A contingency fund is money set aside to deal with unforeseen financial circumstances in a company. This may include the opportunity to purchase a large asset at a reduced cost, or an emergency, such as a broken machine, that the company must manufacture. Contingency refers to costs that are likely to occur based on past experience, but with some uncertainty regarding quantity. The term is not used as a comedine to cover ignorance.
It's bad engineering and a bad philosophy to make second-class estimates and then try to satisfy them using a large contingency account. The contingency allowance is intended to cover cost items that are not exactly known at the time of estimation but will be produced on a statistical basis.
