ABSTRACT
This chapter covers contingency as a risk mitigation and corrective measure for estimated costs. Contingency is presented as a reserve to compensate for underestimated and/or for expected but not estimated costs. The relative magnitude of contingency included in the estimated cost and/or selling price is presented as an expression of comfort in that cost estimate or offered price. Typical use of contingency to alleviate known-unknown risks and for errors and omissions during the estimating process is explained. The possibility of placing contingencies at different work breakdown structure levels is discussed. Risks for overuse and hidden contingencies are provided with suggested limitations. The undesirable cost inflation resulting from allocating contingencies for both cost elements are presented. Downsides of using contingency for cutting corners in the estimating process is explained. The chapter includes examples where contingencies are conveniently and appropriately used. Stakeholders’ quantification approaches and the importance of communicating their contingency considerations with others to avoid excessiveness and duplications is emphasized.
