Process Industry Contingency Estimation: A Study of the Ability to Account for Unforeseen Costs

by James J. Milanese

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Contingency ratio calculation is one of the least understood and most neglected areas of cost estimation. This Note describes the result of a limited study of the nature of the contingency estimation process. Its goal was to determine the adequacy (the ability to project unforeseen costs) of contingency estimation in the chemical process industries. The findings suggest that various parameters associated with novelty and complexity appear to be overlooked by estimators. The primary importance of the estimate type was established, as was the importance of the type of company. The job position of the estimate of the preparer and the type of contract under which design and construction were performed were not statistically significant in the calculation of the contingency amount.

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