Is it recommended to have a provision for contingency effort as a part of the project plan and estimates? What would be the recommended percentage of contingency effort based on project effort? What would be the recommendations / guidelines under which a PM should plan for contingency effort?
Very interesting question however not easy to answer.
FIrst of all the information below is the pm contingency and not any commercial or contract contingency due to the type of contract, e.g. fixed price. Below is just to cover for errors made in estimation and understanding the complexity of the project.
There are a number of ways to build in contingency:
- one is per activity resource combination. Based on experience you will know how comfortable a resource is with a certain task and secondly what her/his estimation skills are. Underestimating or not. Based on this you can add contingency per activity ranging from 0 to 20%. If it comes above 20% you should chop down the activity into smaller pieces which can be estimated
- A second method is to add a certain overall percentage to the project for contingency. This percentage is based on:
- complexity of the project
- duration of the project
- maturity of the solution (e.g. bleeding edge technology is more risky therefore a higher contingency.
- size of the team and experience of the team
- maturity of the customer
- the volatility of of the organisation, requirements etc
In most cases the percentage will range between 5 and 25%
- A third method is risk based and is tying risk management into planning
First you identify the risks and determine the likelihood they will occur. This wil be expressed in a percentage.
Next you have to plan the activities which will reduce the likelihood of the risk and estimate these. This are the actvities which will be implemented even before the risk surface. The sum of these measures is used contingency.
Second part is the activities which you will implement when the risk manifest itselves. The estimated effort for the activity needs to be multiplied with the percentage of likelihood. This is the available likelihood.
Reporting weekly on the risks and if they manifest also ties in to contingency usage which results in a transparent reporting to management.