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Unformatted text preview: it. For the author, the answer is simple, but there is by no means universal agreement on this. However, this simple answer is worth considering. The simple answer is that the unused contingency budgets for completed control packages can be considered surplus contingency, and it is safe to release this surplus contingency. It is surplus because it was not needed on the control package it was allocated to, and it can be safely released because all the remaining uncompleted work is still covered by the contingency that was allocated to it. Page 240 This is a conservative approach to the identification and release of surplus contingency. A similar argument can be used to support identifying contingency on unfinished control packages (and also releasing it) if the percent of contingency draw-down is less than the percent complete for the control package. But this second approach may be too optimistic. It may be that the riskiest work within the control package in question has not yet begun. It requires a judgment on the part of project management as to the relative risk of work packages within the control package. And this level of analysis regarding the relative risk of work packages was what the project managers wished to avoid when they decided to calculate and manage contingency at the level of this control package. If contingency budgets are left (not fully drawn down) at the end of the project, then it should be considered that the project was still well managed even if the control budget was overrun. Since the existence of contingency implies the recognition of risk, and is in fact an attempt to quantify the risk, remaining contingency implies that the project was completed within the budgets in the face of this recognized risk. 9.3— Statusing Contingency Packages There are many issues concerning the statusing of contingency packages. The indirect method is the best way of statusing contingency packages when contingency is allocated to control packages, for the reasons we have already discussed. However, while we believe this is the best way to allocate contingency, there is no consensus on this. Contingency is commonly allocated in other ways. Contingency is sometimes allocated by discipline or by craft. For instance, there may be an engineering contingency, a piping contingency, a power contingency, and so on when the project is to build a refinery. Or there may be contingency for staffing or for inflation or for getting the necessary permits in a foreign country. TE
Team-Fly® AM FL Y Page 241 All of these different contingencies are meant to cover risks that can affect the work of the project. For instance, a staffing contingency or a contingency for gaining the necessary approvals to operate in a foreign country is meant to quantify risks that can cause the work to proceed at a slower pace than envisioned in the project plan and consequently increase cost. When contingency is allocated in these other ways, it is often difficult to know how to status the contingency. Some companies do not even place co...
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This note was uploaded on 01/11/2011 for the course ACC 9 taught by Professor Yeetan during the Spring '10 term at Sunway University College.
- Spring '10