenway Plaza, Houston, Texas 77046-0395


Page 02 of 25

2

Definitions

2


The December 1982 issue of Hydrocarbon Processing has provided some basic generally accepted detlnitions and concepts which should be presented by way of introduction to the schedule contingency calculation method to be discussed in this paper. Tnese definitions are:

o CONTINGENCY - A provision for an occurrence dependent upon chance, accident, or uncertain event.

o RISK

o SENSITIVITY

o ANALY~ IS

- A separating or breaking up of any whole into its parts so as to find out their nature, proportion, function, and relationship.

The generally accepted definitions for contingecy, risk, sensitivity, and analysis are appropriate when applied to the planning and scheduling elements of estimates.

Estimate Accuracy

The next step concerns the accuracy of the estimate. A high level of accuracy may be expected, but often is unrealistic. If the accuracy is...