Building contingency into your project

Building contingency into your project

We all want our projects to finish on time and within budget, but the unfortunate truth is that, more often than not, they don't. It's therefore vital that contingency is built-in up front so everyone's expectations are set correctly, and you give yourself and the team delivering the project, a fighting chance of success.

Steps you will have already taken

This post is the fourth in our series on planning and managing projects. If you're here a bit too soon and want to see what comes before, here are the links to the previous posts:

  1. How to create a Work Breakdown Structure
  2. How to build a project running order
  3. Estimating tasks durations to find the critical path
  4. Building contingency into your project (you are here)

How often do projects overrun?

We recently surveyed project managers around the world, and they told us that, on average, 57% of projects take longer than forecast and 51% cost more than expected. Considering that, by and large, those we surveyed were qualified project managers, it shows that slippage happens to even the best of us.

Once you start your project, there's a high probability that some tasks will take longer, and you may also find that new tasks present themselves at some point. If either of these happens on the critical path, it'll delay your project, and you'll miss your deadline.

So what can we do to minimise the probability of tasks and projects taking longer (or costing more) than we anticipate? The answer is to add contingency.

57% of projects overrun and 51% of projects cost more than planned

Contingency time is only added to the critical path

The critical path is the sequence of tasks that takes the longest from start to finish. When calculating contingency time, we only need to worry about tasks on the critical path as we're looking to build a safety margin into the overall project. While some of your non-critical path tasks may take longer than expected, assuming they aren’t excessively delayed, they won't affect your ability to meet your deadline.

The critical path

How to make your project 90% safe

Start by looking at the tasks on the critical path and estimate the worst-case duration for each, adding up the additional days or weeks as you go.

Once you have your total, you can quickly calculate the perfect amount of contingency time to add. Chris Croft recommends using the “half the difference method”, which is simply finding the difference between the estimated and worst-case scenarios and then adding half of that to your final estimate.

90% safe by adding the perfect amount of contingency time.

How the "half the difference" method works

Say, for example, a task is expected to have a 4-week duration but your worst case estimate is 6 weeks. Simply divide the 2-week difference into two and then add it to your original estimate, giving you a 5-week prediction, which includes contingency time that’ll be 90% safe.

Half the difference method

When not to use this method

For most project managers, being 90% safe is an excellent place to be. However, if your project has some hefty penalty clauses if it overruns, 90% might not be safe enough. If that's the case, add as much contingency time as needed so that the project meets your important deadlines.

Adding contingency time to your project

Once your contingency time is calculated, you need to add it to your project. Avoid adding it in one big lump at the end of your project, as your boss or customer will likely ask you to remove or reduce it. Instead, distribute the additional time throughout your project's critical path so that it's there, but it's not blatantly obvious it's been added.

Contingency isn't just about deadlines

For many project managers, the project cost is just as significant as when it finishes, and there's no reason you can't use the above method to add a financial safety net to your project.

When calculating contingency cost, one thing to be aware of is that your critical path may not be the most expensive sequence of tasks. Often it will be, but there will be occasions where a shorter series of tasks cost more than a longer one. If you are aware of some chunky outgoings in tasks outside of the critical path, be sure to factor them into your contingency plan.

How it works in Mr Gantt

OK, so we've explained how to add a contingency to your project and ensure that you're 90% safe, but how can Mr Gantt help?

Once you've added your tasks and baseline estimates into Mr Gantt, our software will automatically identify the critical path. The next step is to head into the dedicated contingency planning area, where you'll be prompted to provide worst-case estimates for every task on the critical path. Once you've done that, Mr Gantt will use the above method to calculate the perfect amount of time you need to add. You can then distribute that additional time across the tasks on the critical path!

When it comes to cost contingency, using the same method, the software will provide you with a statistically safe amount of additional cost to add to the project budget, which you can then choose to apply if you so wish.

That's it! Your project is now 90% safe!

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