A practical method of determining project risk contingency budgets

D F Cioffi () and H Khamooshi
Additional contact information
D F Cioffi: The George Washington University
H Khamooshi: The George Washington University

Journal of the Operational Research Society, 2009, vol. 60, issue 4, 565-571

Abstract: Abstract Given a collection of accepted risks with corresponding impacts and probabilities over the life of a project (or a relevant portion), a method to estimate the total potential impact at a given certainty is presented. Project sponsors and managers can decide their risk tolerance and set aside corresponding contingency funds. This analytic method uses a binomial distribution with a probability equal to the risks’ average probability. At a desired statistical confidence level, the number of risks to consider is determined, and risks are ranked in descending order of either impact or expected value of impact. The ranked risks’ impacts are then summed over the specified number of risks, leading to an appropriate contingency budget. The budget found with this method compares extremely well with the one ascertained from numerical simulations of the risk occurrences.

Keywords: risk; simulation; control; planning; decision analysis; project management (search for similar items in EconPapers)
Date: 2009
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
http://link.springer.com/10.1057/palgrave.jors.2602586 Abstract (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:pal:jorsoc:v:60:y:2009:i:4:d:10.1057_palgrave.jors.2602586

Ordering information: This journal article can be ordered from
http://www.springer. ... search/journal/41274

DOI: 10.1057/palgrave.jors.2602586

Access Statistics for this article

Journal of the Operational Research Society is currently edited by Tom Archibald and Jonathan Crook

More articles in Journal of the Operational Research Society from Palgrave Macmillan, The OR Society
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().