What type of practice is Rick suggesting?
Cost Contingency Reserve (CCR) or specific risk provision is the practice suggested by Rick. It is a response to deal with threats by setting aside budget to cover threats of a project. The potential opportunity saving, estimates the amount of budget that can be reduced if specific opportunities are exploited even if the budget opportunity is not included. The Performance Measurement which is an approved included budget plan for the project work is affected incase the saving occurs. The challenge of this practice is to turn as many as the knowable unknowns into known unknowns through creative risk identification. The emergent risks on the other hand as highlighted as the project threats are not predicted until they occur. Therefore the budget set aside in excess of the specific risk provision makes it possible to achieve the objectives of the project in the face of as yet unidentified risk (Eldosouky et al., 2014)
What are the ethical implications for Steve in this situation?
The Ethical implication for Steve in this case is to determine and monitor the Cost Contingency Reserve of the Project. According to Eldosouky et al (2014), he has to cover managing the uncertainties of the project, opportunities and the emerging risks. This is because of the interrelationship between the components of the discussed risk management.
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What would you suggest Steve do to solve this dilemma?
The recommended way for Steve to solve the dilemma is by generating the estimated uncertainty. This is through estimating each work item using a minimum and most likely and maximum value using Expected Value Method. It assumes the individual risks to the project are identified together with their impact value and the probability of their occurrence. The maximum and average risk value of both fixed and variable risks is calculated. Another recommended method is Methods of Moments which further extends Expected Value Approach. It expands the probability role by calculating individuals maximum and average risks and representing each individuals cost in a triangular probability distribution. For each cost the expected value is planned as an average of the maximum, likely and minimum values. The standard deviation of the elements of cost is also calculated putting this method to an advantage since the final project cost is a continuous distribution and not a static figure (Eldosouky et al. 2014)
Reference ;
Eldosouky, I. A., Ibrahim, A. H., & Mohammed, H. E.-D. (December 01, 2014). Management of construction cost contingency covering upside and downside risks. Alexandria Engineering Journal, 53, 4, 863-881. Bottom of Form
