Managing Project Contingency Funds (Part 3): 5 Questions to Ask Yourself

I hope the last few posts on contingency management have got you thinking. If you’re not sure how well you are planning for and managing your project contingency, the following questions should offer some insight.

1. How do you come up with the budget for contingency?

• Are you using historical data?
• Are you benchmarking?
• Does the contingency vary based on the risks unique to each project?
• Do you talk with your peers about their strategies for setting contingency percentages?

2. Once you’ve defined the contingency budget, what’s your process to disperse the money?

• Do you have a clear definition and buy in from all stakeholders on how and when contingency funds are to be used?
• Do you have a control mechanism, where multiple people have to provide approval?
• Or does the project manager have oversight to use the money at his/her discretion?

3. As the project progresses, do you run any simulations to predict the use of contingency money going forward? Or do you just assume you’re going to have enough until you run out? 

 

4. In the past, have you used the entire contingency fund, or is there money left over? Have you evaluated the causes for either outcome? If you typically use all of the contingency money, do you frequently go over budget?

5. Do you analyze what the contingency money is used for?

• Is it used for unforeseen conditions and errors and omissions, or is it used for owner-directed changes or scope changes?
• Are you able to track how much and in which areas contingency funds are being used?

There’s a tremendous opportunity to either reduce overall project costs on future projects or recover money from existing projects. If you don’t have answers to these questions, it’s time to get organized, gather information and re-evaluate whether you’re really managing your project contingency as well as you can be. Please visit our website for additional resources, and to request more information on our work helping organizations reduce capital project costs.