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Considering that a project budget is an estimate of what the organization will be spending, it is wise to add a certain contingency to it to avoid losses. There are various factors which might play foul with the estimates at the time of actual execution, like delays, unforeseen site conditions, reworks etc. Although the value of contingency depends entirely on the risk factor, one cannot stress enough the importance of knowing that you have a cushion to absorb the losses.
