Budgeting Owner’s Construction Contingency

This paper attempts to find ways to reduce an owner’s construction contingency budget such that just enough contingency is allocated that will allow the owner to deal with uncertainties but at the same time not tie up valuable funds that can be used for other activities. It is suggested that the common practice of allocating a fixed owner contingency (e.g., 10% of the contract value) to all projects contracted out by an owner is not appropriate. Instead, a methodology is proposed whereby the owner (1) analyzes historical project data; (2) identifies the line items that are problematic; (3) takes the necessary measures at the preconstruction stage to streamline these line items with respect to site conditions, time constraints, constructability issues, and project scope; and (4) finally budgets contingency funds based on this information. A case study was conducted to analyze the contingencies budgeted and actually spent by an owner in nine parking lot projects. The findings indicated that a systematic approach such as the methodology proposed in this paper is likely to minimize the owner’s contingency budget.     

Using Risk Analysis to Determine Construction Project Contingencies

A contingency allowance is an amount of money used to provide for uncertainties associated with a construction project. Traditionally, it is a percentage addition on top of the base estimate. Estimating using risk analysis (ERA) is a methodology that can be used to substantiate the contingency by identifying uncertainties and estimating their financial implications. A study of the effect of ERA was carried out to compare the variability and consistency of the contingency estimates between non-ERA and ERA projects. This paper presents results of a survey that compares a total of 287 non-ERA and 45 ERA projects. The results show a highly significant difference in variation and consistency between these groups. It indicates successful use of the ERA method for public works projects to reduce unnecessary and exaggerated allowance for risk. However, the contingency allowance for ERA projects was still considered high. Improvement and refinement of the ERA method as well as recommendations on capital budgeting policy are suggested.     

Quantiative Methodology for Determination of Cost Contingency in International Projects

This paper presents a quantitative methodology to determine financial impacts of the risk factors during the bidding stages of international construction projects. Project and country data of 26 construction projects from 21 countries were collected for evaluation of the international risk factors. The factors impacting cost contingency were identified using correlation and regression analysis techniques. The results indicated that four factors had major contributions for explaining the variations in the contingency levels. A regression model including the significant factors was developed to support bidding contingency decisions. The methodology presented provides a robust and practical statistical approach for determination of contingency by focusing on important risk factors. Details regarding model development and validation are presented along with a discussion on study limitations.     

Discriminant Analysis for Predicting Ranges of Cost Variance in International Construction Projects

Unanticipated market conditions as well as project-related risks can easily lead to cost overruns in international construction projects. For a contractor to be financially successful in international projects, a careful examination of the project is a prerequisite to understanding the cost variance characteristics. Based on the reasonably accurate characterization of the cost performance, the markup or contingency amount is determined to ensure both a decent level of profit and a good chance of winning the contract. This paper presents a classification model to categorize international construction projects, particularly faced by Korean contractors, into five cost-variation classes: extreme cost overrun, moderate cost overrun, neutral, moderate cost saving, and extreme cost saving. The model is able to characterize an international project for its cost performance prediction in comparison to the contractor’s initial cost estimate. A linear discriminant analysis is utilized to develop the predictive classification model with the support of the bootstrap method. Tests show that the proposed model is able to help cost estimators determine a proper level of cost contingency before bidding on an international project.     

Estimation of Cost Contingency for Air Force Construction Projects

Risk and associated cost overruns are critical problems for construction projects, yet the most common practice for dealing with them is the assignment of an arbitrary flat percentage of the construction budget as a contingency fund. Therefore, our goal was to identify significant variables that may influence, or serve as indicators of, potential cost overruns. We analyzed data from 203 Air Force construction projects over a full range of project types and scopes using multiple linear regression to develop a model to predict the amount of required contingency funds. The proposed model uses only data that would be available prior to the award of a construction contract. The variables in the model were categorized as project characteristics, design performance metrics, and contract award process influences. Based on the performance metric used, the model captures 44% of actual cost overruns versus the 20% captured by the current practice. Furthermore, application of the model reduces the average contingency budgeting error from 11.2 to only 0.3%.     

Reliability Buffering for Construction Projects

Buffering is a common practice in project planning. Project managers or schedulers have used a time contingency to guarantee the completion time of either an activity or a project. This traditional buffering, however, often fails to protect the project schedule performance, resulting in an unnecessary resource idle time. To deal with this problem, reliability buffering, a simulation-based buffering strategy, is presented. Reliability buffering aims to generate a robust construction plan that protects against uncertainties by reducing the potential impact of construction changes. The effectiveness of reliability buffering is examined by simulating a dynamic project model that integrates the simulation approach with the network scheduling approach. The research results indicate that reliability buffering can help achieve a shorter project duration without driving up costs by pooling, resizing, relocating, and recharacterizing contingency buffers. A case study of bridge construction projects also demonstrates how construction projects can benefit from reliability buffering in real world settings. Although further validation is needed, reliability buffering can potentially impact the planning and control of construction projects by improving the consideration of construction feedbacks and characteristics in buffering, and serving as an input to a dynamic project model.     

Alternative Delivery Approaches for Military Medical Construction Projects

Military medical construction projects take more than 10 years to complete, from the time the need for a new facility is identified until the building actually opens for occupancy. This time is often extended even further due to complications during the design and construction process. Furthermore, these projects often are completed well over their original budget. Although there are many reasons for this exorbitant amount of time and many causes for the budgetary problems, one of the major factors is the reliance on the traditional methods of a lump-sum contract and the design∕bid∕build project delivery approach. The writers illustrate how the use of alternative project delivery methods (specifically construction management and design∕build) can reduce the amount of time it takes to design and build a new military medical facility, as well as reduce the overall cost of the project. The advantages offered by these alternative delivery methods are set forth, and their applicability within the federal procurement process is discussed. Several recommendations are then given for using these methods for the design and construction of military medical facilities.     

Multiproject Planning and Resource Controls for Facility Management

Facility managers face the challenges of managing many different types of small, geographically dispersed construction projects. Depending on the complexity and distribution of projects, the time required to prepare for production consumes a large percentage of the total time required to complete the job. Increasing crews’ productive hours is a key objective when planning multiproject schedules. Existing methods, however, lack the effective means to explicitly model, analyze, and optimize resource utilization for these multiple concurrent projects. As a result, few facility managers fully exploit the potential to better manage their often limited budget and resources. This paper presents an explicit model of the mobilization requirements of multiple crews performing a variety of different activities over a geographic space. The model allows the facility manager to explicitly investigate the impact of crew composition, crew specialization, and depot locations. Using work rule decisions regarding alternative crew allocations, facility managers may dynamically allocate resources to optimize resources and to complete projects in a minimum amount of time. To verify and validate this new model, a computerized system, called FIRS (Facility/Infrastructure Resource Scheduler), was created to analyze the multiproject resource plans with data from two military organizations and a university campus. FIRS utilizes a new genetic algorithm that was developed specifically to work with multiproject scheduling. Using FIRS, facility managers can develop and test alternative crew allocations based on the qualifications of the crews available and the type of operation being performed.     

Achieving Multiple Project Objectives through Contingency Management

Project managers use budgets to satisfy multiple objectives such as cost control, short durations, and high quality. Contingency funds are included in project budgets to manage risk and achieve project goals. Understanding how managers use budget contingencies requires a dynamic information processing model of how managers bridge the gap between high project complexity and limited managerial capacity. The results of collecting contingency management practices of real estate development project managers is reported and a dynamic simulation model of contingency management described. The model is used to test hypotheses of the effectiveness of aggressive and passive management strategies on cost, timeliness, and facility value. Managers were found to pursue general project objectives in their management of contingency. An aggressive strategy was found to be more robust but performed poorer than a passive strategy. Conclusions include the prevalence of trade-offs between robust and high-performance contingency management policies in construction projects and the importance of incorporating uncertainty into project planning and management.     

Small to Medium Contractor Contingency and Assumption of Risk

This paper is the result of an investigation into the use of contingency in smaller construction firms. It summarizes recent literature classifying construction contract risks and mitigation measures. Eight major classifications are used to organize the types of risk found in the literature. The risks are described in detail with associated risk mitigation strategies. Risk modeling techniques are briefly reviewed for their contribution to the risk categorization and contingency estimating. After reviewing the researcher's concepts of risk management in the literature, interviews were conducted with estimators and∕or construction managers involved in the bidding process at 12 small to medium construction firms. The purpose of the interviews was to investigate the current risk management practices of small and medium size construction firms. The times when smaller companies used contingency had specific interest for the research. The literature findings were compared with important risk factors identified from the interviews. The main conclusion drawn from the comparison was that small to medium size contractors predominately use contingency in those situations where they are construction managers in a reimbursable contract. Generally, they do not use line item contingency in competitive bidding situations. Thus, these firms are assuming proportionally greater business risk than suggested by the literature on contingency.     

Military Facility Cost Estimation System Using Case-Based Reasoning in Korea

Numerous cost estimations are made repetitively in the initial stages of construction projects in response to ongoing scope changes and often need to be recalculated frequently. In practice, the square foot method, considered an effective method for time-saving, is widely used. However, this method requires a great amount of effort to calculate a unit price and does not consider the uniqueness of each case. Thus, the use of the square foot method could bring about unwanted consequences. For example, in the case of military projects in Korea, significant differences have been reported between estimations made using this method and the actual costs. In an effort to deal with this challenging issue, this research develops a military facility cost estimation (MilFaCE) system, based on case-based reasoning (CBR), using case data from 422 construction projects at 16 military facilities. Based on system validation experiments involving 10 military officers (engineers), the effectiveness of the system in terms of estimation accuracy and user-friendliness is confirmed. Consequently, this research can be a CBR application example of construction cost estimation and a basis for further research into the development of cost estimate systems.     

Multicriteria Financial Portfolio Risk Management for International Projects

While opportunities for international construction firms have been growing with globalization, the risks involved with international construction projects are increasing significantly. However, due to the complex skein of various risks, it is difficult to evaluate the severity of risk variables at the corporate level and to examine key success factors in an attempt to maximize a firm’s value under the challenging global business environment. This paper focuses on a financial portfolio risk management for international projects to integrate the risk hierarchy of both individual projects and at the corporate level, which applies a multicriteria decision making method to maximize the total value of firms. To demonstrate the approach, a case study is conducted based on real projects collected from a multinational general contractor. Finally, we present lessons learned as well as guidelines for the application of these lessons to future projects through a workshop with industry practitioners.     

Bootstrap Technique for Risk Analysis with Interval Numbers in Bridge Construction Projects

Bridges are principal and vital transportation structures. If risk management is not considered in bridge construction projects, objectives cannot be delivered on time, on budget, or with suitable quality results. Risk data set sizes and experts’ judgments are not usually sufficient for analyzing significant risks in bridge construction projects; moreover, the statistical distributions for risk parameter estimates are usually unknown. Standard parametric statistical techniques cannot provide appropriate solutions for cases with small data sets or unknown distributions. This paper proposes a new hybrid approach by using a nonparametric resampling technique and interval computations for risk analysis, in particular, for bridge construction projects. Bootstrap techniques produce more accurate inferences for comparing parametric techniques and are an alternative when the underlying parametric assumptions are not considered. Increasingly, because of the complexity and uncertainty in decision making at bridge projects, it is easier or more natural to provide interval values for parts or all of decision-making judgments. Furthermore, the goal of reducing standard deviations for both risk probability and risk impact compared with the conventional approach is another conclusion of this paper. The proposed approach is applied to a case in Iran to show the validity of the approach.     

Risk Allocation by Law—Cumulative Impact of Change Orders

Change, defined as any event that results in a modification of the original scope, execution time, or cost of work, is inevitable on most construction projects due to the uniqueness of each project and the limited resources of time and money available for planning. There are many factors that may cause a change such as design errors, design changes, additions to the scope, or unknown conditions in the field. For each change, contractors are entitled to an equitable adjustment to the base contract price and schedule for all productivity impacts associated with the change. The focus of this paper is to outline the types of changes that can occur on a construction project and also to spell out the financial recovery possibilities that exist for the contractor for each type of change. There are many historical and current court decisions that shape the outcomes of such claims and determine who holds the risks associated with various project changes. Also, an effective cumulative impact claim contains certain vital elements upon which the final outcome will be determined by the legal system. Last, there are certain actions that a contractor and owner can do to either enhance or mitigate the effectiveness of a potential cumulative impact claim.     

Programmatic Cost Risk Analysis for Highway Megaprojects

Highway megaprojects (construction projects over $100 million) are fraught with uncertainty. These projects have historically experienced increases in project costs from the time that a project is first proposed or programmed until the time that they are completed. Persistent cost underestimation reflects poorly on the industry in general but more specifically on engineers. Traditional methods take a deterministic, conservative approach to project cost estimating and then add a contingency factor that varies depending on the stage of project definition, experience, and other factors. This approach falls short, and no industry standard stochastic estimating practice is currently available. This paper presents a methodology developed by the Washington State Department of Transportation (WSDOT) for its Cost Estimating Validation Process. Nine case studies, with a mean cumulative value of over $22 billion, are presented and analyzed. Programmatic risks are summarized as economic, environmental, third party, right-of-way, program management, geotechnical, design process, construction, and other minor risks. WSDOT is successfully using the range cost output from this procedure to convey project costs to management and the public.     

Investigating the Effectiveness of Certain Priority Rules on Resource Scheduling of Housing Estate Projects

The heuristic method is one of the methods used for the scheduling of resource-constrained projects. This method is commonly used in programming the projects with high number of activities and resources such as construction investments. This paper investigates the effectiveness of three heuristic method priority rules applied in the resource scheduling of ten Turkish housing estate projects which were scheduled according to three preselected priority rules [maximum remaining path length (MRPL), latest finish time (LFT), and minimum slack time (MNSLCK)] in resource-constrained conditions. The performance of each priority rule was evaluated in relation to the duration of the project. The results revealed that MRPL priority reduced the project duration to minimum in six projects, whereas LFT priority yielded the best duration results in three projects and MNSLCK priority in only one project.     

红土镍矿湿法冶炼项目选址要点概述

以印尼某红土镍矿湿法冶炼项目为例,通过对红土镍矿资源地区的自然条件、社会条件、外部交通条件、生态环境保护条件等影响因素结合项目工程特点进行分析,详细论述红土镍矿湿法冶炼项目在建厂选址时需要注意的若干要点,从而优化项目选址方案,并对此类项目投资决策与工程建设提供参考。     

Quantitative Risk Assessment of Cut-Slope Projects under Construction

In some cut-slope projects landslide is a common problem during construction due to unfavorable geomorphological and geomechanical conditions. It is necessary to do a quantitative assessment of the risk posed by landslide before determining the budget or tender price. This paper outlines a general procedure for doing this, followed by an example to demonstrate the approach in comparison to a known failure. Finite-element analyses identify the most dangerous landslide scenario among all construction steps. The slope failure probability is then estimated using reliability theory based on the most dangerous construction step. After identifying the potential failure surface and estimating the volume of the sliding mass, the runnout behavior of sliding mass is simulated to delimit the extent of likely impacted area. Then, the exposed elements at risk and their vulnerabilities are identified and analyzed. The landslide risk is assessed quantitatively for three types of consequences: casualties, economic loss, and time overrun. Compared with actual consequences, the estimation results were in acceptable agreement with the case study. The paper demonstrates that it is feasible to analyze the risk associated with landslides during construction of cut-slopes.     

Identification and Analysis of Factors Affecting Safety on Construction Sites with Tower Cranes

Tower cranes are the centerpiece of production on today’s typical building construction sites. Tower cranes hoist and transport a variety of loads near and above people, working under crowded conditions, occasionally with overlapping work zones, and often under time, budget, and labor constraints. This work regime further increases the safety risk on sites that are inherently hazardous workplaces. This paper presents the results of a study that identified the major factors affecting safety in tower-crane environments and evaluated the degree to which each factor influences ongoing safety on site. Use of statistical data on accidents was ruled out as a source of information due to the countless number of incidents that go unreported, the common inability of statistics to provide root causes, and the questionability of statistics as a predictor of accidents. The research methodology was therefore based on comprehensive questioning of an expert team that included the safety managers and equipment managers of leading construction companies. With the limited resources available for safety improvement and accident prevention, greater attention must be paid by all parties involved to those factors evaluated as highly affecting site safety due to tower-crane work.     

Construction Project Network Evaluation with Correlated Schedule Risk Analysis Model

Schedules are the means of determining project duration accurately, controlling project progress, and allocating resources efficiently in managing construction projects. It is not sufficient in today’s conditions to evaluate the construction schedules that are affected widely by risks, uncertainties, unexpected situations, deviations, and surprises with well-known deterministic or probabilistic methods such as the critical path method, bar chart (Gantt chart), line of balance, or program evaluation and review technique. In this regard, this paper presents a new simulation-based model—the correlated schedule risk analysis model (CSRAM)—to evaluate construction activity networks under uncertainty when activity durations and risk factors are correlated. An example of a CSRAM application to a single-story house project is presented in the paper. The findings of this application show that CSRAM operates well and produces realistic results in capturing correlation indirectly between activity durations and risk factors regarding the extent of uncertainty inherent in the schedule.