In deterministic methods, the contingency is estimated as a predetermined percentage of the base cost depending on the project phase. Contingency =% x estimated base cost. To calculate the construction contingency percentage, divide the total contingency fee by the estimated total cost of the project. Instead, you can multiply your contingency percentage by the estimated total project cost to find the project's contingency rate in dollars.
To calculate the contingency percentage, divide the amount of the contingency by the total cost of the project and multiply the result by 100 to get the percentage. You can calculate a contingency budget by identifying project risks, estimating their potential impacts, and assigning probabilities and dollar amounts to each of them. Multiply the impact by the probability to find the priority level, and then add up your estimated costs based on your level of risk tolerance. AACE International has defined contingency as a quantity that is added to an estimate to take into account items, conditions or events whose status, event or effect are uncertain and which, based on experience, are likely to generate additional costs, together.
A common approach is to establish a table of values and contingency ranges for each of the AACE estimation classes, providing alternative values and ranges for common risks. In the case of a Class 1 construction cost estimate, which is normally needed to estimate a bid, the contingency can be classified as an estimation and contracting contingency. A construction contingency is a part of the project budget that is allocated to emergencies and that provides companies with a backup or security network to prepare for unexpected negative events. For example, for an estimate of the cost of a conceptual evaluation of class 5, a contingency of 40% may be assigned, while a cost estimate for class 2 may include a contingency of 15%.
The contingency is established for each project based on the acceptable risk, the degree of uncertainty and the level of confidence desired to meet the project budget.