6.6. Contingencies
In addition to creating the project plan, you need to create a contingency plan, which is a plan for addressing key possible obstacles to project success. A contingency plan defines alternate paths for the project in case various risks are realized.
A contingency plan typically includes a contingency fund, which is an amount of resources set aside to cover unanticipated costs. Contingency plans and funds are necessary because even the most seasoned project planner sometimes succumbs to excessive optimism, assuming everything will go well and that all resources will be available when needed. Also, no matter how thoroughly you plan a project, you will inevitably miss at least a few small issues.
Examples of issues that might necessitate the use of a contingency fund:
- Inadequate initial estimates
- Small items not covered in planning
- Errors in initial estimates
- Small deviations due to inevitable delays
Note that a contingency fund is not designed to manage major deviations or scope changes.
A simple and effective form of contingency planning is setting aside a contingency fund consisting of a fixed percentage of all resources (time, money, people) in addition to the amounts spelled out in the final budget. Ten percent is a typical amount, but that can vary depending on the size and type of project, as well as the type of industry.
Contingency planning is closely related to risk management. When you are working on small projects of limited complexity, you can probably assume that a fixed percentage contingency plan will cover most risks. However, for highly complex, technically challenging projects, it’s important to distinguish between generic budget planning contingencies (using a fixed percentage) and the more sophisticated modelling of risk for uncertainty.
“6.5. Contingencies” from Essentials of Project Management by Adam Farag is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License, except where otherwise noted.
“Master Plan” by Undraw, Undraw License
