Abstract:
Construction industry is surrounded by uncertainties and complexities which cause risk.
Among the five facets of complexity; structural complexity, uncertainty, dynamic, pace
and socio-political, the last aspect is studied the least due to its subjective nature. This
results into larger emphasis on the other more objectively definable dimensions of
complexity. Socio-political complexity emerges as a combination of political and
emotional aspects often referred to as diversity in the aspirations, mental models and
values of decision makers involved in the projects. One of the possible attempts to
control these risks is by allocating cost contingency in project budget. Project
Management Institute defines contingency as the amount of funds, budget, or time
needed above the estimate to reduce the risk of overruns of project objectives to a level
acceptable to the organization. To understand how budget contingencies are used requires
a dynamic information processing model of how managers bridge the gap between high
project complexity and limited managerial capacity. Owing to the dynamic nature of this
decision making and addressing the complexity inherent within, system dynamics is
proposed as a tool and a dynamic contingency management model is proposed which
simulates the decision making scenarios under different project conditions. The model is
used to test hypotheses of the effectiveness of aggressive and passive management
strategies on cost contingency expenditure. The need of project managers for improving
project feasibility policies is responded with an attempt to improve the way the
contingency budget is managed in socio-politically complex projects.
