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Contingency Cost

Base cost estimates for projects include contingency reserves to account for risks and uncertainties. For each project, the contingency amount is based on acceptable risk levels and desired confidence in completing the project on budget. As a project progresses, contingencies are gradually lowered as fewer unknowns exist and the project path is more defined.

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27 views1 page

Contingency Cost

Base cost estimates for projects include contingency reserves to account for risks and uncertainties. For each project, the contingency amount is based on acceptable risk levels and desired confidence in completing the project on budget. As a project progresses, contingencies are gradually lowered as fewer unknowns exist and the project path is more defined.

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layla rosly
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Contingency (Cost)

Base cost estimates are reinforced with a contingency reserve to account for the financial effects of
project risks or uncertainties. For each project, a contingency is created based on the acceptable
amount of risk, the level of uncertainty, and the desired level of confidence in completing the project
within budget. A sufficient contingency fund must be allocated if the project is to remain within its
budget.

In our project, contingencies are presented as percentages. The riskiest stages of a project are
usually its early phases, at which time more contingencies are used. But, as the program progresses,
there will be fewer unknowns and a more defined project path, therefore percentages on
contingencies are gradually lowered. In this methodology, the percentage of contingency for the
project is decided by an expert, or a group of specialists, who have a solid foundation of experience
and expertise in risk management and analysis.

The following phase are generally involved in reducing a contingency during this project:

 Whole cost estimates during the planning/early stage should contain an additional premium,
such a 10% contingency.
 The cost plan may incorporate a contingency of 5% to 10% of the contract value.
 A portion of the money owed to the contractor is frequently kept by the project owner. It is
referred to as retention (typically 5%). The retention is used as insurance to ensure that the
contractor completes the project in accordance with the contract's terms and conditions.

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