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How much of a contingency factor should be included in a captial cost estimate?
Contingency is a key component of all cost estimates, from the conceptualization of a technology or project to its final implementation. Among project managers, financial managers and project owners, the connotations of contingencies may differ, depending on the potential impacts to a capital project and the resources needed to address them. Proper contingency assessment is required for capital projects to achieve their technical and business objectives.
Contingency is defined as an amount added to a cost estimate for an established project scope to account for items, conditions and/or requirements that experience has shown will likely result in additional project costs.
What does contingency usually include? Conceptual or early-stage capital cost estimates are initiated prior to the expenditure of resources on process development and detailed engineering. As a project moves through successive stages of development, its scope is defined with more and more detail, and project elements that are not depicted on the conceptual-stage process flow diagrams are identified. The requirements for the project's implementation are identified and then detailed in an evolutionary way.
What should not be covered by contingency? Contingencies are not intended to account for major changes that do not add...