Calculation of contingency in construction projects

This paper presents a probabilistic model that considers the random nature of change orders and their impact on the cost and schedule of a construction project. The model incorporates uncertainties in project cost and schedule and calculates the contingency based on the level of confidence specified by the owner. It assumes a Poisson arrival pattern for change orders in a construction project. The effect of schedule delays in further increasing the project cost is considered explicitly and the effect of correlation between change orders is discussed and analytically considered. The proposed model may be used for budgeting purposes at the early stages of project development. Typical applications of the proposed model in the context of construction industry are discussed. A numerical example is presented that demonstrates the use of the model in establishing a budget contingency. The results of the example are compared with actual data from previous construction projects.