Touran, A (2010) Probabilistic approach for budgeting in portfolio of projects. Journal of Construction Engineering and Management, 136(3), pp. 361-366. ISSN 0733-9364
Abstract
This paper presents a mathematical model for calculating the budgetary impact of increasing the required confidence level in a probabilistic risk assessment for a portfolio of projects. The model provides a rational approach for establishing a probabilistic budget for an individual project in such a way that the budget for a portfolio of projects will meet a required confidence level. The use of probabilistic risk assessment in major infrastructure projects is increasing to cope with major cost overruns and schedule delays. The outcome of the probabilistic risk assessment is often a distribution for project costs. The question is at what level of confidence (i.e., the probability that budget would be sufficient given the cost distribution) should be used for establishing the budget. The proposed method looks at a portfolio of such projects being funded by the same owner. The owner can establish a target probability with respect to its annual budget. The model can help the owner establish confidence level for individual projects and also examine the effect of changing the confidence level of the portfolio budget on the budget and the confidence level of individual projects. The paper is relevant to practitioners because it provides a methodology for establishing confidence levels by the owner agencies in the emerging field of cost risk assessment for infrastructure projects. A numerical example is provided using actual transit project data to demonstrate the model application.
| Item Type: | Article |
|---|---|
| Uncontrolled Keywords: | assessment; budgets; construction budget; construction costs; cost overrun; mathematical model; mathematical models; portfolio budget; probabilistic risk assessment; probability; project management; risk management; transit projects |
| Index terms: | methodology, practitioner, agency, mathematical model, project data, project cost, budgeting, risk assessment, risk management, infrastructure project, project management, schedule delay, cost overrun, construction cost, owner, construction budget |
| Subjects: | project controls, sociology, infrastructure and transport systems, financial management, economics, research methods, project management theory and practice, financial risk, financial and cost management, risk assessment, data collection methods, mathematical modelling, practitioner |
| Topics: | Engineering Principles, Research Practice, Project Management, Cost Management, Business Strategy, Risk Management, Roles and Professions, Stakeholder Management, Time Control |
| Descriptive scope: | 5 PCTEA |
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