The effect on contingency allowances of using risk analysis in capital cost estimating: a Hong Kong case study

Stephen Mak, Jenny Wong and David Picken

Construction Management and Economics, 1998, vol. 16, issue 6, 615-619

Abstract: In 1993 the Hong Kong Government implemented a methodology for capital cost estimating using risk analysis (ERA) in its estimating for the planning of public works projects. ERA is a simple approach and is used to estimate and calculate an amount of money to allow for uncertainties associated with a project. This calculated amount of money replaces the pre-1993 contingency allowance, which was merely a percentage addition on top of the base estimate of a project. A team approach is adopted to identify, classify and cost the uncertainties associated with a project. The sum of the 'average risk allowance' for the identified risk events thus becomes the 'contingency'. 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 preliminary results of a survey which compares a total of 72 non-ERA and 19 ERA projects. The result shows a significant difference in variation and consistency between these groups. It indicates initial success in using the ERA method for public works projects to reduce unnecessary and exaggerated allowance for risk. Further improvement and refinement of the ERA method is suggested.

Keywords: Contingency; Era; Quantitative Risk Analysis; Variations (search for similar items in EconPapers)
Date: 1998
References: View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.tandfonline.com/doi/abs/10.1080/014461998371917 (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:taf:conmgt:v:16:y:1998:i:6:p:615-619

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/RCME20

DOI: 10.1080/014461998371917

Access Statistics for this article

Construction Management and Economics is currently edited by Will Hughes

More articles in Construction Management and Economics from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().