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Control – part 16 - Contingency



Contingency

The use of contingency and tolerance within PRINCE2® is treated differently.

For PRINCE2 2005:


Contingency may be used where a specific risk has been identified.
Any risks (threats or opportunities) to the project will be known and analysed as part of the process Analysing Risks (PL6).
If the risks are such that contingency plans have been prepared the Project Manager should go to the Project Board for a contingency budget.
This would be needed should the risks occur.

For PRINCE2 2009:

Contingency is not used instead tolerances are set.

A PRINCE2 principle is that projects are managed by exception, setting tolerances for project objectives to establish limits of delegated authority.
Tolerances define the amount of discretion that each management level can exercise without the need to refer up to the next level for approval.
[see Progress - purpose]

Tolerances are the permissible deviation above and below a plan’s target for time and cost without escalating the deviation to the next level of management.
There may also be tolerance levels for quality, scope, benefit and risk.
[see Progress - Progress defined - Exceptions and tolerances]

Although the comments below specifically refer to contingency, PRINCE2 [see ‘The Complete Project Management plus PRINCE2’] might well advise the use of float in such circumstances.
[see Detailed planning - part 12 – slack (float)].

Unexpected and forgotten tasks

Remember there should be some contingency within the plan to allow for extra cost and time.
If it is there use it; but once it is gone it is gone. Only use it as a last resort.

This really applies to the impact reduction of unforeseen issues.
Any foreseen risks to the project would have contingency plans prepared.
These would have been assessed in terms of their potential impact and likelihood of occurrence.

Not for very poor estimating

You should never add contingency because you expect estimation of task costs and durations to be wayward.
The estimation of tasks should be approached methodically.
If each person at each level of management added a ‘bit extra’ tasks would soon suffer from hyperinflation.

Limited

As we have noted before if contingency exists it will be limited; be careful how you use, it as it may be hard to get any more money.

Estimating

We said above that contingency should not be added to paper over poor estimation.
However, if some contingency is added through the estimation of tasks there are several approaches.

Add to single tasks

During preparation of the schedule contingency could be added to each task.
The problem with this method is everyone will have their own view on the level of contingency and it will tend to afford a ‘fat’ plan.
It may well be that different tasks need to have different levels of contingency as this might be connected to the risk of task completion.
At what level of the work breakdown structure do you start?
In addition, if a member of the organization adds, say 10%, it is quite likely that his superior may add a further few %.
Human nature likes to reduce the risk of failure by sometimes adding too much contingency.

Add as one amount to the total project

In terms of visibility and ease of application it is often better to persuade people to add no contingency (virtually impossible) and add an amount at the end e.g. 10% to cover the whole project.

Human nature being what it is, if the manager is in a cost cutting mood people will often overestimate to try to compensate.

Add over the project at specific intervals

Some Project Sponsors and organizations may bulk at the use of any contingency whatsoever.
In this event it may be better to try to allocate a degree of contingency in another form.
You could add contingency at selected intervals in the project as a specific task and call it ‘validation’, ‘testing’ or ‘inspection’ etc.
Naturally, these tasks can exist in their own right but it does give the Project Manager some leeway in ‘confirming’ tasks are complete.

Buying

If the Project Manager has a certain amount of money for contingency, anyone that wishes to use some of it to assist his or her tasks should be made to submit a written justification.

This is good practice anyway as their must be a written record of the use of contingency and why?
This will make people think twice before asking for it.
The use of contingency should fund extra resource, both personnel or equipment.
With a little extra thought other methods may prove useful, for example, modifying procedures.

Task duration

The other thing to consider is the typical duration of the tasks.
If someone says that a task is 5 days long he is likely to quote this with more accuracy and confidence than a task of 100 days.
Hence, plans with long duration tasks may require more contingency than short duration tasks.

This also supports the reasoning behind breaking down long tasks into several shorter tasks with defined end points.
This approach is likely to afford a better estimate of time and resource than the former schedule.

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