Why projects often fail even with high cost contingencies

Technical Report · Thu Feb 28 04:00:00 EST 2002

DOI:https://doi.org/10.2172/802046· OSTI ID:802046

Kujawski, Edouard ^[1]

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1. LBNL Library

In this note we assume that the individual risks have been adequately quantified and the total project cost contingency adequately computed to ensure an agreed-to probability or confidence level that the total project cost estimate will not be exceeded. But even projects that implement such a process are likely to result in significant cost overruns and/or project failure if the project manager allocates the contingencies to the individual subsystems. The intuitive and mathematically valid solution is to maintain a project-wide contingency and to distribute it to the individual risks on an as-needed basis. Such an approach ensures cost-efficient risk management, and projects that implement it are more likely to succeed and to cost less. We illustrate these ideas using a simplified project with two independent risks. The formulation can readily be extended to multiple risks.

• Research Organization: Ernest Orlando Lawrence Berkeley National Laboratory, Berkeley, CA (US)
• Sponsoring Organization: USDOE Director, Office of Science (US)
• DOE Contract Number: AC03-76SF00098
• OSTI ID: 802046
• Report Number(s): LBNL--51349; LBID-2382; B& R YN0100000
• Country of Publication: United States
• Language: English

Related Subjects

99 GENERAL AND MISCELLANEOUS
COST OVERRUNS
MANAGEMENT
PROBABILITY