This recommended practice (RP) of AACE® International defines a tabular, risk-driven method for establishing predetermined cost estimate accuracy range and contingency values based on industry parametric risk quantification models. It uses the RAND Corporation (RAND) parametric cost risk model from AACE RP 43R-08, Risk Analysis and Contingency Determination Using Parametric Estimating – Example Models as Applied for the Process industries, to illustrate the method and develop example tables. However, the RP’s tabular, risk-driven approach could be supported by other validated parametric models. In addition, the RP can be used as a base that users can adjust to align with their own empirical cost and risk experience (e.g., different estimating bias, unique risk profiles, etc.) The RP applies to the systemic risks for individual projects in any industry (not programs or portfolios) involving engineering and construction. The RP does not address schedule contingency. For more information about estimate accuracy ranges, refer to AACE RP 104R-19, Communicating Expected Estimate Accuracy.

The term predetermined means that an empirically-based, validated parametric model or equivalent empirical study has been pre-applied to generate accuracy ranges that reflect a range of known, key risk drivers. A principle stated in all AACE estimate classification RPs is that the range must be determined through a quantitative risk analysis for each particular estimate. In that respect, this RP represents a minimum of analysis when more rigorous methods are not possible or reasonable such as early in the project development cycle or for lower capex projects. This RP is not to be used in place of more rigorous quantitative risk analysis methods if they are practical.