DAVION

SYSTEMS

Overrun Probabilities

 

Open-ended distributions (normal, extended triangular, and lognormal) are based on the assumption that your upper cost limit (contingency amount or high-range value, as appropriate) could be exceeded. When you use one of these distributions you must specify an overrun probability, i.e. the probability of the upper cost limit being exceeded.

 

The following table gives some suggested values for overrun probabilities. This table is given as a general guide only, and you may need to adjust these values to suit your own particular industry sector or set of circumstances.

 

Typical Overrun Probabilities

2%

Routine task

5%

Fairly routine task (minor uncertainty)

10%

Unusual task, but no particular technical difficulty expected

20%

Some technical difficulties are expected

30%

Significant technical difficulties are expected

40%

Very little experience in this area. Estimate is little more than a guess.

50%

No experience at all in this area. Estimate is no more than a guess.

 

Upper Limit to Uncertainty

50% overrun probability represents the highest level of uncertainty. A 50% overrun probability says, in effect, ‘there is as much chance of staying within budget as there is of exceeding budget’, which implies that the estimate is just a guess. Somewhat counter-intuitively, overrun probabilities greater than 50% indicate lower levels of uncertainty. For example, a 100% overrun probability says, in effect, that you are absolutely certain that your budget is too low.