Using and Managing Contingency: Part 2--Cost Contingency
For those who came in late: In the first part of this three-part paper, we discussed the use and management of schedule contingency. In this segment, we will cover cost contingency. In the third and final part, we will address resource and scope contingency.
There are two primary causes of cost overruns:
- More money is spent for the defined work than was budgeted.
- Work is added to the project without corresponding additional funding.
Management reserve is a sum of money that is put into the project budget and set aside for work that has not been specifically defined and planned in other words, for scope creep. Hold onto this thought for a moment as we explore the conditions that lead to scope creep and the corresponding need for management reserve.
Avoiding Scope Creep
Project management literature is overflowing with horror stories on scope creep. In the Information Technology area, especially, we are often hit with a double whammy. The project scope keeps escalating (often without provision for additional time or funds) until the project runs out of time, money, or both and then gets delivered with even less content than was originally planned.
We need to have some means of containing the project scope. This is not to say that scope additions are necessarily bad and must be forbidden (
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