Corporate contingency estimating in construction firms: a cross-impact method

A construction contingency can be defined as the monetary amount added to the base estimate of a tender to account for the unfavorable future events. In principle, a contingency amount can be divided into two main monetary values: (1) project-specific contingency, and (2) business contingency (also known as, corporate contingency). Adding the two monetary values together provides an estimate of the required contingency for a project. There is no doubt that contingency estimating constitutes one of the most vital decisions in the bid preparation stage. Nevertheless, the common practice in the Egyptian construction industry is to simply multiply the project costs by a subjective percentage to cover both overheads and contingencies, besides the presumptive profit for the firm. This practice apparently has many shortcomings. To improve on such practice, the paper provides a systematic technique to estimating contingencies, specifically the business contingency. It first defines the inherent business risk sources, including the country conditions, which are typically associated with the construction industry. Afterwards, the prime cost elements of a construction project that are affected by each of these business risk sources are identified. A newly developed cross-impact mathematical model named business contingency model (BCM) is then introduced as platform for a systematic estimation of business contingency in construction firms. The model is based on defining a B coefficient to depict the cross impact of a particular source of business risk on a cost element of the project. An illustrative example is then given to explain the mechanics of the devised model. Finally, the paper elaborates on a computer program prepared to assist the industry practitioners in using the model in practical applications.