Categories: contingency
Contingency can cause tension in projects. After all, if you’ve got it, why not spend it? Although before you can spend it, you have to work out who can approve the contingency…
Common mistakes
Contingency does exist to manage uncertainty. You can’t know what is going to happen on every project, so it’s worth having some money tucked away for a rainy day fund.Sometimes I see project managers treating contingency as a buffer for poor planning. If a project holds contingency but can’t explain what it is protecting against, the money quickly becomes vulnerable to being reallocated or misused – no sponsor wants money sitting around that could be used for other capex investments or projects, especially when the team can’t justify why they need to hang on to it.
The second issue is that if you haven't done your planning correctly, it can sometimes feel easy to just eat into the contingency because it's there. And that’s not correct. If your estimates were off, it’s better to own that, and look at creative scheduling options before you dip into the emergency fund.
Another thing that can sometimes be a problem is project managers or their teams spending contingency quietly, because then it avoids having to do an escalation. If you have to escalate a problem, you have to talk about it and share solutions, including what the costs might be. But that can lead to an awkward conversation that you might want to avoid! Using up a bit of contingency to get rid of a problem can seem like a good idea in the moment. However, longer term, it's not a good idea to get into the habit of spending under the radar to avoid conflict or a difficult conversation, not least because it makes it hard to understand the true cost of the project and how good the estimates were at the beginning.
A better way to manage contingency
A good way to manage contingency. Is to think about how you can link it to risk events. Consider what activities might cause risks, raise a risk about those things, and then consider how you can create a mitigation plan that means you're identifying things that contingency can be spent on – the items that will help you manage through risk.
You also need to track the drawdown transparently in a way that helps you evidence how it has been spent and why it was spent. Spending contingency needs authorization, and at the beginning of the project you should have worked out who can give you the permission to go ahead and use some of that money. Great news if it is you! If not though (and probably it won’t be) you should get clarity as soon as possible so you work out the process for when you need to use it.
That forms the first part of your contingency tracker. Make sure that you have separate lines in your budget to account for how and when contingency is spent. So if you ever need to justify what decisions were made you can go back and show people what was done and why.
Sponsors feel more secure knowing the money was used in a controlled way, rather than as a sticky plaster. Used well, contingency strengthens trust because it shows you anticipated there would be problems and managed thoughtfully around them in advance. Compare that to spending it in a less controlled way – it can make the project budget feel suspiciously fake and weaken the project’s financial credibility.
Posted on: August 04, 2026 12:00 AM |
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