Contingency is resources set aside at the start of the project to be used in case the project needs them. Typically, project managers allocate a contingency fund in the budget planning, and contingency is also used in scheduling tasks. In this case, contingency forms a buffer of additional days in case project activity takes longer than planned.
Despite all our years of working with projects at Ten Six, unfortunately we have never come across a foolproof, scientific method of working out the best amount of contingency time to add to project tasks. This is very much down to the individual project manager, the confidence that the team has about the deliverables, the complexity of the project and how much experience the company has in this type of work. A project that is unique, difficult, using new or untested technology or has other complex factors will necessarily need more contingency than a project that is a regular occurrence and being run by a project manager who has done this type of work several times.
Let’s look at three different ways of calculating schedule contingency.
This is the type of contingency that wheedles its way into task estimates. Project team members don’t have confidence in how their estimates will be used, and are worried that they may be reduced. They artificially inflate the estimate to give them more time, and this provides a layer of hidden contingency in the schedule. It can also happen where a junior member of staff is asked to provide estimates and because they do not know enough about the work they add in extra days in case it takes longer than the expected because they have no experience themselves.
This is not recommended. It bloats the schedule and hints at a lack of trust in the team. Find the right people to estimate, or estimate task durations in groups. And work on making sure your team know exactly what will happen to their estimates so they don’t worry about the numbers being cut.
This type of contingency is added to the whole project. You may decide to add contingency of 20% for a particularly risky project. Take the total amount of effort for the project and add another 20%.
The difficulty with this is knowing where to allocate it to the schedule. You could add it to the end but then as soon as you use a portion of the extra days your tracking will show that the project is behind schedule, even if the final milestone is still very achievable. You could allocate 20%, for example, to each project task or phase, but while some tasks may need that much, others will not. This is where the third type of contingency is the most useful.
This type of contingency is added to project phases in reflection of the risk associated with this phase. For example, things on a project are most flexible in the early days, so the initiation phases and requirements gathering work will have a greater amount of contingency added than the close down phase.
This contingency is normally calculated as a percentage. If the phase is 100 days of effort, contingency at 20% would be another 20 days. As the project progresses, the level of risk reduces as the requirements and issues become known, so the percentage will be reduced. In the close down phase the percentage added could be as low as 5% or none at all.
If you don’t use the contingency per phase, what will happen to it? Does it get carried forward to the next phase, or is it lost forever? It is good to establish how you will handle contingency usage at the beginning of the project, so you know what rules to apply when you reach a contingency situation. Ask your PMO for guidance if you are unsure.
It is also worth establishing how you will report the use of contingency. After all, it is supposed to be there in case of emergency or unforeseen issues. You should not routinely be using up all your contingency. If this is the case, your estimates are wrong to begin with. Therefore, if you are using up contingency time, your project sponsor will want to know about it. You may want to include a line in your project status reports to show how much contingency has been used throughout the project. Keeping these records for your own use is also helpful, so you can see what percentage contingency was used in every phase.
There are a number of ways of calculating contingency. These are three ways we have seen in the past. What other strategies for schedule contingency do you use?