Cost-risk contingency framework for managing cost overrun in metropolitan projects: using fuzzy-AHP and simulation

Abstract

PurposeRisk analysis plays a vital role in controlling and managing cost overruns in complex construction projects, particularly where uncertainty is high. This study attempts to address an important issue of cost overrun that encountered by metropolitan rapid transit projects in relation to the significance of risk involved under high uncertainty.Design/methodology/approachIn order to solve cost overrun problems in metropolitan transit projects and facilitate the decision-makers for effective future budgeting, a cost-risk contingency framework has been designed using fuzzy logic, analytical hierarchy process and Monte Carlo simulation.FindingsInitially, a hierarchical breakdown structure of important complexity-driven risk factors has been conceptualized herein using relative importance index. Later, a proposed cost-risk contingency framework has investigated the expected total construction cost in order to consider the additional budgeted cost required to mitigate the risk consequences for particular project activity. The results of cost-risk analysis imply that poor design issues, an increase in material prices and delays in relocating facilities show higher dependency and increase the risk of cost overrun in metropolitan transit projects.Practical implicationsThe findings and implication for project managers could possibly be achieved by assuming the proposed cost-risk contingency framework under high uncertainty of cost found in this research. Furthermore, this procedure may be used by experts from other engineering domains by replacing and considering the complex relationship between complexity-risk factors.Originality/valueThis study contributes to the body of knowledge by providing a practical contingency model to identify and evaluate the additional risk cost required to compute total construction cost for getting stability in future budgeting.