Managing Socio-Political Complexity In Construction Projects Using Dynamic Contingency Management Approach

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.