Earned Value and Cost Contingency Management: A Framework Model for Risk Adjusted Cost Forecasting

Abstract

This paper proposes a novel framework model that considers different behaviors of cost contingency (CC) consumption in forecasting risk adjusted final cost during the project execution. The model integrates the dynamics of how project managers can spend their contingencies into three S-shaped cost growth profiles to compute risk adjusted cost estimates at completion (CEAC). The three cost curves are modeled by the Gompertz growth model using nonlinear regression. Respectively, the framework embeds three different CC consumption rates to represent three main categories of aggressive, neutral or passive managerial attitudes in responding to project risk. The usage and viability of the model is demonstrated via a earned value management (EVM) dataset. The paper contributes to the body of knowledge by bridging the gap between the theories of EVM and CC management and provides project managers with a model to estimate the range of possible cost estimates at completion depending on the managerial policies that can be activated driven by different risk attitudes.