# Computing Contingency based on confidence level

Discussion in 'Other Project Management Courses' started by _2682, Jul 9, 2020.

1. ### _2682 Member

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Hi ,

Request you to help me understand with example, how to compute contingency schedule or cost based on confidence interval in Quantitative Risk Analysis.

Regards,
Venkat

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2. ### Prema.M Well-Known Member Staff MemberSimplilearn SupportAlumni

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Hi Venkat,

The explanation is as under:
" In Quantitative risk analysis, we look at the probability and impact of the risk and according to the PI value, provide for contingency reserves for Cost and Schedule. If you do not have sufficient details about the risk, then you may follow the procedure as below:
1. Look at historical data which gives you an idea of similar risks in earlier similar projects
2. Look at the current project data like assumptions, constraints, Customer/Sponsor expectations, Tolerance of key stakeholders etc and decide the PI of the risks identified.
3. If you are still unsure, do a PERT method
a) Look at the probability optimistically-Take a value
b) Look at the probability Pessimistically-Take a value
c) Look at the probability most likely-Take a value
Use the formula P+4M+O/6 and arrive at the probability value.
Now also calculate Standard deviation(Sigma) using formula P+0/6.

Now, the larger the standard deviation, the less confidence there is in the estimation value, and the smaller the deviation range the greater the confidence.Hope the above clarifies.

Prema M

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