PM Network - June 2016

JUNE 2016 PM NE T WORK 53

Make the Case

Setting a responsible contingency budget starts with an honest conversation about how much the sponsor is prepared to hold in reserve—and what will happen if the project encounters a major risk with no safety net in place.

“You need to understand from the sponsor what amount of contingency fund might even be available for the project,” says Travis Scruggs, PMP, senior technical project manager, Helix Education, Chicago, Illinois, USA.

Having an engaging, data-driven dialogue with the project sponsor does more than just build the case for contingencies.

It can also help make the project team’s response to risks during project execution faster and more effective. But getting sponsor buy-in can be as much about persuasion and education as logistics.

“Break it down as a story, so it connects with the sponsor. Make sure
your presentation includes more graphs and pictures than blocks of text
or data,” Mr. Scruggs says. “And you need to be prepared with alternatives
regarding your contingencies and risk management strategies.”
For instance, maybe the project sponsor can’t green-light
a sizable contingency but is willing to approve scope reduc-
tion if certain risks are realized, Mr. Scruggs says.

Assess the Situation

Contingency budgets are built on a detailed understanding of the project’s risks—including the likelihood they will be realized and the cost of a response plan.

“Contingency planning and risk management go hand in hand,” says Jihan Al-Sherif, PMP, transformation project manager, David Jones, Sydney, Australia.

To ensure that the contingency budget is built on a solid foundation, calculate the cost of a risk response plan for high-impact risks or those that are more likely to happen. At London, England-based Network Rail, for instance, projects have a contingency budget that ranges from 20 percent to 80 percent above cost, depending on the scope and complexity of the project and the risks associated with it, says Matthew Hannaway, PMI-RMP, PMP, head of project risk and value management, Network Rail, London, England.

When Ms. Al-Sherif recently calculated a contingency budget for a business process management program she oversaw, she realized the organization didn’t typically do this type of work—yet the program’s successful execution was an integral part of its strategy.

When the program began to suffer during the execution phase because of resource and training issues, “the contingency budget saved the day,” she says. Those allocated funds were used to cover the cost of additional resources and much-needed training. As a result, the program finished on time, on budget and delivered its intended scope.