What is a common contingency percentage to include in the total development budget?

• A. 1%
• B. 2%
• C. 5%
• D. 10%

Answer: (C)

A contingency reserve is added to the development budget to cover unforeseen costs that can arise during design, permitting, construction, and schedule delays. The typical approach is to set this aside at about five percent of the total development budget. This amount provides a practical cushion for common overruns and price fluctuations without tying up excessive capital that would blunt returns. If costs stay under the contingency, the unused portion can boost profits; if overruns occur, the contingency helps keep the project financially viable and avoids scrambling for additional financing. While some projects might use smaller or larger cushions depending on risk, five percent is the standard default in many development budgets.