Can owners pool their contingencies together to minimize risk without affecting the Target Price?

When owners consider pooling their contingencies, it is important to recognize how this impacts the overall project budget, particularly the Target Price. The Target Price is established as a predetermined budget that encompasses all expected costs, including contingencies which are reserved funds to cover unforeseen expenses.

When contingencies are pooled, they still represent a financial commitment against the project, as they are set aside to manage risk events. Therefore, pooling these funds does count towards the Target Price. This means that if owners choose to consolidate their contingencies into a single pool, the total amount allocated for contingencies will affect the overall budget established in the Target Price.

In situations where contingencies are pooled, the total available for unforeseen issues actually remains the same, but the visibility of these funds may change. However, the act of pooling does not decrease the financial impact of the contingencies on the project budget; rather, it consolidates risk into a single management point while still adhering to the constraints laid out in the Target Price. Thus, the pooling of contingencies is not without consequence to the financial scope of the project.

Understanding this relationship helps project owners and managers effectively navigate risk and align their financial expectations with the project's budgetary constraints.