How to handle contingency on capital projects?

Project costs are based on estimates. Most-likely cost estimates will be exceeded approximately 50% of the time. Contingency is normally added to the most-likely estimated cost to ensure that adequate budget is allocated for successful project delivery. It is expected that this contingency provision is only sometimes required. Adding the contingency amount to the project budget up-front may limit the opportunity to control the release of contingency. Within SAP, the best way of handling contingency is to include contingency at the top-level of the project and only distribute best-estimate budget requirements to lower-level WBS elements. In that way, budget availability control can be enforced at procurement at the best-estimate value. If contingency budget is occasionally required to be accessed, a contingency release process can be initiated, appropriately justified, approved, and distributed to the account assignment WBS elements as required.