Risk Management

Do You Really Need to Purge Your Project Contingency?

Project managers want to take all the tools they can get in the pursuit of good risk management. When someone says you should get rid of contingency in estimation, you need to push back. Christian Bisson writes for PM Hut to get the facts straight when it comes to project contingency.

Truths and Lies

Bisson clears up the misconceptions first, starting by explaining that contingency can certainly be a form of scope creep. No matter how noble your intentions to provide added value to stakeholders, the contingency cannot be seen as just magical mad money. On the flip side, contingency does not add unnecessary cost either. It is a practical and vital allotment, and trying to “be efficient within your budget” as a means of circumventing contingency is the riskiest proposition of all.

Moving on to the truths, Bisson acknowledges that contingency is just the most direct way of accounting for the fact that estimates are educated guesses—emphasis on “guesses.” Either way, any contingency you attach to a project is likely going to get spent. Lastly, contingency varies from project to project, about which Bisson says:

Contingency is often calculated as a percentage of the total effort/costs or it can also be fixed amounts. For example, you can calculate 15% of hours estimated for the project, or apply the same percentage to your external costs for vendors, but you could also calculate a fixed amount for procurement based on your judgment or what makes sense.

Regardless, it varies depending of the project just like an estimate will vary, and must not be an amount that’s fixed across all projects (unless they all have the same budget of course).

Generally, the only reason contingency is not included in a project is because the people involved in making the decision do not fully understand contingency. Think it through and decide for yourself—is contingency a necessary expense? You can read the original post here: http://www.pmhut.com/get-rid-of-your-projects-contingency

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