Building in contingency

Although it may seem sensible to refine the estimates of cost and time required to complete a project as it progresses, some sponsors will wish to fix them as soon as possible so that budgets can be set and people can allocate sufficient time for their role in the project when it is needed. Despite the caveats that may accompany the plan, the targets become fixed in people's minds and the assumptions are forgotten. Even if the emerging plan suggests that the original targets were inappropriate or unachievable, they are now so embedded in the organisation's psyche that to challenge them can look like failure.

It makes sense, therefore, to add a contingency element to early estimates. Contingency is an estimated amount of time or money, carefully calculated when a project is being planned, to address identified risks and the potential amount of change the project may encounter. As each stage is passed, it should be possible to reduce the contingency element, accounting for what has been learned during the project's progress so far and the reduced risk that should remain ahead. Thus the contingency element is carefully assessed and is not a slush fund to be used for bailing out the project.

If the project manager can produce a set of contingency figures based on an audited risk analysis, the project steering group can be confident that the amount of contingency being requested is reasonable. The group may also wish to retain control of the contingency budget. In this way, the project manager can draw on the fund only with the project steering group's approval and only to mitigate a risk for which the contingency was originally identified.

Having a clear and auditable approach to developing a contingency fund has a further benefit. In making public the amount and how it is broken down, there is less likelihood that each layer of management will add an additional percentage, which might take the total project budget to an unacceptable level.

Management by exception

At some time during a project something will go wrong or a change will be requested that may risk it missing its time and cost targets. Therefore, project managers should be given authority within specific parameters to carry out their jobs without having to seek approval for changes to costs or deadlines. Agreeing to manage by exception removes the confusion of who is authorised to take charge when problems or changes arise.

Management by exception requires the application of escalation conditions. Project steering groups provide their project managers with a degree of time and budgetary flexibility so that they can act on their own authority within pre-agreed constraints. For example, if the escalation conditions for time and cost have been set for plus or minus two weeks and plus or minus 5% respectively, the project steering group need not be involved in the daily management of the project as long as its forecast end date does not vary by more or less than two weeks and the forecast cost remains within plus or minus 5% of its target.

If at any time the project manager forecasts that the project will not be completed within the agreed escalation conditions, the problem must be taken to the project steering group for a decision on how to proceed.

Escalation conditions do not mean that the project steering group is allowing the project manager to overspend or deliver late. They simply provide the necessary flexibility while underlining the project steering group's ultimate authority if the project should veer too far off track.

A red, amber and green coding system is used to show how the project is progressing. Red denotes that it is outside of one or both of its escalation conditions for time and budget. Amber means that the project is off target but in the designated manager's control. Green means it is on target.

Management by exception can be used to separate any two levels of authority. It can be applied to the relationship between the project steering group and the project manager, the project manager and the project management team, and the project steering group and the portfolio management team. Although only time and cost have been described, the approach can be applied to any date or numeric driven target, such as quantified benefits. Although it may not be immediately apparent, quality is accounted for by the negative figures applied to time and cost. For instance, if a project is forecast to be completed early or under budget, it may suggest that something has been forgotten or removed from its scope and that the output will be substandard.

Management by exception is a technique used to control a project. However, like the other principles described above, it must be considered when planning:

e the benefits of a project; e the mitigation of risks; e the quality of the deliverables; e timescales and costs.

Project Management Made Easy

Project Management Made Easy

What you need to know about… Project Management Made Easy! Project management consists of more than just a large building project and can encompass small projects as well. No matter what the size of your project, you need to have some sort of project management. How you manage your project has everything to do with its outcome.

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