Analysing Contingency Allowance for Projects
Contingency allowance is additional funds that are sometimes built into cost estimates to allow for unanticipated events.
Planning Contingency allowances for a project ensures that the project manager is able to manage costs and expenditures.
Here are the guidelines…
Avoid contingency on a contingency
Based on the WBS input, make sure that the work packages do not already have a contingency amount tacked onto the basic estimate.
Inform the project team
Let them know that the project will be managed against a point estimate without a contingency.
Release contingency fund.
As the Project Manager, you must release contingency funds only through a closely controlled and well-documented process, which is included in the cost management plan. A contingency allowance is not to be used as a slush fund without control.
Typical example…
The city of Lagos hosts the world’s largest jazz festival every year, which thousands of performances and more than two million attendees. Contingency allowances for this event may include funds to cover unexpected problems, such as a cancellation by a headlining act. Such cancellation will force the festival to issue ticket refunds while incurring overhead costs, including theatre rental and advertising.
Contingency allowance will not be used for general operating support: for example , if ticket sales failed to meet expectations.
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