How should contingencies be determined during the estimation process?

Contingencies in construction cost estimation are critical to managing potential uncertainties and risks that may arise during a project. The most effective approach to determining contingencies involves a thorough assessment of project risks and the incorporation of historical cost data. This method allows estimators to analyze various factors that could impact costs, such as design changes, unforeseen site conditions, or delays caused by weather.

By conducting a project risk assessment, estimators can identify specific risks associated with the project, categorize them based on their likelihood and potential impact, and assign an appropriate contingency amount to mitigate those risks. Historical cost data serves as a benchmark, providing insights into past projects with similar characteristics, which can inform more accurate contingency estimates. This evidence-based approach leads to more reliable budgeting and better preparedness for unexpected challenges throughout the project lifecycle.

In contrast, relying solely on gut feelings, discussing contingencies only with the client, or basing them purely on industry averages lacks the depth and context necessary for accurate estimations. These approaches might not account for the unique aspects of a particular project, leading to either underestimating or overestimating required contingencies, thereby jeopardizing project financial health.