Cost Contingency Management

Abstract

In the practice of project management, cost contingencies have the objective of covering probable cost increases (risks) above target estimates. Due to the variable performance nature for a wide range of activities, contingencies not only should be properly calculated but also assigned in the budget estimation process and wisely controlled during project execution. In this article, the Monte Carlo simulation approach is recommended as part of a proposed methodology for cost contingency management, which also includes a heuristics for contingency assignment (allocation) among project activities, as long as the activities have some degree of uncertainty regarding their future costs.