A-Z Popular Blog Projects Search »
Management
 Advertisements
Related Guides

4 Types of Cost Contingency

 , updated on
Cost contingency is an amount that is included in a budget to represent uncertainty. Projects and operational functions commonly run into unexpected expenses. This is so common that unexpected costs can be expected. As such, including a cost contingency in a budget is a standard practice in many industries. The following are commonly considered factors when calculating a cost contingency.

Minor Costs

Estimates may include major tasks and costs but not consider minor costs and incidental expenses that typically occur. These may be included in cost contingency.

Estimates

Cost contingency typically reflects the confidence you have in estimates. If you have used a robust method such as reference class forecasting to develop estimates you may be able to keep cost contingency low. Alternatively, if estimates are based on the opinion of experts who may be new to certain elements of your project, a higher contingency may be warranted.

Risks

One of the primary uses of contingency budget is to handle risks that occur and become issues. As such, risks that you have identified in the context of a project can be useful for considering the size of cost contingency. This being said, it is common to exclude the costs of major risks from cost contingency. Some risks might be reasonably be expected to be handled within budget. Others, such as a major failure might reasonably require reevaluation of your budget.

Cost Escalation & Exchange Rates

Planning for cost escalation and exchange rate fluctuations belongs with risk management as these risks can be transferred, avoided and mitigated. Minor fluctuations in prices and exchange rates might be reasonably expected to be covered by cost contingency.
Overview: Cost Contingency
Type
Definition
An amount that is included in a budget to represent uncertainty.
Related Concepts

Financial Management

This is the complete list of articles we have written about financial management.
Baseline
Budget
Budget Control
Budget Risk
Business Costs
Capex
Budget Planning
Conflict Of Interest
Cost Contingency
Cost Control
Cost Escalation
Capital Budgeting
Cost Management
Compliance
Cost Overrun
Business Ethics
Contingency Budget
Financial Controls
Contract Risk
Financial Risk
Matching Principle
Operating Expenses
Opex
Refinancing Risk
Risk Management
Governance
Management Controls
Reputational Risk
More ...
If you enjoyed this page, please consider bookmarking Simplicable.
 

Project Risk

A list of common project risks.

Project Management Basics

A list of basic project management techniques.

Workaround

A definition of workaround with examples.

Project Branding

A list of project branding techniques.

Stakeholder Management

An overview of project stakeholder management with examples.

Action Plan

A definition of action plan with examples.

Cost Overrun

The primary types of cost overrun.

Document Control

The definition of document control with examples.

Project Oversight

A guide to project oversight.

Design-Driven Development

A definition of design driven development with examples.

Financial Management

An overview of financial management with examples.

Financial Controls

A definition of financial controls with a few examples.

Business Costs

A list of common types of business cost.

Cost Management

A definition of cost management with examples.

Management Controls

The common types of management control.

Capital Expenditures

The definition of capital expenditure with examples.

Examples of Current Assets

A list of the common types of current asset.

Financial Freedom

An overview the common types of financial freedom.
The most popular articles on Simplicable in the past day.

New Articles

Recent posts or updates on Simplicable.
Site Map