Contingency First

A conversation with a reader this week revealed something we have in common: the “contingency first” trick. It’s an easy way to help projects come in on budget.

First … what’s a contingency? Check out the Word of the Day below.

…

Ready?

OK. One of the first things we do in my company when we start a new project is ask:

“Is there a contingency already set aside, outside of this budget we’re managing?”

No? We set one aside ourselves — first — from within that budget. 

Yes? We make sure it’s 20% or more in the early days — then we forget we know.

Either way: contingency first.

Say it’s a $1,000,000 project. We’ll reserve something like $200,000 of that (or outside of that) as a contingency first. If it comes out of that budget, it’s now an $800,000 project, until something unexpected arises.

If something comes up, or an opportunity appears, we’ll ask the owner if a portion of the contingency should be used. But we avoid that as long as humanly possible.

Here’s the thing:
Using contingencies in budgets is complex, with lots to learn. But here’s a great start:

Contingency first.

Warmly,
Jonathan

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MtM Word of the Day:
Contingency. A reserved amount of money set aside in a project budget to cover unforeseen expenses (or take advantage of opportunities). In building projects, this could include design changes, unexpected construction issues, weather delays, etc.