How can you use contingency allowances in construction estimating?

Contingency allowance is a multiple of probability percentage by your estimated cost impact set aside in the project budget to cover a range of unforseen extra costs, risks, occurrence or non-occurrence uncertainty events that may directly impact the project cost over the project lifecycle process (PLP). The purpose of the contingency allowances is to compensate for the uncertainty inherent in cost and time estimates, as well as to account for various risk factors that cannot otherwise be accounted for as non-disclosure estimates.

Contingency allowances in construction estimating are used to cover unforeseen project risks. Identify Risks: Analyze risks such as design changes, site conditions, or regulatory issues. Impact: Estimate the cost and time impact of risks. Allocate Percentage: Determine percentage. Allocate Funds: Apply the percentage to the project cost and allocate funds for unforeseen events. Document: assumptions, exclusions, and purpose Update: Periodically review and update the contingency. Use: Use contingency funds judiciously and communicate changes transparently. Close Out: If not fully used, document and close out the contingency.

Contingencies in construction projects should be allowed for and managed by die client. Consultants and contractors should not be involved at all.

The contingencies provisions in any project are essential to cater for any contingent and unforseen circumstances, not visualised and contemplated at the planning stage.

Contingency allowances are consistently utilized to complement an overall construction budget. These allowances are based on variables which may change throughout the build cycle. Some examples would be site related, dealing with unforeseens and remediation, Others would be weather related, such as winter conditions, temp utilities, needed enclosures, etc. Some would be used for permitting and approvals which would differ depending on the location and region of the buildout. At least by assigning allowances to different categories, you can avoid unexpected costs and unexpected markup. If you exceed the agreed to allowance, a change order would come into play with previously discussed terms. Assign allowance amounts to your historical costs.

Contingencies are important to keep construction progressing and keep within budget. Often projects will stall due to not enough design in an area such as lighting. By setting a do not exceed budget, the project can continue to break ground and permit.

In land development, contingency allowances are more than best practice—they're essential. These allowances are critical for handling unexpected costs, such as unforeseen site conditions or material price fluctuations, safeguarding our projects' financial stability. They also provide project managers with the necessary flexibility and security for effective, timely decisions in the face of challenges. Essentially, contingency allowances are not just a financial safeguard; they are a fundamental strategy for risk management and ensuring project success.

Contingency allowances are crucial in construction projects to account for unforeseen event. They act as a financial buffer, helping absorb unexpected costs like design modifications, material price fluctuations, or unforeseen site conditions. Including contingency allowances in budgets enhances project resilience, minimizes financial risks, and ensures that construction can proceed smoothly despite uncertainties.

Contingency allowances are amount of money appropriated to projects estimate for reasons that there are gaps to be closed but not certain at this point of closing the budget. Understand that this is an estimate and as that, estimate is an estimated sum put together to make likely amount for a certain project hence, not definitely certain. As a budget for the proposed, you are able to have some level of confidence that within course of project execution the lumps sum contingency amount can be drawn from, to attend urgent critical project needs in other not to stall smoothly running of the works. Estimate is the word untill you have a final account for a project.

Contingency allowances are important in the case of Papua New Guinea where local landowner mitigation during project life as it influences the project completion schedule. More time = More cost.

Contingency allowances can be built based off of different historical metrics such as sq ft per project type, activities from previous jobs through cost codes, or allowing for a not to exceed budget based on industry standards in a market.

The contingency must take into account the “unknown” situations. Based on this assumption (unknown factors at the time of the bid). It’s a good and consolidated practice to add a percentage to the total project costs. It’s part of the budget allocated to execute the scope of work. Considering that the factors are, as stated, unknown, the correction is usually based on: project location (Country and area), disciplines and results in terms of margin achieved in similar past projects. By the way, it is important to evaluate (monitor and control steps to be carried out) how the allocated contingency is eventually eroded during the project execution, in order to overcome the associated issues and re-evaluate the new risks if they have emerged.

The human brain cannot possible process the amount of data typically represented in a ‘risk register’. It’s not risk quantification , it’s risk guessification and not science. Using a good analytical process like Monte Carlo is the way to go

Basing a contingency on strictly, a percentage, or dollar value can be wildly inaccurate, and could lead to challenges with the overall budget. An analytical approach where the collaborators of the project be they, construction manager, trade partners, consultants and owner or others assess the risk inherent in the state of design. The contingency should be based upon the risk to the project, not on an arbitrary percentage.

Las contingencias deben cuantificarse según los riesgos que presenten mayor probabilidad de aparición y que tengan mayor impacto. En función de estos elementos se debería tener un punto de partida para cuantificar el porcentaje o valor que se prevee asignar.

Effectively managing contingency allowances involves a balance between being prepared for unexpected costs and efficiently utilizing resources to ensure the successful completion of the construction project within the allocated budget.

When doing any work outside of a contract, one should define the added scope and seek formal acknowledgement. The allowance should always be listed in a schedule of values, defining its general use purpose and availability for change order agreements for added work.

Effective management of contingency allowances in construction is key. Start with a thorough risk assessment to set a realistic allowance. Allocate based on project complexity and risks, avoiding overestimation. Use these funds exclusively for unforeseen costs, regularly reviewing and adjusting as the project progresses. Maintain transparent records of all allocations for accountability. Communicate regularly with stakeholders about the contingency fund's status. Post-project, analyze the use of these funds to refine future risk assessments and allocations.

There should be documented process for usage and approval of contingency fund. As far as possible, don’t revise the initially approved contingency allowance. Project team has to monitor contingency used in actual against originally approved contingency with proper reasoning/ justification and approval.

To manage contingency allowances in a good way during the lifetime of a project, the PM must manage properly the defined projects risks as they are the main items to be funded mainly from the contingency plan. Calculating or estimating what cost impact those risks could have will give the PM an idea or prognosis to how much could be financed from the contingency or perhaps other mitigations must be considered.

In addition to the technical aspects of contingency management, effective communication with project stakeholders is paramount. Ensuring that all parties understand the risks and contingencies incorporated into the estimate is fundamental to project success. Clear and transparent communication of the Basis of Estimate fosters a shared understanding among stakeholders. Everyone must be aware of the potential uncertainties and the financial buffers in place. Regular updates and open communication of any changes to the estimate further contribute to a collaborative environment. Through proactive management, project teams can align expectations and collectively navigate unforeseen challenges, enhancing the overall resilience of the project.

The best way to avoid some of the common pitfalls shared above is to be as thorough and detailed as possible in your preparation and planning of the project. Thorough risk management assessments along with having built in courses of action for potential problems in your initial project plan, are great ways to avoid misusing your contingency allowance and facing related issues.

Creo que es importante en estos casos recurrir a las auditorías externas, a profesionales que no tengan un alto grado de implicación en el proyecto y que desde un prisma menos "contaminado" puedan determinar si las provisiones por contingencias se han de emplear en un determinado escollo, que por un exceso de ímpetud se pueda estar mal interpretando como una contingencia cuando realmente se trata de un problema previsto, defendible y recurrible. Lo mismo puede pasar en el sentido contrario, cuando por un exceso de celo, no se destinen las previsiones de contingencias a verdaderos problemas que las requieran. Bajo mi punto de vista, son esas auditorías externas las que mejor pueden determinar el uso correcto de las previsiones.

Contingency allowances can be especially important in project scenarios that call for the award of contracts prior to full design completion, due to time constraints on the client to appoint a contractor and commence work as soon as practicable. It is an effective cost management tool for both cost and price-based contracts as a buffer against risk, uncertainty and budget overruns.

Thanks for this insight on construction contingency. I think you can elaborate more on Risk and contingency management. They are critical aspects of construction projects. Which involve identifying potential threats or uncertainties that may impact a project's cost, schedule, quality, and overall success and then developing strategies to mitigate or manage these risks.

En los contratos de obra marítima, la evaluación de contingencias debe considerar las condiciones oceanográficas y meteorológicas, tales como el oleaje y eventos climáticos extremos, mareas, corrientes, etc. para anticiparse a retrasos o costes adicionales. La incertidumbre sobre la geotecnia también es crítica, para lo cual se deben realizar batimetrías y estudios detallados para comprender el lecho marino y asegurar la cimentación. Además de estos la seguridad y disponibilidad de suministros de materiales y los costes de transporte y logística también son factores a tener muy en cuenta.

-Conduct a thorough risk assessment to identify potential risks. -Based on the identified risks, determine an appropriate contingency allowance as a percentage of the total project cost. -Allocate the contingency allowance across different categories of the project budget, such as construction costs, design fees, permits, and contingencies within contingencies. -Clearly document the contingency allowance in the construction. -Periodically review the status of the contingency allowance and adjust it as necessary based on changes in project conditions or risk exposures. -Communicate regularly with stakeholders about the status of the contingency allowance and any changes to its allocation or utilization.

-Risk Assessment: Identifying potential risk and mitigation plan. -Determining contingency amount. -Incorporation into Estimate: Including the contingency allowance as a separate line item in the project. -Contingency Management: Establishing procedures for managing the contingency allowance throughout the project. -Documentation and Communication: Documenting the rationale behind the contingency allowance and communicating it to all project stakeholders. -Monitoring and Control. -Reconciliation and Reporting: Regularly reconciling actual expenses against the contingency allowance and providing transparent reporting on how contingency funds have been utilized throughout the project lifecycle.