Impact of budget uncertainty on project time-cost tradeoff

• Published in: IEEE transactions on engineering management Vol. 52; no. 2; pp. 167 - 174
• Main Author: Yang, I-T.
• Format: Journal Article
• Language: English
• Published: New York IEEE 01.05.2005; The Institute of Electrical and Electronics Engineers, Inc. (IEEE)
• Subjects: Budgets; Chance-constrained programming; Costs; Estimating techniques; Project management; Risk; risk analysis; Statistical analysis; statistical estimation; Statistics; Stochastic processes; Studies; time-cost tradeoff; Tradeoff analysis
• ISSN: 0018-9391; 1558-0040
• DOI: 10.1109/TEM.2005.844924

Any project has to be supported financially. The budget allocated to the project, however, is subject to uncertainty due to various financial, market, and political risks. The present paper incorporates budget uncertainty into project time-cost tradeoff. The proposed model formulates financial feasibility as a stochastic constraint, transforms it into a deterministic equivalent in the case of normal, beta, or triangular distribution, and solves the equivalent accordingly. The direct result is a minimum time-cost curve, which relates the shortest project duration to different levels of budget. The present study shows that a higher degree of budget uncertainty represents a tighter financial constraint and, thus, needs extra contingency duration. Moreover, if the financial constraint has to be met at a higher probability level, extra contingency costs are necessary to ensure an on-time completion. An actual remodeling project is used to demonstrate the application.