USE ALLOWANCES BASED ON PAST COST RATIOS

Even the most carefully constructed estimates are vulnerable to unpredictable events. However, past cost ratios help estimators identify patterns and anomalies in previous work that can then predict similar instances in the future. Estimators then can adjust their timelines to allow for less standardized events. Effective allowances require a deep dive into the historical conditions of hundreds of projects to get qualifiable, reliable insights. For example, allowances based on past ratios create more precise cost estimates. According to Chris Hendrickson, Hamerschlag University Professor of Engineering Emeritus at Carnegie Mellon University, experienced teams tailor contingencies based on historical insight and foresight into the unique challenges of the current project. By tailoring contingencies, estimators account for changing market conditions, technological advances, regulatory changes, and other factors that might influence project costs. By applying ratios, estimators create a framework that accounts for foreseeable and unforeseeable costs, makes their work more precise, protects the project from financial risks, and contributes to overall success.