Even the best-prepared estimates include uncertainties. Hence, contingency planning ensures financial resilience.

1. Understanding Risk in Estimates

Common risk sources:

• Incomplete scope definition
• Market fluctuations in materials and labor
• Design errors or late design changes
• Site or geotechnical surprises
• Regulatory or environmental delays

2. Types of Contingencies

3. Risk Quantification Methods

• Percentage Method: Add a fixed % of the base cost (simple but less scientific).
• Expected Value Method: Expected Risk Cost = Probability × Impact
• Monte Carlo Simulation: Runs multiple probabilistic simulations to define best and worst-case outcomes.

4. Sensitivity Analysis

Test how changes in key assumptions (e.g., material rate, productivity) affect total cost.

This identifies high-impact variables that require close monitoring.

Golden Rule:

It’s a planned reserve for specific, measurable risks.