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Unformatted text preview: that we will use twice the contingency budget. Since contingency is a probabilistic concept, we really do not know in advance what the final outcome will be. Consequently, contingency is to be spent at the discretion of the project manager or by a control package manager to whom the project manager delegates authority. Page 237 At any point that a work package budget is overspent, and the work package is associated with a control package to which a contingency is assigned, the project manager has the option of covering this overexpenditure with contingency resources. When that happens, the contingency is said to be drawn down . Contingency draw-down needs to be a disciplined procedure that is linked to the current status of the control package to which the contingency is associated. If a control package has a significant contingency budget, it needs to be monitored, just as we would monitor a control package with a significant budget. If over time the contingency budget is being drawn down more rapidly than progress is being made on the control package with which it is associated, then corrective action needs to be taken. For instance, if the contingency budget has been drawn down by 40% but the control package with which it is associated is only 15% complete, then it may be the case that the contingency allocated to this package was inadequate or that the package is not being executed efficiently. Another issue with contingency draw-down is how it is done. Different methods have been experimented with. The two most common are budget transfer and contingency pool . The budget transfer method is more complex, but it ensures that contingency expenditures are charged to the work packages for which the contingency was expended. The contingency pool method is easier to use, but on projects with large contingencies it is possible to complete the project with a significant portion of the work charged to contingency packages. This often makes the historical data of no value for planning similar projects in the future. With the budget transfer method, portions of the contingency budget are transferred to the work packages on which the contingency is being expended. Then the labor- hour and cost transactions are made to those work packages. The question that arises is how to handle these budget transfers and to which budgets they should be transferred. Since we have a vari - Page 238 ance tracking system built into Modern Project, it is only natural to use it to make the contingency budget transfers. But it can be argued that an individual contingency transfer could be caused by any of the three different types of deviations discussed in Chapter 3. Since contingency budget transfers are often made after the overrun expenditures have already been made, project managers are sometimes reluctant to count them as productivity variances. The reason for this is that productivity variances do not contribute to the control budget, and hence the overrun charges show up as poor...
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- Spring '10