Contingencies. Facts and Fiction.

What is a Contingency?
A contingency is a provision for a possible event or circumstance that is known. In the land of projects these can take many forms. 

• Schedule Contingency - this contingency is a reserved allowance in the planned project delivery timeline. Schedule contingencies allow for risks that will impact the critical path on which the project is delivered. 
• Budget/Cost Contingency - this contingency is a reserved allowance in the project budget or project costs. Cost contingencies allow for risks that will impact the cost of the project. Cost contingencies might be included on a project where scope has some unknowns at the time the budget is set. Cost contingencies might also be set where project delays are expected and a schedule contingency cannot be made. Cost contingencies might also be allowed where needed project resources are not fully identified or confirmed.
  
• Management Reserve - this contingency might involve allowances in the budget or the schedule that are not included in any project performance measurement metrics but are available at the discretion of the project sponsor or project manager in the event that unknown work that is within scope arises. This contingency might best be understood as the contingency for known unknowns. In a customer delivery environment, this reserve may also be an allowance approved by management from within the projected project profits that can be used to ensure client satisfaction in the event of poor project performance.  
• Contingency Plan - this is an element of a risk management plan that describes how the project team will approach utilizing planned contingencies in the event that risks for which the contingencies exist occur. 
  

Which contingencies should I have and how much do I need?
Fundamentally, contingencies are a method of mitigating risk. To identify contingencies you need, you must first identify project risks. Next project risks need to be scored so that the team agrees on and understands how likely the risks are to occur and how severe their impact will be if they do. Once project risks are identified and scored, the team can discuss risk mitigation. Contingencies might be a risk mitigation strategy. Here's an example:

A software delivery team is working on custom software development. The project timeline has been set and the team has identified that a new library for one aspect of the software will be released. Release notes for the new library note a needed feature that is being improved. The team are unclear on whether it will be necessary to upgrade to the new library to ensure the feature can be implemented as needed prior to the software delivery. The team indicates that if the upgrade is required it will cause the team to need to adjust the library version and add some testing to ensure all other functionalities are working as intended. They expect that this will require an extra week of work.  

In the example scenario above the project team has a number of contingency options that could be selected. If the project delivery window is beyond the expected project schedule then the opportunity to add a schedule contingency of one week to address the identified library risk exists. If the project delivery window is not beyond the expected project schedule then the cost of adding resources for one additional week's worth of work within the existing project plan should be added as a cost contingency. 

Choose the contingencies that best address identified risks and the expected occurrence of these risks. 

When can I use my contingency?
Remember, contingencies are strategies for mitigating risks on a project. Contingency reserves should be maintained for as long as possible as the project progresses as this means they are available to manage project risks as they occur. It might be appropriate to consider using a project contingency when all of the following conditions are met:

• The project is nearing completion
• A project risk analysis has been conducted and the risks the contingencies are reserved for are less likely to occur 
• The project is ahead of schedule or budget (depending on the contingency being considered)

Contingencies are not a means to address new scope, except where a management reserve may exist. It is a common mistake, particularly in projects with a fixed budget, to consume a contingency to address emerging or added scope. Resist this temptation, except where a management reserve has been allocated. Ensure that new or emerging scope has been prioritized and assessed against the original project plan. Ensure that a risk analysis on the new or emerging scope has been conducted and does not require contingencies to be added to the project. Push back on scope creep that introduces contingency risks. 

Good contingency planning and management will help you deliver projects on time and on budget.