I like your idea of using the profit margin, that makes a lot of sense - what would you use for the owner? Given that value (profit margin/or owner factor), could you then say that whatever duration (burn rate) that gives you the same value would be the VH time value? LDs are not a big factor in my world, but I suppose whatever is in the contract was someone's 'reasoned' guess as to the cost of time.
Again, thanks.
Member for
14 years 5 months
Member for14 years6 months
Submitted by NeddySeagoon on Wed, 2011-05-18 19:59
You need to factor the cost impact and schedule impact to suit your project.
Cost impacts are fairly easy. Any risk that could cost you your margin (or more) has a very high impact. So set the VH cost impact to the value of you margin. Having set the top one, factor the other to suit.
Schedule impacts are harder. Any risk with a schedule impact that puts you in a position to pay liquidated damages is very high, others can be factored from that. If you don't have LDs, think about the cost of maintaining your project team for an extra week and factor it from that cost. e.g. an 8 month $800k project has a burn rate of $100k month, so an extra month could cost you $100k How does $100k fit into your cost impact risk levels?
I realise this is simplistic - it varies depending on the material/labour mix in your project, which you can factor in too.
Member for
18 years 6 monthsThanks Roy;I like your idea
Thanks Roy;
I like your idea of using the profit margin, that makes a lot of sense - what would you use for the owner? Given that value (profit margin/or owner factor), could you then say that whatever duration (burn rate) that gives you the same value would be the VH time value? LDs are not a big factor in my world, but I suppose whatever is in the contract was someone's 'reasoned' guess as to the cost of time.
Again, thanks.
Member for
14 years 5 monthsDennis,You need to factor the
Dennis,
You need to factor the cost impact and schedule impact to suit your project.
Cost impacts are fairly easy. Any risk that could cost you your margin (or more) has a very high impact. So set the VH cost impact to the value of you margin. Having set the top one, factor the other to suit.
Schedule impacts are harder. Any risk with a schedule impact that puts you in a position to pay liquidated damages is very high, others can be factored from that. If you don't have LDs, think about the cost of maintaining your project team for an extra week and factor it from that cost. e.g. an 8 month $800k project has a burn rate of $100k month, so an extra month could cost you $100k How does $100k fit into your cost impact risk levels?
I realise this is simplistic - it varies depending on the material/labour mix in your project, which you can factor in too.