ETO Quote Risk Register and Contingency Reserve Worksheet
A fixed-price ETO quote without a priced risk list is a guess about what will go wrong. This worksheet gives estimators and project managers a simple register where every risk has a probability, an impact range and an expected value that adds up to a defensible contingency.
| Risk | Phase | Probability (%) | Impact low | Impact high | Expected value | Mitigation or response | |
|---|---|---|---|---|---|---|---|
$5,100 | |||||||
$4,000 | |||||||
$2,875 | |||||||
$6,825 | |||||||
$2,900 | |||||||
$5,000 |
Method: expected monetary value (EMV) is probability times the average of the low and high impact, a standard quantitative risk technique. Summing EMVs assumes independent risks and ignores correlation. Many teams hold the EMV total as contingency and report the high-impact sum as the exposure the company would carry if the quote is fixed price. Review probabilities against closed-job history.
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How to use the worksheet
Hold a short risk session with engineering, purchasing, production and installation before the quote is priced. Add one row per risk with its phase, probability and low and high cost impact. The worksheet computes the expected value of each row and the total reserve. Use the mitigation column to record what you will do to reduce the probability or impact, and re-score after mitigation. Export the table to Excel to attach to the bid approval record.
- Limit the list to 8 to 15 risks that really move cost
- Put a name on each risk, not a category
- Have someone outside the estimating team challenge the probabilities
The method
Expected monetary value multiplies the chance of a risk by its likely cost. Using the midpoint of a low and high range keeps the estimate honest about uncertainty without a full Monte Carlo model. The sum of expected values is a reasonable contingency for a portfolio of independent risks. The sum of the high impacts is the stress case. The ratio of the two tells you how much of the possible downside the reserve actually covers, which is a useful number to share with a bid review board.
Reading the output
If the reserve is a small share of the quoted margin, you can usually absorb the risks. If the stress case exceeds the whole margin, the quote needs a lower exposure through contract terms, milestone payments, a shorter validity or an explicit exclusion. Look at which phase carries the largest expected value: a procurement-heavy list suggests early purchase orders, while a customer-and-scope heavy list points to the change order process.
Common mistakes
Teams list generic risks such as weather or delays with no costed impact, set every probability to 50 percent, or add contingency as a flat percentage of price regardless of the actual risks. Another mistake is double counting: if a delay risk and a late supplier risk describe the same event, count it once. Finally, do not hide the reserve inside line item estimates, because then no one can release it when a risk passes.
- Keep the reserve as a separate visible line
- Release reserve when the risk window closes
- Compare reserve use at close-out to improve the next quote
Frequently Asked Questions
Should contingency be a percentage of the price?
A flat percentage is a quick sanity check but hides what the reserve is for. A risk-based reserve ties each amount to a named event, which is easier to defend with finance and to release when the risk window closes.
How do I choose probabilities?
Start from closed-job history: how often did this event occur on similar jobs? If you have no data, use coarse bands such as 10, 25, 50 percent and review them as a group. Avoid false precision.
What if risks are correlated?
Summing expected values ignores correlation, so a single root cause such as a late customer design freeze can trigger several risks at once. Group those into one row with a combined impact, or hold a larger reserve for the correlated cluster.
Does this replace Monte Carlo simulation?
No. It is a lighter method that works well for quotes. Monte Carlo can give a confidence range for the total, but it needs distributions and more effort. Many small and mid-size builders get most of the value from the simple register.
Netray can mine your closed jobs for the events that actually cost money and suggest probabilities from your own history. Ask for a pilot on a product family.
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