Categorized | Management

What is Contingency And Why Do You Need It In Your Project Schedule

The dictionary definition of contingency means possibility, eventuality, emergency or unforeseen event. Contingency planning means something set aside for an unforeseen emergency. You are making provisions against future events, which may be unforeseen. For example, the extra fund allocation in a given budget during project management comes under the category of contingency planning.

So now that you know what is contingency, why do you need it in your project schedule? When you are planning a project, it is definitely not a good idea to think that everything is going to go smoothly. You need to take worst-case scenarios into account. Naturally, you are going to think positively, while making your project plan and determining your schedule, but it is always better to be prepared for unforeseen events.

Here you have the scope of the project right in front of you. Now you need to allocate a budget to it. After that, you are going to plan the deadline by which the project is going to be completed, everything going well, fingers crossed. It takes an experienced project manager to analyze the budget and the time period required for the successful completion of a project, depending on the scope. Here is where he is going to use all his experience in estimating the total costs. After the estimate has been established, a budget is going to be allocated by the management or by your client.

Many project managers calculate an overinflated estimate because this is taking into account any sort of contingencies. A reasonable estimate may be acceptable to the client, but it is possible that you will need to modify these expectations, according to some unforeseen events cropping up during the execution of the project. That is why it is much more sensible to estimate the budget to be ± 40 to 50% of the original planned budget costs.

Now that the budget has been quantified, it depends upon the project manager to keep his expenses within the given limits. Many clients are going to expect that the project manager is experienced enough not to exceed the already allocated budget. He should also be able to forecast the amount of money being spent in the next phase of the project and see whether it comes within the planned and allocated financial range for that particular stage.

This is where contingency planning is going to come into its own. The project manager is breaking the budget down into detailed and very flexible portions so that he can control the project better. He knows the execution plan and strategy, which he is going to implement, during different stages.

For example, if he has to subcontract one portion of the work to a contractor, he already knows the amount of money available to him. He knows the amount of money which he can give to the subcontractor. Therefore, he is going to choose the bid which comes nearest to the allocated sum. He is also going to make sure that he has some extra money in hand, for unforeseen additional expenses or emergencies.

The specifications of a project are quantified and measurable. An estimate can only be made by a very experienced project manager. He is going to assign the costs according to the used material, its specifications, and the going rate for employed human labor used during this particular stage of operations. All these factors are known. However, contingency planning is always done for something which is beyond the given plan or scope of your project.

You need an extra pump because your reliable pump has broken down. You cannot hire one at the moment, due to some reason or the other. That is when you may decide to buy one using the money placed in the contingency planning emergency budget. In the same manner, it is possible that your project may grow in scope. If you do not have the financial resources to back it up, your project is in trouble. You cannot fall back on contingency resources in such a case. These resources are always to be used during an emergency.

Contingency has nothing to do with quantifiable realities and measurable factors. It is always an estimate to tackle something unforeseen, for which you may need to have a backup. That is why proper contingency planning is necessary in your project schedule.

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