When seeking project approval, submissions should provide details of how the contingency has been determined with reference to the calculation method (e.g. deterministic or probabilistic), risk profile of the project, the delivery method, the risk allocation and other key aspects of the business case. |
As the first step in the approval process, the calculation of contingency is a vital element because it determines the magnitude of funding to be held in reserve. At a time of significant pressure on government budgets, it is essential that contingency is calculated appropriately. If this calculation is overestimated it will undermine investment returns. Conversely, if it is underestimated the program delivery may be compromised.
The calculation of contingency requirements should align with the project risk profile, complexity, stage of the investment lifecycle and benchmarks based on past project cost performance. Calculation of contingency is not a 'one-time' calculation. Contingency requirements should be reviewed and amended in response to changes to the risk profile and progression through the investment lifecycle. Contingency requirements should narrow over time as more detailed planning is completed.
Project budgets should not contain contingency provisions for changes to the project beyond the intent of the business case.