Managing Contingency

  Cost Management   Estimating   PMO   Knowledge Shelf  

The amount and definition of contingency available on a project have been constant questions experienced over our careers as project managers. Over time, we have adopted the American Association of Cost Engineering’s definition of contingency as the amount added to a project estimate to allow items, conditions, or events for which the state, occurrence, or effect is uncertain and that experience shows will likely result, in aggregate, in additional costs, with the initial amount of contingency estimated at the start of the project being based on historical costs and the experience of the project team. Keeping estimates of contingency up-to-date and relevant to the current environment and phase of the project in real time has been a challenge. Through the use of a project information database, application of a PMO reserve, and the use of iterative risk planning, we offer a solution to this problem.

Contingency Remaining

Contingency covers costs that are reasonably expected to occur but are not specifically known on a given project. These “project unknowns” usually include planning and estimating errors and omissions, minor price fluctuations (other than general escalation), design developments, changes within the scope, and variations in market and environmental conditions. A Guide to the Project Management Body of Knowledge (PMBOK® Guide) &ndash…

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