Estimating Practice Exam

What is the main purpose of using cash allowances in project estimation?

1. To manage unexpected costs

2. To lower overall project cost

3. To establish a fixed bidding process

4. To guarantee profits

The correct answer is: To manage unexpected costs

The main purpose of using cash allowances in project estimation is to manage unexpected costs. Cash allowances are an estimate of money set aside for specific elements of a project that may be subject to change or uncertainty, such as unforeseen conditions or design modifications that arise during construction. This allows project managers and stakeholders to accommodate potential cost variations without disrupting the overall project budget significantly. By including cash allowances in the estimates, it facilitates better financial planning and maintains flexibility throughout the project. This is crucial because construction projects often face unexpected events or changes that can impact the original budget, so having these allowances helps to ensure that the project can continue smoothly even when issues arise. The other options—lowering overall project cost, establishing a fixed bidding process, and guaranteeing profits—do not accurately capture the primary intent of cash allowances. Instead, they focus on aspects that may be secondary or unrelated to their main function in the context of project estimation.