78Every project has risks. Whether the cost of a building material suddenly spikes, the value of a currency nose-dives or the regulatory landscape changes mid-project, realized risks can kill a project’s prospects. Contingency budgets offer a lifeline: They prevent setbacks from pushing a project off the rails and save project leaders from asking the sponsor for more funds. But determining exactly how much should be held in reserve funds to cover specific risks and managing the back-and-forth between the risk register and the contingency fund takes finesse. Bloat the contingency budget with too much padding, and the sponsor might reject it. Trim it to the bone, and those arly estimations have a choke hold on the project eam’s ability to problem-solve. Striking the proper balance between flexibility and frugality requires project leaders to build a strong case for the value of a safety net. “Unfortunately, project budget planning is too often tied to the financial constraints of the organization,” says Maja Ferle, PMI-ACP, PMP, IT project manager, Tata, Ljubljana, Slovenia. “Stakeholders, including project sponsors, want to cut corners by eliminating contingencies, especially because contingencies are not well-defined at the start of the project.” As any seasoned project leader knows, a project with scant contingency funds is a project skating on thin ice. Here are five tips for staying on safer ground.
