A backup plan allows you to be flexible and nimble in the face of change, which, during any project, is virtually guaranteed. A bit of a misnomer, the contingency plan is not an end-product, but an ongoing event. You don’t put it into place and get to say, “Good; we’re covered. We’re done with that.” Instead, the contingency plan evolves as the project evolves. Integral in project planning and management processes, the contingency encompasses all aspects of a project and reduces uncertainty and risk.

Getting Started

It is critical, when you start a project, to build contingency into all aspects of the program. Dollars, resource-hours, effort, duration, everything is touched. In return, everyone contributes to the plan. The responsibility to manage contingency requires input from all areas of the team, and ongoing management by the manager, the senior team, and the steering committee.

The contingency plan is essentially a “Plan B.” It is not applicable for change requests. There is, or should be, a separate budget for that, but many times, contingency budgets are misused on new features. If you do run into a major risk, you’ve already used that money. You’re going to have to go to the Steering Committee and explain why you need more. They might tell you to fund change through the contingency budget, so you have to educate them, diplomatically and quietly, as to what that fund is for!

When you build your project risk profile and budgets, you develop a series of potential mitigations, and for those mitigations, you build a series of assumptions. With each set of assumptions, you assign variables. If the assumptions change, i.e. if you add more assumptions, the risks become greater, and you add more dollars. Conversely, if you can pare back on assumptions, you can reduce the budget.

At the beginning, as you feel your way around the project, build in high levels of contingency. As you increase your knowledge with the project, begin to scale back. Initially, for instance, you might build in 50 percent, but as you increase your level of certainty, scale that back to 10 or 15 percent.

The Evolution of Contingency

With some projects, particularly recovery situations, you might not have the luxury of establishing a finalized budget with established contingency. There are projects for instance, that had a hard stop deadline. You might not have time to look at all of the variables and build a new budget over two-week period. So rather than building a final budget with exact contingency dollars, spend a week looking at resources, plans, and budgets. Add what a maximum level of contingency, about 50 to 60 percent.

There’s no way that, without proper explanation, the steering and executive committees would unlikely agree! So in our example we created a presentation that outlined the original plan and assumptions, the budgets for the existing and revised plans, as well as the level of contingency. We also told them that every two weeks moving forward, we would revise the budget. As our level of knowledge increased, we would bring the budget down. We originally allotted money for training and travel to Asia, England, and other locations. However, we decided to do it differently. We sent two teams to central locations and flew others in. We were able to reduce the budget by $800,000.00.

We did this – revising and decreasing the budget – actively for five months as our visibility into the project sharpened and our knowledge increased. Remember: contingency planning is not “done” at the beginning of a project. It has only just begun! It should be an active part of the process throughout the life of a project.