Extract

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.

Keywords: Cost; contingency; construction; traditional contingency calculation.

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