To calculate your construction contingency percentage, divide the total contingency fee by the estimated total project cost to get your contingency percentage. Instead, you can multiply your contingency percentage by the total estimated project cost to find the project contingency fee in dollars. But how is the contingency of the project correctly estimated? While it may be tempting to add a fixed percentage to the project cost in the hope that it will cover unforeseen situations, this approach is not the most effective: there are too many variables to consider. For example, similar projects executed several times by an experienced project manager will require a smaller contingency than a new project with unknown elements.
Follow the steps below to calculate a more significant contingency, one that takes into account potential risks and focuses on the most costly problems. To accurately calculate a contingency, specify exactly what the quantity will cover. Contingencies are typically used to cover potential project risks, such as missed objectives, rather than changes in scope. Changes in the scope of the project require a recalculation of both the baseline budget and the contingency.
Including a second contingency amount (or program contingency) may cover risks that were not initially identified but that become apparent later in the project. If you perform the above risk contingency calculation for each identified project risk and then add them together, you have a robust contingency calculation. Consider the fixed percentage you would have chosen. Is the calculated contingency greater or lower than the fixed percentage? How would that affect your project?) Whatever your contingency calculation, you will need approval from the project sponsor to set aside funds.
It's often easier to keep the contingency separate from the base budget, but make sure it's presented accurately during project approval. If the goal is to maintain a consistent level of risk, you might also consider reviewing the work plan to discover additional savings and release some of the contingency to reduce risk. Contingency funds released from projects can be used to balance a portfolio of projects, support additional company requirements, or even taken as a benefit. The design contingency is usually up to 10% of the total construction cost.
Although calculated and identified separately, the contingency amount must be an additional amount maintained by the owner in the project budget. The owner keeps the budget and withholds it for use by the architect and designers to ensure that the entire desired scope is covered.