Interpreting Traditional Cost Contingency Methods in the Construction Industry

This research investigates how contingency is currently calculated in project budgets within the building industry. This is an important aspect to consider as a large proportion of construction projects are significantly over-budget. The study presents three non-simulation methods and one simulation method for calculating cost contingency following the results of a forthcoming journal paper. These methods are applied against a case study project in attempt to highlight the most reliable method, and to create a methodology that will be useful to the industry. This paper identifies that the traditional fixed percentage approach is not sufficient and suggests that this could be one of the main reasons why construction projects are over budget. While it is unclear which method is the most reliable, this study provides a focus for future research into reliability and utilisation of contingency methods in the building industry. The research demonstrates that current practice needs to change to reduce the large number of construction projects that run over budget.