Plan and Track Contingency Fund for Clearer Project Visibility

Ken-Hardin

Last week, we discussed the unenviable position of being asked to "sharpen" your project cost estimates to match unrealistic high-level budget figures - a corner that all project managers find themselves backed into, eventually.

 

Of course, your cost estimates are not likely to be perfect, either. Once you get into a project, some arcane issue will inevitably bubble to the surface, with a price tag attached, of course. One way to lessen the pain of such "surprises" is to simply plan for them with a contingency allocation within the project budget.

 

The research presentation A Solid Case for Contingency Funds, from our partners at Info~Tech Research Group, walks through the rationale for adding contingencies to your projects, as well as best practices that assure the rest of the business that you are not just looking to backdoor your way out of shoddy estimates. The PDF is available free to IT Business Edge members here in the IT Downloads library.

 

 

The best reason for including a contingency fund in your project plan, the presentation asserts, is that when a project goes off track - and it almost certainly will - the hassle of going back to management for additional resources can lead to further delay and disruption, or the project being moth-balled altogether. That falls under the umbrella of wasted time, money and effort, and that's never a good thing.


 

The presentation offers a list of six tips on how to justify and set a project's contingency fund, including:

 

Avoid padding the budget: Don't just bake an overage percentage into each of the budget's line items. If it's in the budget, people tend to spend it, whether they need to or not. Setting aside contingency funds in a specific pot that has its own lightweight approval process circumvents this temptation, encouraging a more frugal approach to resource management. And who knows? You might actually come in on budget.

 

Refer to past projects of similar scope/nature. Of course, this tactic is most helpful if your company has used contingency funds in the past. If not, examine initial budgets and overruns to get an idea of where the greatest risk lies for this project.

 

Track the CF account. Transparency is essential if you are asking upper management to trust you with a pool of monies over line estimates. Publish how and why contingency funds were spent in your financial status reports. This record will, as we just mentioned, help you more accurately project risk for the next project.

 

The presentation also includes pointers on how to successfully present the idea of contingency planning to budget approvers. Hint: They would prefer you not to spend that money. The document is a great resource for adding this needed dimension to your project financial planning.



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