Risk-Adjusted Contingency Management in Construction Projects

Successful project management (PM) aims at achieving the triple-constraint (time, cost and quality), respecting the elasticity between the three main drivers. To facilitate this, PM activities are supported by project risk management (PRM) in foresight and earned value management (EVM) in hindsight. Both PRM and EVM, being industry standards, facilitate to plan, and afterwards monitor and control the project cost. However, the two fields do not necessarily interact with each other which, in turn, hinders critical managerial decision making of releasing contingency reserves if demanded by the client since the money can be used as capital for other projects. Also, when inquired at any given point in time (corresponding to partial project completion), the project managers (PMs) find it tricky and challenging to confidently declare the adequacy of existing reserves till the project completion This provides research impetus for potential EVM-PRM integration and managing the contingency adjusted due to risk in the project. There is hardly any literature on this integration, resulting in lack of any viable framework to facilitate critical decision making. With objective to formulate a framework - coupled with necessary tools and techniques - this paper proposes the incorporation of EVM and PRM which aims at not only expanding the body of knowledge in the field of ‘project control’1 but also assist the PMs in securely and successfully steering the project to close out. The research is still in progress and no conclusive details are furnished as yet.