1. The Project’s Success leads to Business Success. A Study on Calculating the Optimal Contingency and Management Reserves for Project Budget (프로젝트 예산 편성을 위한 적정 예비비 산정에 관한 연구) Kwon, HyukChun CPA / PMP November27th,2009

6. Cost : Sumof Expenses, Result WBS

7. The Factors to Change the Budget Background

8. The Study Approach Background

9. Theory Theory UAA, MSPM PMBOK Guide, Text Book, Case Study

10. The Factors to affect Project Risk Theory Uncertainty (Known, Unknown, Identified, Not Identified) * External Environment Stakeholders Project Team Members * Internal Project Boundary Human Resources

12. Required Skill (Tech, Leadership, Communication …)

13. Knowledge, Competency, Ability-> Refer to NASA Cost Estimating Hand Book Volume 4

14. Cost /Time / Scope / Risk Theory Budget without Risk Scope with Risk Scope without Risk (Scope Management) Cost Management Budget with Risk Resources Risk Management Scope (WBS) Resource Management Time Time Management

15. Risk / Budget Theory (Net Cost) (Contingency Reserve) (Allowance) (Management Reserve) (Point Estimate) PMI Global Congress North America 2007

16. Budget Theory Resources Allowance (Unknown Knowns) Contingency Reserve (Known Unknowns) Net Cost (Known Knowns) Management Reserve (Unknown Unknowns) Uncertainty(Risk) Time Point Estimate Budget Base Line Total Project Budget

17. Contingency & Management Reserve Theory Management Reserve Contingency Reserve included From PMBOK Guide, page 170

21. Decision Tree Analysis

24. Hierarchical Representation and Decomposition

26. Coil Winding machine Future Mgmt Safety Net Upgrade New Fully automatic AHP/HDP Literature Review Net : Safety = 3:1 Net : future = 6:1 Net : Mgmt = 7:1 Safety: Fut = 5:1 Safety:Mgmt = 2:1 Fut : Mgmt = 1:3

29. Executable within the Level of Confidence

32. Simulation Approach

33. Hybrid Scenario Based Approach

34. Integrated Risk ManagementStep 1. Generate / Obtain Point Estimate Step 2. Quantify Cost Estimating Uncertainty Step 3. Quantify Technical Risk Step 4. Quantify Correlation Step 5. Run Simulation Step 6. Assess Risk Dollars/ Unallocated Future Expense Step 7. Allocate Risk Dollars to the WBS

36. Held by the Program(Mission Directorate): Contingency Reserve Management Reserve Cost Point Estimate or Sum of Most likely WBS Element Costs Confident level 70% Unallocated Future Expense(UFE)

37. Allocating “Risk Dollars” Back to Individual Cost Elements – Stephen A. Book Literature Review WBS-Element Triangular Cost Distribution Merge WBS-Element Cost Distribution Probability A. Most Likely Total Cost Most likely + Confident Level (70%) B. + Cost UFE C. Point Estimate or Sum of Most likely WBS Element Costs + To be allocated in proportion to their Riskiness.

39. More Cost Risk, More Risk Dollar

41. Summary of Literature Review Literature Review

43. Table of Contents

44. Cost Estimator Career Development Philosophy

45. Leadership Development Philosophy

46. Minimum Actions to Ensure Effective Career Development

47. Career Directions and General Career paths

48. General and Technical Competencies

49. Attitude

50. Training and Development Experiences

51. Certification and Continuing Professional Education

54. Open Survey (Thru PMPCafe)

56. Survey Result Survey Q 2. Do you estimate the Contingency Reserve andManagement Reserve in your project budget? 32 % Total59 68 %

58. 10 ~15% : 9

59. 16~30% : 332 % Total59 31 % 24 %

60. Survey Result Survey Q 4. Have you done your project within the budget including reserves? 24 % 32 % Total59 44 %

62. Case Study Case Study “ Construction Project for Production Base in Vietnam” Developed by D Construction Co. Ltd.

63. WBS Case Study Project Electrical Works PM Civil Works Mechanical Works Architecture Works # 1. On-Shore Works # 3.Power Plant # 6. Facilities # 8. Electric Equipments # 2. Off-Shore Works # 4.Utilities House # 7. Machines # 9 Cabling # 5. Main Office PM Omit PM for easy calculation of the budget

66. Risk Register Case Study

69. Budget Base LineBase Estimate 1,250 (2.22%) Contingence Reserve + 260 Budget Base Line 1,510 ( 19.6%)

72. Management Reserve Risk dollar amount at Confidence level – (Base Estimate + Contingence Reserve) $ 1,741 - $ 1,510 = $ 231 (15.3 % of the Budget Base line)

73. Summary Case Study Contingency Reserve Management Reserve Base Estimate Budget Baseline Total budget

74. Summary Case Study

76. Budget based upon a Quantification of all the Risks.

77. Define Confidence Level

78. Allocate Risk Dollars as Reserves