Cost Contingency as the Standard Deviation of the Cost Estimate for Cost Engineering

Type:
SIEPR Discussion Paper 04-005

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Published:
02/1/05

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Abstract:
Traditional cost contingency estimation relies heavily on expert judgment based on various cost-engineering standards. This paper compares project stages, accuracy ranges, and cost contingencies recommended by the Association for the Advancement of Cost Engineering International and the Electric Power Research Institute. It shows that current guidelines are consistent with contingencies equal to the standard deviation of the cost estimate. It suggests how this standard deviation can be derived from a confidence level (e.g., 80%) for a given accuracy (e.g., +/-10%) for normal and lognormal probability distributions.