Obtaining the budget contingency reserve through the monte carlo method: Study of a ferry construction project

Abstract

The naval sector of new construction is characterised by high cost programmes and a low degree of definition in the stages of tendering. With these requirements, an initial, highlycompetitive budget should be developed with acceptable risk. For this reason, it is usual in this field for a budget Contingency Reserve to be defined, in order to cover probable range increments, as well as probable deviations that could trigger economic losses. The budget Contingency Reserve estimate is usually carried out based on shipyard experience. However, problems arise when the shipyard does not have enough experience in the concrete type of vessel to be built. In this research, the use of an extension of the triangular Monte Carlo distribution model is proposed, with the aim of calculating the likelihood of complying with the calculated budget. From this result, a Contingency Reserve that provides enough security to execute the project within the limits of the economic risk defined by the organization can be calculated. The proposal introduced in this study allows managers to obtain a more optimal estimate of the Contingency Reserve, therefore reducing economic risks.