How do you differentiate between contingency and allowance in your estimates?

Typically, contingency is both set and used by the contractor. It can be to attribute dollar amounts to unforeseen risks that may come up during construction. It is not something that is defined as implicitly part of the scope of work.

son los 'conocidos desconocidos', lo que es probable que suceda pero no tenemos idea que será, como encontrar rocas o cavernas en la cimentación.

Contingency it is a risk component and should be included in the rates given. If left standalone there is a possibility of the client snapping off or deducting this sum.

Contingency in estimates refers to a reserved amount of funds set aside to cover unforeseen costs or risks that may arise during a project. It acts as a financial buffer to address uncertainties or changes that weren't anticipated in the initial project scope. Contingency is generally included to handle unexpected issues without impacting the overall budget. Key Points About Contingency: 1-Purpose: To manage risks and uncertainties. 2-Allocation: Typically a percentage of the total project cost. 3-Usage: Only accessed when unforeseen issues occur.

Contingency and allowance differ in purpose and application. **Contingency** is a budget buffer for unforeseen costs, covering risks or unexpected expenses like delays or changes in material prices. It’s typically set as a percentage of the overall project budget and managed by the contractor. **Allowance**, on the other hand, is a specified amount for known items that lack exact costs during the estimating phase, such as fixtures or finishes. It’s included in the client’s budget and adjusted once final selections are made. Distinguishing them helps control costs and set clear client expectations.

Allowances should cover scope that is not fully defined. You know something is going to be required, but it has not been defined at this stage. Far too often people just plug a number in for an allowance without considering the requirements. My approach is to include a definition for the allowance to give stakeholders insight into the thought process behind it, not just "spinning the wheel" and plugging in a random number. By providing an assumption, the team understands the basis of the estimate and can be comfortable (or not) with the budgeted value. The key to a successful project is communication. Insight into how the number was established is critical. Allowances should be "undefined, but scope specific", not project contingency.

Allowances are used to mitigate risk sometimes. Allowances are a good tool to notify the client also about possible risks and the scope of works considered by the contractor. This should be an adjustable amount when the risks are identified in the future.

The strategic incorporation of contingency and allowance in project estimates is a dynamic dance between foresight and adaptability. Contingency serves as a financial safety net for unforeseen external risks, offering resilience to the budget. On the other hand, allowances provide flexibility within the project scope, accommodating potential changes and uncertainties. Both tools require ongoing assessment, transparent communication, and meticulous documentation to ensure they are effective in navigating the evolving landscape of construction projects. Together, contingency and allowance contribute to robust risk mitigation, fostering successful project outcomes within the ever-changing realm of construction management.

A contingency is a resource to set aside like an escrow account - in case of unforeseen need - such as weather or COVID. An allowance is a resource set aside for foreseeable needs. For example, client knows he wants marble floors, but doesn't know the species or pattern he wants: a sum is set aside with a cap to put toward this program. Finally, a contingency may never be drawn down, whereas an allowance - by its nature - always is.

Adjusting contingency and allowance during a project is a vital aspect of proactive project management. Regular reassessment, transparent communication, and an agile approach to changing circumstances ensure these financial cushions remain aligned with the project's evolving needs. By adopting a dynamic strategy, project managers can optimize the use of contingency and allowance, effectively navigating uncertainties and changes throughout the project lifecycle. This adaptability not only safeguards the budget but also enhances overall project resilience, contributing to successful and well-managed outcomes.

preventing confusion and disputes over contingency and allowance in project estimation requires a foundation of clear communication, meticulous documentation, and collaborative decision-making. Establishing transparent protocols for the allocation and utilization of these financial safeguards is essential. Regular updates, stakeholder engagement, and adherence to change control processes contribute to a shared understanding of how contingency and allowance are managed. By fostering a culture of openness and accountability, project teams can mitigate the risk of misunderstandings, promoting a smoother and more successful project estimation process.

debemos tener contemplado fondos para contingencias, sin embargo el cliente puede que no entienda el concepto e incluso se sienta que le están pidiendo dinero extra, se debe informar que la naturaleza de los proyectos es la ambigüedad y entrar en acuerdos que si bien no se aceptará ese fondo, se deben hacer recortes al proyecto si llegan a surgir las contingencias o permitir ampliar los fondos a través de órdenes de cambio.