Contingency

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three notions of contingency

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qualitative versus quantitative

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Project Management

A quantity added to a budget or schedule to allow for uncertainty.

Difference between internal estimate (what you think you should be able to achieve) and external estimate (what you are willing to commit to).

Often calculated as a % surcharge or surplus. Each level of management, each player in the supply chain, may add further contingency. Alternatively, they may subtract (discount) contingency, if they suspect that too much contingency has already been added.

Stuff expands to fill the space available. Contingency is nearly always used up.

Risk Management

A specified response to a specified event.

Difference between two action plans.

What we shall do in the event that ...?

Systems Theory

A variation in style or tactics for different conditions.

Differentiation between range of responses - "requisite variety".

>> Contingency theories of leadership

Contingency: Quantitative versus Qualitative

veryard projects > project management > contingency > qvq

Software project managers are required to estimate the size of a project. They will usually add a percentage for ‘contingency’, to allow for their uncertainty. However, if their estimates are overconfident, these ‘contingency’ amounts may be insufficient, and significant risks may be ignored. Sometimes several such ‘contingency’ amounts may be multiplied together, but this is a clumsy device which can lead to absurdly high estimates, while still ignoring significant risks. In some cases, higher management will add additional ‘contingency’, to allow for the fallibility of the project manager. More frequently, contingency will be presumed and discounted. Game-playing around 'contingency' is rife.

Another meaning of the word ‘contingency’ is a plan for a specific alternative scenario. If all goes well, we will follow Plan A, but if X happens, we will follow Plan B. Plan B is known as a contingency plan. If Plan B is more expensive, then the project manager needs a contingency budget: in other words, a budget that will only need to be spent if X occurs.

On this view, all contingency budgets should be tied to specific risks. For a project manager to ask for extra budget, to be spent if anything goes wrong, without being able to state the content, is to avoid planning for contingency altogether. After all, there is no objective basis for asking for a 20% contingency budget rather than 15% or 40%. Some projects overrun by 200% or more: would this justify the project manager asking for a 200% contingency budget?

It has long been observed that people will acknowledge general error more easily than specific error. Thus a project manager will admit that some of her estimates may be wrong, but will strongly defend each individual estimate. This is not perverse, but a natural human characteristic.

Furthermore, there is a practical limit to the amount of analysis and contingency planning that can be done upfront. At some point, the project manager and her superiors have to accept a plan at a given level of detail and completeness, and make a start with the project itself.

Nonetheless, the error of insufficient risk analysis and contingency planning is rather more frequent than the opposite error of excessive risk analysis and contingency planning.

Contingency planning is about achieving flexibility of response, especially where several people or groups have to respond in a coordinated way to emerging circumstances.

(This is the basic difference between contingency planning and disaster recovery. The latter is not about flexibility of response but about a pre- programmed survival reflex.)

Estimation
Risk Management
Crisis Management

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