What does contingency refer to in an estimating context?

In the context of estimating, contingency refers to unforeseen expenses that are added to budgets to account for uncertainties and risks that may arise during a project. It serves as a financial buffer, providing a level of comfort against the unexpected events that could impact the project's costs.

Contingencies are typically based on a percentage of estimated costs, depending on the level of risk perceived in the project. This practice ensures that the project budget is more realistic and can accommodate variations in costs that are not easily predictable at the outset. By including these funds, project managers can better manage risk and ensure that they have the necessary resources to address challenges that may surface once the project is underway.

In contrast, standard allowances in bids are predetermined figures included to cover known items or risks, rather than unexpected costs. Funding for future projects refers to financial resources allocated for projects that have not yet commenced, which does not relate to the current project's uncertainties. Costs associated with profit focus on the margin expected from completing a project successfully, rather than covering unanticipated expenses during the project's lifecycle.