Using the mathematics of random variables, a procedure is developed for calculating the variance of the total estimate of project cost. Input consists of three-value estimates of the individual budget work items. Correlation among work items is shown to produce a significant part of total variance. Although the assumed probability function of the input affects the transformation of the three-value estimates into means and variances, the form of the output is approximately normal. Contingency can be related to the standard deviation of the estimate, but it is shown that the results can be inconsistent with reality. A simplified technique for these calculations is suggested.