What is a good percentage for contingency?

This contingency is usually calculated as a percentage. If the phase is 100 days of effort, the 20% contingency would be another 20 days. As the project progresses, the level of risk decreases as the requirements and problems are known, so the percentage will be reduced. In the closing phase, the percentage added could be as low as 5% or none.

In deterministic methods, contingency is estimated as a predetermined percentage of the base cost depending on the phase of the project. Home builders and remodelers typically allocate between 5% and 10% of a project budget for a construction contingency. This amount creates enough space for unexpected expenses. Anyone who keeps track of estimates and costs manually calculates a contingency percentage on all costs, before profit margins are applied.

Whether made on paper or calculated by hand, these methods offer familiar and accessible estimation options that put budgets and proposals in the hands of customers. However, any price negotiation or recalculation requires careful monitoring and risks human error. A construction contingency is the amount of money allocated to pay additional or unexpected costs during the construction project. Usually, a calculation of 5 to 10% of the construction budget should be allocated to your construction contingency.

There are two approaches, the fixed-rate contingency and the calculation of the expected monetary value. A contingency rate is a rate at which your budget will increase. As a general rule, it is commonly used between 10 and 15% and indicates that the project expects to run between 10 and 15% over budget. You set the rate based on your comfort level, but being too liberal with the rate and setting it low could be detrimental to your finances.

Setting a rate too high can also be an impediment to your project, as you'll need to save more money than necessary to get started.

Nicole Diegidio
Nicole Diegidio

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