A risk with a 25% probability of adding £20,000 has an expected cost of £5,000. A second risk with a 10% probability of adding £50,000 also has an expected cost of £5,000. Adding the expectations gives £10,000.
That calculation is useful, but the name given to the result matters. It is not automatically a P50 allowance, and it does not become P80 because someone adds a further percentage.
A confidence level concerns the distribution of possible total outcomes. That requires more information about uncertainty, dependencies and the way impacts combine. Two models with the same expected value can have very different exposure to large overruns.
An original expected-value example. The total is not a recommended contingency or a confidence percentile.
Keep the base estimate separate
Before modelling a risk, check whether its impact is already included in the base cost. If the estimate already assumes the more expensive access arrangement, a risk for that same arrangement needs careful review.
Also distinguish an uncertain quantity from a discrete event. The treatment may differ, and mixing the two without explanation can conceal how the allowance was calculated.
AACE’s estimate-classification guidance is useful context for understanding the relationship between definition and uncertainty. It should not be used to assign a guaranteed accuracy range to a project simply because a class label has been chosen.
For a small estimate, a clear risk register with a defensible method is preferable to a sophisticated-looking output whose assumptions cannot be explained.