Risk Engineering Society Contingency Guideline 2016 - PDF


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Risk Engineering Society Contingency Guideline: A reference for different practical risk based decision making approaches to managing schedule and cost contingency reserves throughout the project and program investment lifecycle.

DescriptionThe RES Contingency Guideline provides a reference document for different practical approaches and guidance to sizing, allocating and managing the most appropriate contingency reserves (time and cost) required at different stages of the asset investment lifecycle for projects and programs. It also explicitly takes into account the risks facing the investment as well as the decision-makers’ level of risk appetite and tolerance. While this guideline is predominantly for project managers, estimators, schedulers and risk engineers, it also provides a useful overview for business leaders wanting to better understand contingency management and its importance in achieving the objectives of project based organisations. This guideline is also designed to raise the general level of awareness of executives about how contingency should be assessed, used and retained from projects to the program and portfolio levels of an organisation. It also provides guidance to establish a consistent methodology to transfer this data between organisational levels to facilitate effective decision making. The RES Contingency Guideline acknowledges that there is a broad range of contingency definition, setting and management methodologies and while a “one size fits all” approach is not appropriate, there are benefits in constructing a common framework with a uniform set of terminologies and approaches, a high degree of transparency, guidance on clear authorisation arrangements, and fit-for-purpose governance

Table of Contents:

1. Introduction 
1.1 Preamble 
1.2 Purpose
1.3 Definitions 
1.4 General principles
1.5 Contingency and project lifecycle
1.6 Contingency Reserve (CR) and Management Reserve (MR)
1.7 Program and portfolio level contingency 
1.7.1 Portfolio risk and contingency management structure
2. Contingency and risk management 
2.1 Contingency and the risk management process 
2.2 Risks with potential schedule and cost impacts 
2.3 Factors leading to time and cost overruns
2.4 Inherent & contingent risks 
3. Contingency management framework
3.1 Process overview 
3.2 Key attributes of contingency 1
4. Contingency calculation 
4.1 Overview 
4.2 Time and cost contingency 
4.3 Contingency calculation methods 
4.3.1 Deterministic methods 
4.3.2 Probabilistic methods 
5. Contingency allocation
5.1 Overview
5.2 Schedule contingency allocation
5.2.1 Vertical allocation
5.2.2 Horizontal allocation
5.3 Cost contingency allocation
5.3.1 Vertical allocation
5.3.2 Horizontal allocation
5.4 Contingency and project performance measurement
6. Contingency control
6.1 Schedule contingency control
6.2 Cost contingency control
6.3 Contingency monitoring and reporting
7. Contingency and escalation
Appendix A Key definitions
Appendix B Australian government and contingency
B.1 Federal Government 
B.1.1 The Treasury 
B.1.2 Department of Infrastructure and Regional Development 
B.2 States & Territories 
B.2.1 New South Wales (NSW)
B.2.2 Victoria (VIC) 
B.2.3 Queensland (QLD) 
B.2.4 Western Australia (WA) 
B.2.5 South Australia (SA) 
B.2.6 Tasmania (TAS) 
B.2.7 Northern Territory (NT) 
B.2.8 Australian Capital Territory (ACT) 
Appendix C Schedule Risk Analysis (SRA) 
C.1 Purpose 
C.2 SRA overall process 
C.2.1 Schedule health check and rectification 
C.2.2 Risk allocation to Base Schedule 
C.2.3 Monte Carlo Simulation 
C.2.4 Output review and validation 
C.3 Updating and documenting SRA 
Appendix D Cost Risk Analysis (CRA) 
D.1 Purpose 
D.2 Key elements of CRA 
D.2.1 Base Estimate 
D.2.2 Base Schedule and schedule risks 
D.2.3 Workshops and review meetings 
D.2.4 Optimism bias 
D.2.5 Correlation and relationships between model inputs 
D.2.6 Distributions and ranges 
D.2.7 Number of cost line items and inputs 
D.2.8 Escalation 
D.2.9 Exclusions 
D.2.10 Other specific areas of concern 
D.3 CRA overall process 
D.4 Output review and validation 
D.5 Updating and documenting CRA 
Appendix E Integrated Schedule Cost Risk Analysis (iSCRA)
E.1 Purpose
E.2 Overall process
E.2.1 Schedule health check and rectification
E.2.2 Base estimate 
E.2.3 Risk mapping to Base Schedule 
E.2.4 Cost mapping to Base Schedule 
E.2.5 Correlation and the relationships between model inputs 
E.2.6 Building the iSCRA model 
E.2.7 Integrated analysis 
E.3 Output review and validation 
E.4 Software requirements 
Appendix F Further reading 

Engineers Australia members: $30.00 incl. GST

RES members: $0.00 incl. GST

Non-members: $50 incl. GST

About the Author:

Author: Risk Engineering Society, Engineers Australia, 2016 (1st edition)
ISBN: 978-1-922107-87-9

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