This Guest paper was submitted for publication and is copyright to Roger L. Parish, PMP, © 2009
published March 2010

Introduction | Cost Management as Described in the Guide 3rd Edition 
Management Reserves | Cost Management as Described in the Guide 4th Edition 
Vocabulary - An Alphabet Soup | The Project Manager's Challenge
A Recommended Solution | Project Performance (Earned Value) Reporting | Conclusion

A Recommended Solution

Contingency planning can address just time or cost, or it can incorporate contingencies for both. To add a time contingency, one can add a buffer activity at the end of a sequence of activities, as shown in Figure 5. This buffer is its own separate dependent activity that has an allowed-for duration, but has no actual work or budget attached. For example, a shipyard that is building a ship for a client may have made realistic estimates regarding the duration of the component activities, and it may have put them in the project schedule that way (shown as "Planned-for delivery date" in Figure 5).

Figure 5: In-line contingency planning that incorporates both time and budget
Figure 5: In-line contingency planning that incorporates both time and budget

A network analysis tells the shipyard when it should expect to complete the ship. However, the project manager anticipates that severe weather can be expected to stop work at various times during the build. A buffer activity that accounts for the number of days expected to be lost due to weather delays can be added at the end of the project or a major portion of the project (e.g., just before a major milestone, like flooding the dry dock) using a buffer or dummy activity. The date the shipyard commits to delivering the ship to the customer is based on the inclusion of the buffer time. However, the shipyard manages the schedule to its own internal time estimates, and manages the consumption of contingency time from the time buffer over the life of the project.

Cost contingency reserves can be activities that have monetary resources attached, but nothing else (no actual work product), as shown in Figure 6. These can appear in their own section of the schedule, or at the end of a series of activities. If at the end of a series of activities, they would need to have a duration of zero, if they are not to affect the schedule. Done in this way, zero-length activities can be incorporated into dependency chains without fear of corrupting correct identification of the critical path.

If cost contingency reserves are included in their own section (a section set aside for contingency reserves) and are also shown as having a duration that spans the work being done, they should appear as stand-alone activities (no dependencies) to avoid the contingency activities potentially showing up as the critical path.

Figure 6: In-line contingency planning that incorporates both time and budget
Figure 6: In-line contingency planning that incorporates both time and budget

As dates are reached for these contingency activities (those containing the monetary contingency reserve amounts), the funds associated with them are distributed to the project. Thus, the project receives increments from the contingency reserve at discrete points in time.

To be truly effective, one should have contingencies for both time and cost. This can be done in at least two ways. One is to add contingency reserve activities to workflows at strategic locations in the schedule, as shown in Figure 5, and also assign a monetary amount/budget to them. This would allow them to accommodate both the time and cost contingencies.

Another way this could be done would be to use a hybrid model that incorporates techniques shown in both Figures 5 and 6. That is, time contingencies could be incorporated as buffer activities that are in-line with the work, and cost contingencies could be placed in their own separate section, as shown in Figure 6. Using this approach, budget would be distributed across the project overall, while time would be attached to discrete workflows.

The Project Manager's Challenge  The Project Manager's Challenge

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