BIZOMAT Tools · Projects
Contingency Allowance
How much project contingency is reasonable?
Gives a screening contingency allowance from ratings of uncertainty, complexity and risk.
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How this tool works
Inputs, units and where to find them
| Input | Unit | Typical source |
|---|---|---|
| Base project cost | $ | Base estimate before contingency |
| Estimate uncertainty | 1–5 score | How well defined the estimate is (1 detailed, 5 conceptual) |
| Complexity | 1–5 score | Technical complexity (1 routine, 5 novel) |
| Risk exposure | 1–5 score | Overall risk exposure (1 low, 5 high) |
What each input means
Open an input to see what it is, its units, the worked example and the common mistakes, with a small diagram.
What this means: Base project cost
- What it is
- The project cost estimate before any contingency is added, built up from quotations and estimates.
- Units and format
- Enter a number in $: an amount of money; use one currency for every money input. The form accepts $0 or more.
- Example
- The form opens with $100000 as a worked example. It is an illustration, not a recommended value: replace it with your own figure.
- Effect on the result
- The allowance is this base multiplied by the contingency rate.
- Get it right
- Do not include allowances already set aside for named risks, or they are counted twice.
What this means: Estimate uncertainty
- What it is
- How well defined the estimate is, rated 1 (detailed, from firm quotations) to 5 (conceptual, early idea with little design).
- Units and format
- Move the slider to a score from 1 (low) to 5 (high).
- Example
- The form opens with 3 as a worked example. It is an illustration, not a recommended value: replace it with your own figure.
- Effect on the result
- Each point adds about 1.33 percentage points to the contingency rate.
- Get it right
- Lower this rating as design and quotations firm up at later gates.
What this means: Complexity
- What it is
- How technically difficult the work is, rated 1 (routine) to 5 (novel or untried), used as one of the three contingency drivers.
- Units and format
- Move the slider to a score from 1 (low) to 5 (high).
- Example
- The form opens with 3 as a worked example. It is an illustration, not a recommended value: replace it with your own figure.
- Effect on the result
- Each point adds about 1.33 percentage points to the contingency rate.
- Get it right
- Rate the technical challenge of the work, not the overall size of the project.
What this means: Risk exposure
- What it is
- The overall exposure to things that could go wrong, such as site conditions, supply or approvals, rated 1 (low) to 5 (high).
- Units and format
- Move the slider to a score from 1 (low) to 5 (high).
- Example
- The form opens with 3 as a worked example. It is an illustration, not a recommended value: replace it with your own figure.
- Effect on the result
- Each point adds about 1.33 percentage points to the contingency rate.
- Get it right
- Base it on the project risk register so the rating can be explained.
Method and formulas
- Combined rating p = (uncertainty + complexity + risk) ÷ 15
- Rate = 5% + 20% × p
- Allowance = base × rate
Limitations
- A screening heuristic, not a quantified risk analysis
- Does not replace your estimating standard
Typical uses
- Early estimates and budget requests
- Sense-checking a contingency proposed by others
Who it is for
- Estimators
- Project managers
What you get
- Contingency rate (9–25%) and allowance
- Total including contingency
Interpreting the result
- For large or poorly defined projects, use range estimating or Monte Carlo analysis
- Do not double-count risks already priced in the base estimate
References
- AACE International Recommended Practice 40R-08, Contingency Estimating — General Principles
Learn the Concepts Behind This Tool
These BIZOMAT Library readings explain the method this tool uses, with worked examples.
Useful alongside · BIZOMAT original book
Contingency and schedule allowances that grow with novelty
In First-of-a-Kind Technology by the Numbers
What it covers: Cost and schedule allowances graded by readiness: element P50s and P80s, a 10,000-run simulation giving B a P80 of A$22.9m, and the errors of a flat 10% and of adding P80s.
Useful alongside · BIZOMAT original book
Uplifts and contingency: from a percentile to a budget
In Reference Class Forecasting by the Numbers
What it covers: Turn a percentile into an uplift, a budget and a contingency: Bay 4 at P50 A$2.736m and P80 A$3.379m, who holds which money, and an uplift applied to the wrong base.
BIZOMAT tools are screening and decision-support utilities. Verify important financial, engineering, safety, legal or operational decisions using appropriate professional standards and your organisation’s approved data.