Sara J. Wadia-Fascetti, Douglas D. Gransberg, Roberto Pietroforte
Date of Award
Doctor of Philosophy
Department or Academic Unit
College of Engineering. Department of Civil & Environmental Engineering.
civil engineering, Bayesian, contingency, cost overrun, portfolio of projects, probabilistic model, risk
Contingencies in finance, Public investments, Construction projects
Civil Engineering | Finance
Planning and executing a successful capital project is one of the main objectives of every public agency. However, studies show that large capital infrastructure projects, especially transit projects all around the globe have been mostly experiencing cost and schedule overruns.
In this research, a new probabilistic model is proposed for calculation of contingency in a portfolio of construction projects. A Bayesian approach is used to update historical contingency values based on new project data that becomes available. Most agencies dealing with a portfolio of infrastructure projects should define the level of confidence for the portfolio budget based on available funding and the agency's policy goals. An important question is what level of confidence is needed at the individual project level to insure that the portfolio budget will not overrun. This information is indispensable for the conduct of probabilistic risk assessment for individual projects. The mathematical model developed in this research provides an analytical tool for calculating contingency levels in such a way to meet agency goals with respect to individual projects and the project portfolio. It assumes a hybrid normal distribution for the cost of individual projects and uses the historical data to calculate the primary parameters of the model. The model defines the required confidence level for the risk assessment of individual project with respect to the desired confidence level for sufficiency of the portfolio budget. The required increase in the portfolio budget is calculated based on the desired confidence level. The correlation between costs of projects is recognized and a structured guideline along with a mathematical method is suggested for estimating correlation coefficients between costs of projects in the portfolio. To consider the recent performance of projects and to update model characteristics based on new project data that becomes available, a Bayesian approach is employed to update the model on regular intervals, such as once every two years. The proposed model is an effective tool for the agencies to develop contingency budgets based on all the performance data historically available and the new data that becomes available in the future.
Payam Bakhshi Khayani
Khayani, Payam Bakhshi, "A Bayesian model for controlling cost overrun in a portfolio of construction projects" (2011). Civil Engineering Dissertations. Paper 12. http://hdl.handle.net/2047/d20001078
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