Project Contingency Management Optimization Framework

Effective project risk management involves identifying potential risks and developing contingency plans to mitigate their impact on the budget. While previous research has primarily focused on improving the accuracy of risk assessments, less attention has been given to understanding how Project Managers' risk perception affects their response actions. To address this gap, this study proposes a novel framework for optimizing project risk management by incorporating Project Managers' risk perception into contingency planning. The framework utilizes an optimization algorithm that employs discrete-event stochastic dynamic simulation to determine the appropriate contingency reserves and response thresholds for addressing short- and long-term cost overruns. The proposed framework is developed through a structured approach that includes verifying and validating it using synthetic project data. The results obtained from pilot runs confirm the framework's ability to optimize contingency management through the proposed cost overrun response plan. By better aligning risk perception with contingency planning, this approach can help project managers make more informed decisions when managing project risks and avoid costly budget overruns. Ultimately, this can lead to improved project outcomes and enhanced organizational performance. Overall, this study contributes to the growing body of research on project risk management and provides a valuable tool for practitioners seeking to enhance their project risk management practices.