Journal of Korean Society of Industrial and Systems Engineering (산업경영시스템학회지)

Society of Korea Industrial and System Engineering (한국산업경영시스템학회)
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Contingency and Management Reserves Estimation Method for Project Budget

프로젝트 예비비 편성 방법에 관한 연구

  • Kwon, Hyukchun (Department of Industrial and Management Engineering, Hanyang University) ;
  • Kang, Changwook (Department of Industrial and Management Engineering, Hanyang University)
  • 권혁천 (한양대학교 ERICA Campus 산업경영공학과) ;
  • 강창욱 (한양대학교 ERICA Campus 산업경영공학과)
  • Received : 2015.12.02
  • Accepted : 2016.02.03
  • Published : 2016.03.31
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Abstract

Many organizations have transformed their business in order to survive and compete in the future. They generate projects by creating a vision, using strategies and objectives with funds aligning strategies and make efforts to complete them successfully because project success leads to business success. All projects have triple constraints such as scope, time, and cost to be completed. Project cost performance is a key factor to achieve project goals and which is mostly related with risks among various cost drivers. Projects require a cost estimation method to complete them within their budget and on time. An accurate budget cannot be estimated due to the uncertainties and risks. Thus some additional money should be funded in addition to the base budget as a contingency reserve for identified risks and a management reserve for unidentified risks. While research on contingency reserve for identified risks included in project budget baseline have been presented, research on management reserve for unidentified risks included in total project budget is still scarce. The lack of research on estimation method and role of the management reserve have made project managers little confidence to estimate project budget accurately with reasonable basis. This study proposes a practical model to estimate budgets including contingency and management reserves for not only project cost management but also to keep the balance of organization's total funds to maximize return on investments for project portfolio management. The advantages of the proposed model are demonstrated by its application to construction projects in Korea and the processes to apply this model for verification are also provided.

Keywords

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