Worked example: the baseline changes the reserve
For costs of 12,000 optimistic, 18,000 most likely and 30,000 pessimistic, the PERT mean is 19,000 and the classic standard-deviation approximation is 3,000. A normal P80 is about 21,525. Relative to an 18,000 baseline, the extra reserve is about 3,525, or 19.6%. Relative to the 19,000 mean, it is about 2,525.
Do not add the same reserve twice
If your budget already uses the chosen percentile, the extra reserve to that percentile is zero. A negative signed gap means your baseline is above the calculated percentile. Contingency is a cost allowance; profit is a separate pricing choice. To price a 21,525 cost basis at a target margin, use the margin calculator.
Know where the shortcut stops
This uses classic PERT with a normal approximation, not sampled Beta-PERT results. The approximate percentile can exceed the optimistic or pessimistic bounds, especially at high confidence or for skewed estimates. It does not combine separate risks or dependent tasks. Read contingency without double-counting and P50 versus P80, or use the full simulation when the shape of the tail matters.
Frequently asked questions
Is P80 contingency the same as a 20% markup?
No. P80 is a modeled cost percentile. A reserve is the difference from a named baseline; its percentage depends on the cost range. A markup is a pricing rule.
Does this reserve guarantee the project stays on budget?
No. It is a normal approximation conditional on your three-point estimate. Missing risks, dependence and inaccurate estimates can make the actual coverage different.