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What is a contingency allowance?

I have noticed that the term contingency allowance is common in construction projects. What is it? How does it differ from contingency reserve (also can we have both on the same project)?
asked 7 years ago by anonymous

1 Answer

A contingency allowance is an amount of budget or time set aside for potential risks that may become issues.  For example, there may be extra budget to bring on more resources to finish a project on time after a weather delay.  Contingencies address risks which are known and considered possible or likely.

The more appropriate term is management reserve.  This is an amount set aside for the "unknown unknowns" -- the unplanned, unconsidered risks.

It is best practice to treat these two pools as separate and only to be used for their planned purposes.  For example, I wouldn't apply either to cover the increased costs of a scope change.
answered 7 years ago by sdcapmp (45,840 points)

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