Allocation and Management of Cost Contingency

in Projects
Mohammed Wajdi Hammad 1; Alireza Abbasi, Ph.D. 2; and Michael J. Ryan, Ph.D. 3

Abstract: Contingency is crucial for successfully managing projects since it provides a buffer against risk development. This research
introduces a new methodology to estimate and allocate cost contingency during the planning phase, as well as managing cost contingency
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during the execution phase of the project. The cost contingency allocation technique is based on the activity’s contribution to the overall cost
variance of the project, which includes the cost, uncertainty, and whether the activity is on the critical path or not. New measures have been
introduced in the proposed cost contingency management method to control the expenditure and balance of activities’ cost contingency and
estimate future need. The new cost contingency management method is applied to a real-life bridge maintenance project. The result shows that
the proposed cost contingency methodology is adaptive and robust enough to accommodate typical disruptions in the project environment.
DOI: 10.1061/(ASCE)ME.1943-5479.0000447. © 2016 American Society of Civil Engineers.
Author keywords: Project management; Cost contingency; Contingency estimation; Contingency allocation; Contingency management;
Project control; Monte Carlo simulation.

Introduction experiences with similar projects. Subjectivity is the main disad-

Construction projects intrinsically involve many uncertainties and
risks throughout all phases from start-up to completion. These
uncertainties can be classified as predictable (known unknowns)
and unpredictable (unknown unknowns). Contingency reserve is
a managerial tool to control such identifiable (and unidentifiable)
uncertainties/risks. Contingency reserve is defined as “the amount
of funds, budget, or time needed above the estimate to reduce the
risk of overruns of project objectives to a level acceptable to the
organisation” (Project Management Institute 2013). Construction
participants including owners, contractors, and designers add cost
contingency reserve in order to cover intangible costs from unpre-
dictable changes in the base cost estimate.
Research has shown that one of the main factors that contributes
to the projects’ success is the improvements in the cost estimation
techniques (Uzzafer 2013) including cost contingency estimation.
The contingency budget is not established to cover changes in
scope; rather, its purpose is to cope with cost increases resulting
from the uncertain nature of some construction activities. Alloca-
tion of low amounts of contingency for projects with high risks
may result in significant losses. On the other hand, high amounts
of contingency may decrease the chances of winning the contract.
Expert judgment is generally used to determine the bidding con-
tingency reserve. Expert decision is mainly based on the previous
1 The paper is organized as follows. In the next section, the liter-
Ph.D. Candidate, School of Engineering and IT, Univ. of New South
Wales (UNSW Australia), Canberra, ACT 2610, Australia. E-mail:
Mohammed.Hammad@student.adfa.edu.au
2
Lecturer, School of Engineering and IT, Univ. of New South Wales
(UNSW Australia), P.O. Box 7916, Canberra, ACT 2610, Australia
(corresponding author). E-mail: a.abbasi@unsw.edu.au
3
Senior Lecturer, School of Engineering and IT, Univ. of New South
Wales (UNSW Australia), Canberra, ACT 2610, Australia. E-mail:
m.ryan@adfa.edu.au
Note. This manuscript was submitted on March 4, 2015; approved on
January 19, 2016; published online on April 25, 2016. Discussion period
open until September 25, 2016; separate discussions must be submitted for
individual papers. This paper is part of the Journal of Management in
Engineering, © ASCE, ISSN 0742-597X.
vantage of this technique as the skill, knowledge, and motivation
of the experts may vary widely (Burroughs and Juntima 2004) or
the nature of the project might be very different from the ones the
expert has experienced.
Contingency may have a tremendous impact on project outcome
for project participants (Dey et al. 1994; Baccarini 2004). Therefore,
accurate contingency estimates would help project managers/
owners avoid undesirable results when managing projects. Modern
estimating textbooks usually represent contingency as a fixed per-
centage of the estimated contract amount using this method. The per-
centage reported is generally around 5–10% of the contract amount
(Smith and Bohn 1999). However, according to Terje Karlsen and
Lereim (2005), this method has several weaknesses: (1) it is overly
simplistic and heavily dependent on estimators’ faiths in their own
past experiences; (2) the percentage is broadly estimated and not ap-
propriate for a specific project; and (3) there is a tendency to double
count risks. In order to complement these disadvantages, several
methods for estimating an optimal contingency have been proposed
and studied as discussed by Günhan and Arditi (2007).
The aim of this research is to develop a methodology that can
assist project managers/owners in making decisions about issues
regarding costs in the project. This paper presents a methodology
to estimate, allocate, and manage cost contingency in a project. This
research focuses on the predictable uncertainties, otherwise known
as the known unknowns and not the unpredictable uncertainties.
ature on different models used for estimating, allocating, and man-
aging cost contingency in projects is reviewed; this is followed
by the proposed new metrics. After that, the new methodology
is applied to a real-life bridge maintenance project. The discussion
section follows and finally, the authors draw conclusions on the
research, summarize findings, and suggest future work.
Review of Models for Estimating and Managing
Project Cost Contingency
Touran (2003) proposed a probabilistic model that considers the
random nature of change orders and their impact on the cost

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J. Manage. Eng., 04016014

 and schedule of a construction project. The model incorporates un-
certainties in project cost and schedule and also calculates the con-
tingency based on the level of confidence specified by the project
owner. The proposed model depends on the following variables:
estimate for the rate of change, project duration, average cost per
change, and coefficient of variation of cost of change. He found
that the logical way to address project uncertainties is by using a
method that explicitly considers uncertainty, rather than the more
commonly used deterministic approaches.
Barraza and Bueno (2007) presented a methodology for using
Monte Carlo simulation (MCS) for cost contingency management,
which also includes heuristics for contingency assignment alloca-
tion among project activities. They stated that if independent perfor-
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mance is assumed among the project activities and a probability
distribution is assigned to each activity, all possible project costs will
be normally distributed with a mean cost similar in value to the one
that is calculated by the addition of the activities’ mean costs, and
the variance of the possible project cost results to be equal to the
accumulation of all activities’ cost variances. The proposed meth-
odology provided the performance status classification, which can
be used as a practical guide for the management decision making.
Idrus et al. (2011) proposed a method to estimate cost contin-
gency using a flexible and rational approach that could accommo-
date contractors’ subjective judgment based on risk analysis and the
fuzzy expert system concept. The proposed method was applied to
building and infrastructure projects in Malaysia. They applied risk
analysis as the main concept to identify and assess the level of risk
of each risk factor, while the fuzzy expert system was the method
used to assess the level of risk in the risk assessment step. Develop-
ment of the proposed model can be described in the following seven
stages: development of a conceptual model for cost contingency,
determination of risk factors for the model, development of the
fuzzy expert system, model testing, tuning, and validation. Project
cost contingency was modeled as the function of the level of risk
factors identified as risk magnitude. They found that the predictions
given by the system were within 20% accuracy compared to actual
cost contingencies.
Turskis et al. (2012) reviewed the evolution of concepts, the use
of reserves, robust itineraries, and contingency of time and cost in
the construction industry. They presented the main trends in differ-
ent approaches to risk management in construction and construc-
tion project processes, such as reliability of production, discount
methods, methods of reporting, and integrated management to-
gether with trends towards standardization of the investment pro-
cess management. They concluded that the risks can be analyzed
depending on a context. Risk should be treated as a state, in which
there is a possibility of a loss. One of the most relevant concepts of
risk is the dispersion of actual and expected results. This concept
leaves room for contingency. They also stated that processes in
construction industry, as well as implementation of construction
projects, are governed by specific laws. The need to standardize
legislation results from international cooperation in the execution
of contracts and requirements of banks. This promotes standardi-
zation, especially at the stage of preparation for and implementation
of investments.
Gharaibeh (2014) investigated the issue of project cost control
in major power transmission projects, to understand the reasons
behind cost overrun. The Delphi method was used to identify prob-
lems of controlling the project cost, and identifying lessons learned.
The Delphi study is normally a qualitative research method using
questionnaires as a research instrument where a panel of experts is
asked to provide feedback and answers on selected questions nor-
mally involving several iterations or rounds of questions (Linstone
and Turloff 1975). A three-round semistructured questionnaire
© ASCE
J. Manage. Eng., 04016014
with two different project teams was used to compare and validate
findings from one project team to another. Gharaibeh (2014) found
that the lack of cost contingency and escalation for material and
construction labor costs in the initial estimate are considered im-
portant problems in managing the project cost.
Uzzafer (2013) presented a contingency estimation model for
a software development project. The proposed model considered
the estimated cost and the risk of software projects to estimate con-
tingency resources; hence, contingency estimates are correlated to
the cost and risk of software projects. The model considers the risk
tolerance of software organizations to estimate the contingency and
helps to decrease the maximum impacts of risk events within the
risk tolerance. Data were analyzed from 19 software projects of
National Aeronautics and Space Administration (NASA) in an ef-
fort to understand the difference between the estimated costs and
actual costs of software projects. He found that the main factor that
contributed to the increase in the number of successful projects is
the improvements in the cost estimation techniques.
Lhee et al. (2014) proposed a two-step artificial neural network
(ANN)-based method for estimating the optimal contingency for
construction projects. The model was developed by manipulating
an intermediate form of contingency (i.e., contingency rate) as
the output variable of the neural network to predict the owner’s
contingency on construction projects. A comparison of the perfor-
mances was performed with the one-step ANN-based model. Based
on the net statistics such as average error, mean squared error, cor-
relation values, and statistical analysis about error rates, the predic-
tive performance of the two-step model was shown to be better than
that of the one-step model. They also claimed that the two-step ap-
proach has the potential to improve an owner’s budgetary decisions,
reducing the risk of either underutilizing or overcommitting funds.
Eldosouky et al. (2014) have done research to trial and put
an end to the incorrect opinion that “adding contingency funds
to the tender price of a project may lead to loss of the tender.” They
proposed an approach for determining and monitoring cost contin-
gency reserve (CCR) for a project. Control of CCR is interfaced
with earned value management. An application was carried out to
real-life projects. The proposed approach for determination of CCR
for a project with established context for the purpose of tendering
includes the following six phases: acquiring project cost estimate
and high-quality schedule; describing project schedule and cost
uncertainty; preparing risk register; performing integrated cost/
schedule Monte Carlo simulation; determining performance meas-
urement baseline (PMB), CCR, management reserve, and nonspe-
cific risk provision; and finally, monitoring and control of project
PMB and risk budgets. The authors determined that if a contractor
prepares a detailed cost estimate for the purpose of tendering for a
certain project accompanied by a high-quality critical path method
schedule, then the contractor will be anxious for performing project
risk analysis and determining CCR as proposed in this study. On
the other hand, if the contractor does not prepare such information,
they will not accept to pay attention to project risk management and
the determination of CCR according to the proposed approach or
any equivalent approach.
In summary, most of the papers found in the literature were
about estimating cost contingency, with very few about managing
cost contingency in a project and even fewer about combined the
cost contingency estimation and management. Touran (2003), Idrus
et al. (2011), Uzzafer (2013), and Lhee et al. (2014) all show differ-
ent methods to estimate cost contingency. Some require the project
manager to have prior knowledge, such as fuzzy logic and artificial
neural networks, while others require to make assumptions about
variables or collecting data. Eldosouky et al. (2014) presented a
method to manage contingency on a project. This method requires
04016014-2 J. Manage. Eng.
 data collection from previous projects and also the use of some
subjective opinion. Barraza and Bueno (2007) presented a method
to calculate and manage cost contingency, based on Monte Carlo
simulation.
The models proposed by Touran (2003), Idrus et al. (2011),
Lhee et al. (2014), and Uzzafer (2013) all require extensive data
collections and surveys that need to be undertaken by the project
manager before starting the project. It would be very difficult to list
each and every risk for the activities involved in the project, or even
collect accurate data about the impact of each risk on the total cost
of the project. These types of models would be more suitable for
projects that have been already completed by the project manager
several times, as the collection of inaccurate data will result in in-
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approaches discussed in the preceding review. The proposed
method includes estimating, allocating, and managing cost contin-
gency. First, the proposed method is easy to use as it does not re-
quire tedious equations or timely data collection (such as interviews
and surveys). It also does not require the project manager to have
any prior knowledge of ANN, fuzzy logic, or any other simulation.
Secondly, the methodology serves as an early warning for activities
that are not yet completed by calculating the cost contingency re-
serve available to be spent on future activities based on the ongoing
pattern of spending. This would be an extremely powerful tool to
the project managers because the new metrics are used as a refer-
ence whenever overspending occurs in the project and to show if
the overspending is within the acceptable range in the organization.

correctly calculating contingencies. Idrus et al. (2011) require the
project manager to have knowledge regarding fuzzy logic, while
Lhee et al. (2014) require prior knowledge regarding artificial neu-
ral networks (ANNs).
The management method provided by Barraza and Bueno
(2007) can be used in any project, but does not propose how to
allocate contingency to each activity. The management method
provided by Eldosouky et al. (2014) requires identifying all risks
involved in the project, which can be difficult and very time con-
suming to obtain the required data.
Table 1 shows a summary of all models found regarding con-
tingencies in project management. In summary, the following is
what differentiates the proposed method from the previous
The method allows the project manager to carefully plan activities
based on the past and current spending pattern. Thirdly, the pro-
posed method is adaptable and able to accommodate disruptions
in the project environment by allowing the project manager to se-
lect the required confidence interval.
Proposed Cost Contingency Management
Framework
Very few studies have been conducted on the subject of cost con-
tingency management during project execution; such research is
nearly nonexistent. To fill this gap, this paper proposes a new

Table 1. Summary of Contingency Models in the Literature

Method
Probabilistic model that incorporates
uncertainties in project cost and
calculates contingency based on the
level of confidence selected
MCS to estimate and manage
contingency in a project, and
heuristics to allocate contingency
Estimates cost contingency using a
flexible and rational approach
Implements the Delphi method to
identify problems of controlling
project costs
A contingency estimation model that
considers the estimated cost and the
risk of software projects to estimate
contingency resources
A two-step artificial neural network
(ANN)-based method for estimating
the optimal contingency
Monitors cost contingency reserves
and controlling them using earned
value
Developed Type of
Purpose Result by research
To consider the random nature of The model provides confidence interval Touran (2003) Contingency
change orders and their impact on the when the amount of contingency estimation
cost and schedule of a construction deviates from the expected values
project. This is done by calculating
the probability of cost overrun for a
given contingency level
To control target cost to maintain The proposed method provided Barraza and Contingency
actual costs below the target cost performance status classification which Bueno (2007) estimation and
values of the project can be used as practical guide for management
decision making
Accommodate contractors’ subjective The predictions given by the proposed Idrus et al. Contingency
judgment based on risk analysis and model were within 20% accuracy (2011) estimation
fuzzy expert system concept compared to actual cost contingencies
To understand the reason behind cost Lack of cost contingency and escalation Gharaibeh Contingency
overrun by investigating the issue of of costs in the initial estimate is (2014) management
project cost control in major power considered one of the most important
transmission projects problems in managing projects
To consider the risk tolerance of The main factor contributing to the Uzzafer (2013) Contingency
software organizations to estimate the increase in the number of successful estimation
contingency and help decrease the projects is the improvements in the cost
maximum impacts of risk events estimation techniques
within the risk tolerance
To estimate the optimal contingency The proposed method has potential to Lhee et al. Contingency
for funding of transportation improve an owner’s budgetary (2014) estimation
construction projects decisions, reducing the risk of either
underutilizing or overcommitting funds
To put an end to the incorrect opinion If a contractor prepares a detailed cost Eldosouky Contingency
that “adding contingency funds to the estimate for the purpose of tendering et al. (2014) management
tender price of a project may lead to accompanied by a high quality critical
loss of the tender” path schedule, then the contractor will
be anxious for performing project risk
analysis and determining CCR

© ASCE 04016014-3 J. Manage. Eng.

J. Manage. Eng., 04016014

 method of controlling project cost contingency during execution
phase of the project. In the approach proposed herein, a prob-
abilistic method can be adopted to determine the cost contingency
of the project. This involves assigning a probability distribution
function to each activity in the project, and through a summative
process, developing a probability distribution function for the over-
all project cost. Subsequently, cost contingencies are calculated us-
ing MCS and allocated to each activity based on the activity’s
contribution to the overall cost variance of the project. This means
that activities with large costs, high uncertainty, and high impor-
tance (activities that lie on the critical path) will receive a higher
cost contingency than activities with low costs, low uncertainty, and
do not lie on the critical path. Eldosouky et al. (2014) stated that
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Each and every step of Fig. 1 is described in detail in the fol-
lowing (note: any variable with a subscript A refers to the individ-
ual activity, while a variable with subscript P refers to the total
project):
1. Record the planned value for each activity (PVA ): this is the
estimated cost for completion of each activity without contin-
gency based on experience of similar past projects.
2. Calculate the cost contingency for the entire project (CCP ):
this determines the total contingency required for the project.
CCP is calculated by assigning a probability distribution for
each activity in the project. MCS is run with a large number
of trials; the result obtained from using the simulation is the
total cost (TC). The difference between TC and PVP (planned
value of the entire project) is known as CCP

MCS is more effective compared to other methods as it is an easy-

to-use, understandable, simple, and practical tool. It can easily ac-
commodate estimating uncertainties, threats, and opportunities.
Fig. 1 shows the steps for the proposed project cost contingency
method. Before using the proposed method, the project cost and
the cost for each activity should be calculated and finalized by
the estimator. The total contingency of the project is calculated
via MCS using the cost estimates prepared by the project man-
ager/owner. The contingency is allocated to each activity and is
measured using the new metrics at the end of each reporting period.
CCP ¼ TC − PVP ð1Þ
3. Allocate CCP to each activity (CCA ): CCP is allocated to each
activity based on the activity’s contribution to the project’s cost
variance. The percentage contribution of each activity is ob-
tained from Oracle Crystal Ball after running MCS. The fol-
lowing equation can be used to calculate the contingency for
each activity:

Fig. 1. Steps for estimating and managing project cost contingency

© ASCE 04016014-4 J. Manage. Eng.

J. Manage. Eng., 04016014

 CCA ¼ ð1 − αÞ × ð% contribution to variance × CCP Þ
þ α × ðPVA =PVP Þ × CCP ð2Þ
where α = confidence interval chosen by the project manager
to represent an acceptable project risk. Eq. (1) consists of
two parts
• The first is ð1 − αÞ × ð% contribution to variance × CCP Þ;
and
• The second is α × ðPVA =PVP Þ × CCP .
If the project manager is 100% confident that the project
will never experience an overrun, then α is equal to 100%
and hence, only the second part will be considered. In this
case, the cost contingency will be allocated to each activity
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based on the fraction of PVA to PVP , regardless of the uncer-
tainty, cost, or whether the activity is on the critical path or not.
On the other hand, if the project manager chooses α to be
less than 100%, for instance, a 90% confidence interval, the
first part of the equation will be considered as there is uncer-
tainty involved. This is where an activity’s contribution to the
total cost variance is considered. The contribution to variance
answers questions such as “What percentage of the variance or
uncertainty in the target forecast is caused by activity X?” It is
calculated by squaring the rank correlation coefficients and
normalizing them to 100%. Contribution to variance indicates
the relative importance by showing the percentage of the
forecast variance contributed by each assumption (Oracle
Corporation 2012). The correlation coefficient shows the de-
gree to which assumptions and forecasts change together.
Since the project is made up of individual activities that are
connected to each other, the activities that have a significant
impact on the forecast will have a high correlation coefficient.
The higher the absolute value of the correlation coefficient,
the higher the contribution to variance and the stronger the
relationship. This means that any activity with a high cost
(affecting the budget of the project), or an activity that sits
on the critical path (affecting the duration of the project),
or has a high uncertainty the higher the correlation, then
the stronger the relationship to the target forecast. This will
allow the project manager to find out which assumptions
are influencing the forecasts the least and can pay less atten-
tion or discard them altogether, and focus more on the activ-
ities that will have the most impact on the forecast.
4. Determine percentage completion for each activity: each activ-
ity is evaluated at the end of the reporting period and the per-
centage completion is estimated by the project manager.
5. Record actual cost for each activity (ACA ): this is the cost
spent on an activity during the project execution and is re-
corded at the end of every reporting period.
6. Calculate the expected contingency spent for each activity
(ECSA )
ECSA ¼ % complete × CCA ð3Þ
The ECS calculates the maximum amount of cost contin-
gency, for each activity, that is expected to be spent at the end
of the reporting period. For example, if an activity is 60% com-
plete, then the activity is expected to spend 60% of its allo-
cated contingency.
7. Calculate cost variance for each activity (CVA )
CVA ¼ ð% complete × PVA Þ − ACA ð4Þ
A positive CVA indicates that the activity is under budget,
and no contingency was required. If the activity has completed
and the CVA is still positive, then any remaining PVA will be
added to the remaining CCA and used for future remaining
© ASCE 04016014-5
J. Manage. Eng., 04016014
activities. On the other hand, a negative CVA indicates that
the project exceeds planned budget, and therefore cost contin-
gency will be used.
8. Calculate the remaining contingency for each activity (RCA )
RCA ¼ ECSA þ CVA ð5Þ
RCA shows the project manager/owner if the allocated cost
contingency for an activity, in a given reporting period, is
enough to cover the cost overrun. A negative RCA indicates
that the activity used more cost contingency than what it
was expected. A positive RCA shows that not all contingency
have been used and there is still some contingency remaining.
A zero RCA means that the activity used the entire contingency
allocated to it for the given reporting period.
9. Calculate remaining planned value (RPVA )
RPVA ¼ ð1 − % completeÞ × PVA ð6Þ
The RPV calculates how much planned value is remaining
for the activity to complete. It is calculated by multiplying the
percentage remaining to complete the activity by the PVA .
10. Calculate actual remaining contingency (ARCA )
ARCA ¼ CVA þ CCA ð7Þ
ARCA is different that RCA because RCA calculated the
remaining contingency with respect to a given reporting
period. On the other hand, ARCA calculates how much of
the allocated total cost contingency to each activity is re-
maining.
11. Determine total remaining cost (TRCA )
TRCA ¼ ARCA þ RPVA ð8Þ
This calculates the total cost (including contingency) re-
maining at the end of each reporting period.
12. Calculate planned updated remaining contingency for each
activity (PURCA )
PURCA ¼ CCA − ECSA ð9Þ
Calculates the minimum cost contingency for each activity
that should remain at the end of the reporting period. For ex-
ample, if an activity is 60% complete, then it is expected that at
least 40% of the contingency is remaining.
13. Calculate actual updated remaining contingency for each ac-
tivity (AURCA )
IF % complete ¼ 100; then AURCA ¼ 0;
otherwise; AURCA ¼ ðRPVA =RPVP Þ × RCP þ PURCA ð10Þ
This means that if the % complete of an activity is 100%, then
the AURC is set to be zero. This is because when an activity is
complete then any remaining contingency (or contingency overrun)
will be distributed to other activities, either to be used as extra cush-
ion against future uncertainties (in the case of excess contingency
remaining) or to distribute the overrun among other activities (in
the case of spending more contingency than expected). At the end
of the reporting period, the remaining contingency of the project
(RCP ) will be distributed to other activities based on the share
of the RPVA of the activity in the RPVP of the project. The project
manager should then decide if any further action is required to be
taken to keep the project within the original budget. If PURCP is
greater than AURCP , the project has more cost contingency re-
maining than expected. If the PURCA is less than AURCA , the ac-
tivity has less remaining cost contingency than expected. If PURCP
J. Manage. Eng.
 is equal to AURCP , from a financial point of view, the project is
performing exactly as planned.
Case Study
In order to demonstrate the use of the proposed cost contingency
method, the method is applied to a real-life bridge maintenance
project. The project presented in this paper is taken from a recently
completed Roads and Maritime Services (RMS) maintenance
project in the state of New South Wales, Australia. The project con-
sisted of replacing 730 m of crash barrier as well as cleaning, blast-
ing, and painting all bridge bearings, and fabricating and installing
10 new ladders to replace the existing rusted ladders (one on each
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pier). The project also included repairing two major gantries. The
bridge project lasted for 21 months with a budget of $3 million, but
for the sake of this research, only the fabrication and installation of
three new ladders are studied, which had a planned duration of just
over 2 months with a budget of $135,652. Since the project dura-
tion is only 39 days, the reporting period is chosen to be 10 days.
The following are assumed when calculating cost contingencies
for this paper:
1. All activities are normally distributed to 10% of the mean cost.
To allow for this assumption, according to Barraza and Bueno
(2007), independent performance is to be assumed and probabil-
ity distribution to be assigned to all activities. “Therefore all pro-
ject costs will be normally distributed with a mean cost similar
in value to the one that is calculated by the addition of the ac-
tivities’ mean costs, and the variance of the possible project cost
results to be equal to the accumulation of all activities’ cost
variance (as a result from the central limit theorem)” (Barraza
and Bueno 2007).
2. Any remaining contingency, for say, activity A, should not be
transferred to activity B until activity A is 100% complete. This
assumption prevents spending the contingency on a first-come,
first-served basis, but instead focusing on keeping all activities
under the target cost. It also allows identifying which activities
are experiencing a cost overrun and requiring to be monitored
more closely (and in some instances take immediate actions).
The PVP for the project was estimated to be $126,500 (without
contingency). All work on this project was done in-house using
Fig. 2. Results of total project cost obtained from Monte Carlo simulation
© ASCE 04016014-6
J. Manage. Eng., 04016014
internal resources, so there was no need to obtain any contractors.
The total project cost estimation for the project was done by a dif-
ferent department and then sent to the project manager for review.
The total project cost includes a detailed breakdown of the estimates
(based on experience from similar past project), as well as the
amount of contingency included. Therefore, by removing the con-
tingency cost, the total project cost turns out to be $126,500. The
acceptable risk chosen for this paper is 20% (i.e., 20% of being
overrun or 80% of being underrun). After running Monte Carlo sim-
ulation for 10,000 trials and using the 80th percentile, the total cost
(TC) is calculated to be $131,872. The results obtained from run-
ning MCS using Microsoft Project 2013 and Oracle Crystal Ball
are shown in Fig. 2. The CCP (which is the difference between TC
and PVP ) is $5,372.
Each activity has an influence on the total cost variance of the
project; this is used to allocate contingencies to each activity using
Eq. (1). The results for the cost contingency allocation are shown in
Table 2. The cost contingencies are allocated based on activity’s
contribution to the overall cost variance. This means that an activity
with a high uncertainty, high cost, and that lies on the critical path,
will have a high contribution to the cost variance of the project and
will therefore have a higher share of the cost contingency, and the
opposite is true.
The following is a detailed demonstration of how cost contin-
gency is allocated to the activity 1.1, which requires the use of
Eq. (2)
CCA ¼ ð1 − αÞ × ð% contribution to variance × CCP Þ
þ α × ðPVA =PVP Þ × CCP
As mentioned earlier, the project manager has chosen an 80%
confidence interval, α ¼ 80%. The % contribution to variance
for activity 1.1 was found to be 0.39% (refer to Table 2). The cost
contingency for the project (CCP ) was $5,372 (as discussed ear-
lier), which is calculated as the difference between the total cost
of the project (TCP ) and the planned value of the project (PVP ),
refer to Eq. (1) and task 1 in Table 2. The planned value for activity
1.1 (PVP ) is 4,500 (refer to Table 2), while the planned value for
the project (PVP ) is $126,500 (refer to Table 2). Therefore, the CCA
is $155
J. Manage. Eng.
 Table 2. Allocation of Cost Contingency to Each Activity Table 3). For the activity 1.1, the planned value (PVA ) is $4,500 as
Task Contribution to Planned Cost contingency seen in Table 3 and the actual cost (ACA ) spent on activity 1.1 is
name variance (%) value (CC) Total cost $4,500. Going back to Table 2, the cost contingency assigned for
this activity is $230. Since the activity is 100% and using Eq. (3),
1 100.00 $126,500 $5,372 $131,872
1.1 0.39 $4,500 $230 $4,730 the ESCA is $230 (100% × $230). This means that activity 1.1 was
1.2 94.15 $68,000 $1,690 $69,690 expected to spend $230 of the total $230 contingency assigned to it
1.2.1 93.21 $60,000 $1,228 $61,228 by the end of the first remaining period. The remaining contingency
1.2.2 0.01 $1,000 $226 $1,226 (RCA ) as shown in Table 3 is $230, which is calculated using Eq. 5
1.2.3 0.93 $7,000 $236 $7,236 ($230 + $0). This means that at the end of the first reporting period,
1.3 5.47 $54,000 $3,452 $57,452 activity 1.1 still has $230 remaining not yet used. The total remain-
1.3.1 2.07 $20,000 $1,153 $21,153
1.3.1.1 0.79 $6,000 $235 $6,235
ing contingency (TRCA ) is $230, which is calculated using Eq. (6)
1.3.1.2 0.38 $4,000 $230 $4,230 ($0 + $230). The remaining planned value is $0, since activity 1.1
1.3.1.3 0.64 $5,000 $233 $5,233 has been completed. The total remaining cost (TRCA ) at the end of
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1.3.1.4 0.18 $3,000 $228 $3,228 the first reporting period is $230. This means that there is $230
1.3.1.5 0.08 $2,000 $227 $2,227 remaining (including planned value and contingency), which is cal-
1.3.2 1.06 $14,000 $1,142 $15,142 culated using Eq. (8) ($230 + $0).
1.3.2.1 0.14 $3,000 $228 $3,228 For the activity 1.2.1, the total PV assigned is $60,000 (as seen
1.3.2.2 0.32 $3,000 $230 $3,230
in Table 2), but since the activity is only 20% complete, the amount
1.3.2.3 0.36 $3,500 $230 $3,730
1.3.2.4 0.19 $3,000 $228 $3,228 of PV shown in Table 3 is $12,000 ($60,000 × 20%) while the ACA
1.3.2.5 0.04 $1,500 $227 $1,727 is $15,000. The ECSA is $246, which is calculated using Eq. (3)
1.3.3 2.33 $20,000 $1,156 $21,156 (20% × $1,228). This means that activity 1.2.1 is expected to spend
1.3.3.1 0.92 $6,000 $236 $6,236 a maximum of $246 of the $1,228 (from Table 2) assigned to it
1.3.3.2 0.49 $4,000 $231 $4,231 by the end of the first reporting period. The CVA is –$3,000, which
1.3.3.3 0.53 $5,000 $232 $5,232 is calculated using Eq. (4) (20% × $60,000–$15,000). Since CVA
1.3.3.4 0.36 $3,000 $230 $3,230
1.3.3.5 0.03 $2,000 $227 $2,227
is a negative value, this means that activity 1.2.1 exceed the planned
value and therefore the contingency will be used. The remaining
contingency (RCA ) is −$2,754, which is calculated using Eq. (5)
  ($246–$3,000). This means that activity 1.2.1 used $2,754 more
$4,500 contingency than what it was expected to use by the end of the
0.2 × ð0.39% × $5,301Þ þ 0.8 × × $5,301 ¼ $155
$126,500 first reporting period ($246 was expected). The ARCA is thus
The TCA for activity 1.1 is calculated [using Eq. (1)] as −$1,772, which is calculated using Eq. (7) (–$3,000 þ $1,228).
$4,500 þ $155 ¼ $4,655. This means that the cost overrun for activity 1.2.1 was larger than
For the first reporting period (after 10 days), activity 1.1 is 100% the total contingency assigned to it; $1,228 was originally assigned
complete and only 20% of the activity 1.2.1 is completed (refer to to activity 1.2.1 (refer to Table 2). The RPV is $48,000, calculated

Table 3. Results for the First Reporting Period (after 10 days)

Project Complete
activities PV ($) PURC ($) AURC ($) (%) AC ($) ECS ($) CV ($) RC ($) ARC ($) RPV ($) TRC ($)
1 16,500 4,896 2,372 24 19,500 476 −3; 000 −2;524 −1;542 110,000 112,372
1.1 4,500 0 0 100 4,500 230 0 230 230 0 230
1.2 12,000 1,444 159 16 15,000 246 −3; 000 −2,754 −1,772 56,000 54,690
1.2.1 12,000 982 −119 20 15,000 246 −3,000 −2,754 −1,772 48,000 46,228
1.2.2 — 226 203 0 — — — — — 1,000 1,226
1.2.3 — 236 75 0 — — — — — 7,000 7,236
1.3 — 3,452 2,213 0 — — — — — 54,000 57,452
1.3.1 — 1,153 694 0 — — — — — 20,000 21,153
1.3.1.1 — 235 97 0 — — — — — 6,000 6,235
1.3.1.2 — 230 138 0 — — — — — 4,000 4,230
1.3.1.3 — 233 118 0 — — — — — 5,000 5,233
1.3.1.4 — 228 159 0 — — — — — 3,000 3,228
1.3.1.5 — 227 181 0 — — — — — 2,000 2,227
1.3.2 — 1,143 822 0 — — — — — 14,000 15,143
1.3.2.1 — 228 159 0 — — — — — 3,000 3,228
1.3.2.2 — 230 161 0 — — — — — 3,000 3,230
1.3.2.3 — 230 150 0 — — — — — 3,500 3,730
1.3.2.4 — 228 159 0 — — — — — 3,000 3,228
1.3.2.5 — 227 193 0 — — — — — 1,500 1,727
1.3.3 — 1,156 697 0 — — — — — 20,000 21,156
1.3.3.1 — 236 98 0 — — — — — 6,000 6,236
1.3.3.2 — 231 139 0 — — — — — 4,000 4,231
1.3.3.3 — 232 117 0 — — — — — 5,000 5,232
1.3.3.4 — 230 161 0 — — — — — 3,000 3,230
1.3.3.5 — 227 181 0 — — — — — 2,000 2,227

© ASCE 04016014-7 J. Manage. Eng.

J. Manage. Eng., 04016014

 using Eq. (6) (80% × $60,000). The total remaining cost was thus
$46,228, which is calculated using Eq. (8) (−$1,772 þ $48,000).
The overall project performance for the first reporting period
showed that RCP was –$2,524, meaning that the project went over
budget and the allocated contingency—for activities in the first re-
porting period—was not enough. ARCP was –$1,542, showing that
the total contingency assigned for all activities in the first reporting
period does not cover the cost overrun. When the AURCP is com-
pared with the PURCP , for the first reporting period the actual up-
dated remaining contingency (AURCP ) was $2,372 and the
planned updated remaining contingency (PURCP ) was $4,896.
This means that, at the end of the first period, the project was ex-
pected to have $4,896 of cost contingency remaining, but in reality
the project had $2,372. This shows that for the first reporting period
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For the third reporting period (after 30 days), as shown in
Table 5, all activities under 1.2 is now complete as is all work
under 1.3.1. The actual cost of the activity 1.2.1 is $62,000
($2,000 over the PVA ). ECSA is $1,228; this means because ac-
tivity 1.2.1 is 100% complete, then 100% of the contingency origi-
nally allocated to it is expected to be spent. The CVA is –$2,000,
which means that the activity used $2,000 more cost than the
allocated PVA . Given the total amount of contingency allocated
to this activity is $1,228, the actual remaining cost ARCA is
–$772 (–$2,000 þ $1,228).
All work under 1.3.1 has been completed (refer to Table 5) with
an ACA value of $19,900 and a CVA of $100 (saved $100 on the
PVA ). The ECSA was $1,153, while the RCA and ARCA were both
$1,253, which shows that, not only did the project manager save all

the project consumed more contingency than expected.
For the second reporting period (after 20 days), shown in
Table 4, activity 1.2.1 is 87% complete and the ACA was $55,000.
The amount of contingency expected to be spent (ECSA ) was
$1,068, i.e., 87% of the total allocated contingency to the activity
(refer to Table 2 for total allocated contingency). The CVA for ac-
tivity 1.2.1 was –$2,800. Since the value is negative, this means that
activity 1.2.1 is spending more money than its allocated PV. The
allocated PVA for activity 1.2.1 in the second reporting period was
$52,200 (Table 4), while the ACA exceeded this amount and there-
fore contingency will have to be used to cover the cost overrun.
Looking at the RCA , the results show a negative value (–$1,732)
but with a significant improvement when compared to the RCA
value for activity 1.2.1 in the first reporting period (Table 4). The
ARCA was –$1,572 (–$2,800 þ $1,228). Since the ARCA is a neg-
ative value, this means that the cost overrun could not be covered
by the total contingency assigned to activity 1.2.1. The RPVA is
$7,800 and the total remaining cost (TRCA ) was $6,228. Overall,
the project had an AURCP at the end of the second reporting period
of $2,572, which was much lower than the PURCP ($4,074).
Again, this shows that the project is still consuming contingency
more than expected.
of the contingency for activities under 1.3.1, but some of the PVA
was also saved. Work under 1.3.2 was 67% complete with ACA of
$6,200, which is just over the PVA of $6,000; this is shown with a
CVA of –$200. The ECSA is $458, which means that all activities
under 1.3.2 are expected to spend a maximum of $458 of the total
$1,142 (refer to Table 2) allocated to it. The RCA and ARCA for the
second pier showed a positive value ($258), meaning that the cost
overrun (CVA ¼ −$200) had been covered by the contingency and
there is still $258 remaining.
Overall, the project in the third reporting period had an AURCP
of $3,372 while the PURCP is $1,831. This shows that the project
was financially doing much better (1.8 times) than expected.
The project was supposed to have $1,831 (out of $5,372 originally
allocated to the project) remaining contingency at the end of
the third reporting period but actually managed to have $3,372
remaining. This means that for the third reporting period, the
project is doing better than expected and managed to recover
from the overrun achieved in the first and second reporting
periods.
For the fourth and last reporting period (after 39 days), shown in
Table 6, all work on the project is now completed. The ACP was
$127,500 and the PVP was $126,500, which means that the project

Table 4. Results for the Second Reporting Period (after 20 days)

Project Complete
activities PV ($) PURC ($) AURC ($) (%) AC ($) ECS ($) CV ($) RC ($) ARC ($) RPV ($) TRC ($)
1 56,700 4,074 2,572 42 59,500 1,298 −2,800 −1; 502 −1,342 69,800 72,372
1.1 4,500 0 0 100 4,500 230 0 230 230 0 230
1.2 52,200 622 282 69 55,000 1,068 −2,800 −1,732 −1,572 15,800 14,690
1.2.1 52,200 160 −8 87 55,000 1,068 −2,800 −1,732 −1,572 7,800 6,228
1.2.2 — 226 204 0 — — — — — 1,000 1,226
1.2.3 — 236 85 0 — — — — — 7,000 7,236
1.3 — 3,452 2,290 0 — — — — — 54,000 57,452
1.3.1 — 1,153 723 0 — — — — — 20,000 21,153
1.3.1.1 — 235 106 0 — — — — — 6,000 6,235
1.3.1.2 — 230 144 0 — — — — — 4,000 4,230
1.3.1.3 — 233 125 0 — — — — — 5,000 5,233
1.3.1.4 — 228 163 0 — — — — — 3,000 3,228
1.3.1.5 — 227 184 0 — — — — — 2,000 2,227
1.3.2 — 1,143 842 0 — — — — — 14,000 15,143
1.3.2.1 — 228 163 0 — — — — — 3,000 3,228
1.3.2.2 — 230 165 0 — — — — — 3,000 3,230
1.3.2.3 — 230 155 0 — — — — — 3,500 3,730
1.3.2.4 — 228 163 0 — — — — — 3,000 3,228
1.3.2.5 — 227 195 0 — — — — — 1,500 1,727
1.3.3 — 1,156 726 0 — — — — — 20,000 21,156
1.3.3.1 — 236 107 0 — — — — — 6,000 6,236
1.3.3.2 — 231 145 0 — — — — — 4,000 4,231
1.3.3.3 — 232 124 0 — — — — — 5,000 5,232
1.3.3.4 — 230 165 0 — — — — — 3,000 3,230
1.3.3.5 — 227 184 0 — — — — — 2,000 2,227

© ASCE 04016014-8 J. Manage. Eng.

J. Manage. Eng., 04016014

 Table 5. Result for the Third Reporting Period (30 days)
Project Complete
activities PV ($) PURC ($) AURC ($) (%) AC ($) ECS ($) CV ($) RC ($) ARC ($) RPV ($) TRC ($)
1 98,500 1,841 3,372 80 100,500 3,531 −2,000 1,531 1,531 28,000 31,372
1.1 4,500 0 0 100 4,500 230 0 230 230 0 230
1.2 68,000 0 0 100 69,900 1,690 −1,900 −210 −210 0 −210
1.2.1 60,000 0 0 100 62,000 1,228 −2,000 −772 −772 0 −772
1.2.2 1,000 0 0 100 900 226 100 326 326 0 326
1.2.3 7,000 0 0 100 7,000 236 0 236 236 0 236
1.3 26,000 1,841 3,372 60 26,100 1,611 −100 1,511 1,511 28,000 31,352
1.3.1 20,000 0 0 100 19,900 1,153 100 1,253 1,253 0 1,253
1.3.1.1 6,000 0 0 100 6,300 235 −300 −65 −65 0 -65
1.3.1.2 4,000 0 0 100 4,100 230 −100 130 130 0 130
1.3.1.3 5,000 0 0 100 4,000 233 1,000 1,233 1,233 0 1,233
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1.3.1.4 3,000 0 0 100 3,500 228 −500 −272 −272 0 −272

1.3.1.5 2,000 0 0 100 2,000 227 0 227 227 0 227
1.3.2 6,000 685 1,122 67 6,200 458 −200 258 258 8,000 8,943
1.3.2.1 3,000 0 0 100 3,200 228 −200 28 28 0 28
1.3.2.2 3,000 0 0 100 3,000 230 0 230 230 0 230
1.3.2.3 — 230 421 0 — — — — — 3,500 3,730
1.3.2.4 — 228 392 0 — — — — — 3,000 3,228
1.3.2.5 — 227 309 0 — — — — — 1,500 1,727
1.3.3 — 1,156 2,250 0 — — — — — 20,000 21,156
1.3.3.1 — 236 564 0 — — — — — 6,000 6,236
1.3.3.2 — 231 450 0 — — — — — 4,000 4,231
1.3.3.3 — 232 505 0 — — — — — 5,000 5,232
1.3.3.4 — 230 394 0 — — — — — 3,000 3,230
1.3.3.5 — 227 336 0 — — — — — 2,000 2,227

Table 6. Results for the Fourth Reporting Period (after 39 days)

Project Complete
activities PV ($) PURC ($) AURC ($) (%) AC ($) ECS ($) CV ($) RC ($) ARC ($) RPV ($) TRC ($)
1 126,500 0 0 100 127,500 5,372 −1,000 4,372 4,372 0 4,372
1.1 4,500 0 0 100 4,500 230 0 230 230 0 230
1.2 68,000 0 0 100 70,000 1,690 −2,000 −310 −310 0 −310
1.2.1 60,000 0 0 100 62,000 1,228 −2,000 −772 −772 0 −772
1.2.2 1,000 0 0 100 1,000 226 0 226 226 0 226
1.2.3 7,000 0 0 100 7,000 236 0 236 236 0 236
1.3 54,000 0 0 100 53,000 3,452 1,000 4,452 4,452 0 4,452
1.3.1 20,000 0 0 100 19,900 1,153 100 1,253 1,253 0 1,253
1.3.1.1 6,000 0 0 100 6,300 235 −300 −65 −65 0 −65
1.3.1.2 4,000 0 0 100 4,100 230 −100 130 130 0 130
1.3.1.3 5,000 0 0 100 4,000 233 1,000 1,233 1,233 0 1,233
1.3.1.4 3,000 0 0 100 3,500 228 −500 −272 −272 0 −272
1.3.1.5 2,000 0 0 100 2,000 227 0 227 227 0 227
1.3.2 14,000 0 0 100 13,900 1,143 100 1,243 1,243 0 1,243
1.3.2.1 3,000 0 0 100 3,200 228 −200 28 28 0 28
1.3.2.2 3,000 0 0 100 3,000 230 0 230 230 0 230
1.3.2.3 3,500 0 0 100 3,200 230 300 530 530 0 530
1.3.2.4 3,000 0 0 100 3,000 228 0 228 228 0 228
1.3.2.5 1,500 0 0 100 1,500 227 0 227 227 0 227
1.3.3 20,000 0 0 100 19,200 1,156 800 1,956 1,956 0 1,956
1.3.3.1 6,000 0 0 100 6,200 236 −200 36 36 0 36
1.3.3.2 4,000 0 0 100 4,400 231 −400 −169 −169 0 −169
1.3.3.3 5,000 0 0 100 3,500 232 1,500 1,732 1,732 0 1,732
1.3.3.4 3,000 0 0 100 3,000 230 0 230 230 0 230
1.3.3.5 2,000 0 0 100 2,100 227 −100 127 127 0 127

had spent $1,000 more than was planned to be spent. The total re-
maining cost (TRCP ) at the end of the project was $4,372. This
shows that the cost contingency was enough to cover all cost over-
runs in the project and there was still $4,372 remaining at the end of
the project, whereas the expected contingency spent (ECSA ) at the
last reporting period (end of the project) is $5,372 (as shown in
Table 6).
Discussion
It has been shown that contingency can have a tremendous impact
on project outcome for project participants (Dey et al. 1994;
Baccarini 2004) as it provides a buffer against risk development.
A contingency that is too large can result in poor cost management,
uneconomic completion of a project, and a lack of available funds

© ASCE 04016014-9 J. Manage. Eng.

J. Manage. Eng., 04016014

 for other organizational activities. On the other hand, a contingency
that is too low can give rise to inadequate funding for executing
a project, an unrealistic financial environment, and unsatisfactory
performance outcomes. Performance measures for cost contin-
gency tracks the amount or percentage of contingency included
in an estimate for a project (Harper et al. 2013). This allows the
project manager to understand the proper amount of contingency
needed for a particular project. Tracking contingency helps to es-
tablish baseline contingency amount according to project size and
type, and the tracked data are then useful for referencing historical
data when similar project arise. This research thus has introduced a
new methodology to estimate and allocate cost contingency during
the planning phase, as well as managing cost contingency during
the execution phase of the project.
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The project used in this paper is a real-life bridge maintenance
project and the reporting period is selected every 10 days.
Conclusion
The proposed method considers controlling the actual costs for a
project and each activity to be under the target cost value. If the
original planned goal (of an activity) is not achieved, its contin-
gency reserve will be available for use for the following activities;
however, the excess cost contingency allowance for an activity
should not be transferred to any other activity until the former
has been fully completed. The original cost contingency estimation
method used in the bridge maintenance presented in this paper was

based on the experience of the estimator from similar past projects.

Cost Contingency Estimation and Allocation
For cost contingency estimation, the project manager estimates the
planned value of each activity based on experience from similar
past projects. After running Monte Carlo simulation, the total con-
tingency is calculated. Cost contingency is allocated to each activ-
ity based on the activity’s contribution to the overall cost variance
of the project. This means that an activity with high uncertainty,
high cost (affecting budget), and that lies on the critical path (af-
fecting the project’s duration) will contribute more towards the cost
variance of the project and will therefore have a higher share of the
cost contingency, and vice versa.
Cost Contingency Management
From a financial point of view, a project is considered to be doing
well when the actual updated remaining contingency (AURCP ) is
more than or equal to the planned updated remaining contingency
(PURCP ) of the project. The proposed method is very powerful as it
can show how much of the project is over/under budget and which
activities to look out for in the future. The new method also recal-
culates the cost contingency allocated to each activity at the end of
the reporting period. This will allow project managers/owners to
keep track more frequently and accurately of the total cost of the
project. The contingency budget should not be used to cover
changes in scope; rather, its purpose is to cope with cost increases
resulting from the uncertain nature of some construction activities.
The main disadvantage is that this method is subjective and varies
widely based on the estimator’s skill, knowledge, and experience.
Sometimes, the experience of the estimator may be different from
the project being experienced. The method presented in this paper
estimates contingency using Monte Carlo simulation by assigning a
probability distribution to each activity and selecting an appropriate
confidence interval.
Table 7 is a comparative table showing the differences between
the actual contingency and estimated contingency using the tradi-
tional (original) and proposed method, used in the bridge mainte-
nance project. The results show that applying the new method leads
to a more accurate estimation of the cost contingency. This can be
clearly demonstrated as the cost contingency calculated for the
project using the proposed method is 4.2% of the total project cost,
compared to 7.2% cost contingency actually used for the bridge
maintenance project, which can be the difference between winning
and losing a tender.
In summary, the following is what differentiates the proposed
method from the ones discussed in the preceding review. The pro-
posed method includes estimating, allocating, and managing cost
contingency. First, the proposed method is easy to use as it does not
require tedious equations or timely data collection (such as inter-
views and surveys). It also does not require the project manager to
have any prior knowledge such as ANN, fuzzy logic, or any other
simulation. Complex models would never be the solution to man-
age cost contingency especially on a construction project. Any
complex or time-consuming methods will have little added value
for the construction industry. Secondly, the proposed method acts

Table 7. Comparative Table between the Actual and Proposed Method

Items
Total project cost excluding contingency
Total project cost including contingency
Amount of contingency included
Amount of contingency consumed
Cost contingency estimation method
Cost contingency allocation method
Cost contingency management method
Original method
$126,500
$135,652
$9,152
$4,301
Based on professional experience from similar past
projects
The contingency is used as a global contingency
(placed at the end of the project)
There is no one particular way for managing cost
contingency. The cost contingency is used to any
activity that requires it based on first-come, first-
used basis. This method does not take into account
the complexity of the activity and how it affects the
total project
Proposed method
$131,872
$5,372
Using MCS
Contingency assigned to each activity individually
based in the activity’s contribution to the project
variance. The more the activity affects the project,
the higher the amount of contingency assigned to it
Managed based on Fig. 1. This method takes into
account the complexity of the project and its effect
on the total project

© ASCE 04016014-10 J. Manage. Eng.

J. Manage. Eng., 04016014

 as an early warning for activities going over budget. It allows to
carefully planning activities based on the past and current spending
pattern. Thirdly, the proposed method is adaptable enough to ac-
commodate disruptions in the project environment. The project
manager can select the required confidence interval.
Given the preceding discussion and the results obtained in this
paper, our new understanding about cost contingency management
is that there is no particular way assigned for managing cost con-
tingency. The authors are not claiming that this is the only method
to estimate, allocate, or manage cost contingency in a project, nor
are they claiming that because of the proposed method the pre-
sented project the case study finished without using the entire con-
tingency allocated to it.
As a future work, the proposed method can be extended for
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schedule contingency and tested on a real-life project. Another fu-
ture objective is combining the proposed cost contingency method
with a new schedule contingency method to create a total contin-
gency estimation, allocation, and management frameworks. Other
distributions should be examined and its effect on the estimating
and managing contingency should be closely observed.
Notation
The following symbols are used in this paper:
AC = actual cost;
ARC = actual remaining contingency;
AURC = actual updated remaining contingency;
CC = cost contingency;
CV = cost variance;
ECS = expected contingency spent;
PURC = planned updated remaining contingency;
PV = planned value;
RC = remaining contingency;
RPV = remaining planned value;
TC = total cost;
TRC = total remaining cost; and
α = confidence interval chosen to represent an acceptable
project risk.
Note: All of the aforementioned notations, with the exception of
α, should be followed with a subscript either A or P. Any variable
with a subscript A refers to the individual activity, while a variable
with subscript P refers to the total project.
References
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