Projects are like crimes: rarely perfect. When planning in project management, you must always expect misfortunes, misjudgments, wrong calculations, hidden costs, unexpected delays, external factors, bizarre work abnormalities, collaboration issues even butterfly effects. In order to secure the successful completion of your project you must always be prepared for the “Plan B”, estimate its cost and include it in your budget. This cost is your project’s contingency and keep it well in your mind that you are going (partially) to expend it.
But somehow this extra cost for the “Plan B” has special advantages; it is truly value-for-money.
1. Minimize Loss
Case: The typical example of a machine failure.
Contingency: You had already signed a 5-year replacement warranty contract with the machine vendor. It cost a bit, but you keep up with your Gantt chart.
2. Keep Calm and …Project On
Case: A key-player in your project is a woman, she gets pregnant and she will be on maternity leave for 6 months.
Contingency: You had planned a list of substitutes and you had trained them accordingly. There was an extra HR cost, but at least the project keeps rolling.
Case: A sudden economic crisis increased the price of gas. Project transportation costs increased by 5%.
Contingency: Your contingency provides you cash flow and you easily adapt to the changes without disrupting the project’s milestones.
4. Better Project Understanding
Case: In the monthly “project clinic” session, your Business intelligence tools show that all you contingency expenses come only from the Procurement Department.
Contingency: You understand that there is a bottleneck in that Department and you re-schedule tasks and work packages to improve efficiency and productivity.
5. Exhale responsibility
Case: The shareholders like risk, but prefer calculated risk.
Contingency: Your contingency plan will upset them a bit, but they will understand that you are realistic and responsible. They will back you up in the end.
Project Contingency can also be defined as a percentage number which typically varies at 5-15% on the project’s budget. But in my opinion is not the number of it that counts the most, but the psychological effect its presence brings onboard