Please login or join to subscribe to this thread
Hi Melissa, my experience has been with companies who do not release contingency funds as part of approved budget until required/requested to be released. With this approach there is no need to consider contingency as part of PV or cost baseline and for any variance calculations.
Typically I've had to request contingency once the PO/budget is close to exhausting and there are accumulated change requests that can be used as basis for requesting release of contingency. Once available these are added to the PV.
Dealing with EV for contingency related changes is a different challenge altogether :)
I agree with Joy
In theory, your contingency reserves would be considered as part of your BAC and cost baseline as they are within a PM's control to address the negative financial impacts of realized risks but as Joy indicates, in the real world, some companies do not allow PMs to dip into these reserves without additional scrutiny or governance.
Regardless, it is a good practice to report on contingency reserve consumption separate from your other financial reporting to ensure that stakeholders are aware of how much is left for a "rainy day".
Beyond the comments above my recommendation is taking a look to EVM practice guide and mainly this https://www.pmi.org/learning/library/make-...rk-project-6001
Philosophically I would not include contingency unless it is already built into individual tasks rather than kept as a separate bucket of money. The contingency reserve is what you spend if you exceed the plan, but it is the plan itself that you need to track against the actuals. The total budget in that case is really the planned budget (knowns) plus the reserve (unknowns). If you include the contingency, it will look like you are underrunning your planned spending when you are on plan.
It can also add a significant level of complexity. If you are just tracking labor, are you divvying up that contingency to tasks that exceed their planned level of effort, or just keeping another bucket of money? If you are including non-labor costs in your total budget (e.g. parts and tooling), you can have an initial expenditure at the time of purchase, and then more spending later if there are issues requiring rework. If you overly complicate EVM, it becomes a lot more difficult to manage your actuals and to figure out what is causing your variances.
There are different kinds of contingency
1) estimating contingency (recognizing your cost estimates may not be perfect)
2) scope change contingency (recognizing that needs and scope may expand during the project)
3) risk contingency - sometimes labelled 'allowance' (part of risk planning to allow for potential cost and time changes due to risks [things that may happen])
Each of these should be managed separately. The project plan should identify who has the authority to draw on these contingencies.
PM are usually authorized to expend a portion of the contingencies (a float) with overage subject to higher level of authority.
IMHO, if done "properly", contingency should only be identified based on actual risks that are built into the project schedule and are therefore "time" phased. The planned work or planned value should NOT include any contingency at any given point in time, unless there was a reason to use it based on the risks identified. If the risk "event" horizon comes and goes with no need for contingency, then the money should be returned to the "center" or used elsewhere in the project depending on your governance framework. Then things proceed as normal in terms of EVM calculations. Management "reserve" is never built into the project budget.
Please login or join to reply