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186 USING AND MANAGING CONTINGENCY

Schedule contingency should be reserved for changes to the plan, rather than
to account for poor performance. Of course, in reality, there is no way to exclude
the latter from eating into the contingency. However, the project team should not
make the mistake of thinking that as long as there is contingency then it is okay to
let things slip.

Every effort should be made to hold the team to the estimated and planned
durations, allowing the contingency to be available for unplanned additions to
task list and uncontrollable delays. Buffers and planned contingency tasks should
be monitored and the project manager should maintain awareness of shrinking
buffers and the cause.

Here are three things that you can be certain of:

1. If there is no schedule contingency, the project end date will be missed.
2. If schedule contingency is not managed, the schedule will slip and the proj-

ect will be completed even later than if there were no contingency.
3. Murphy is working on your project.

Part 2—Cost Contingency

The use of contingency for schedules is quite common and practical. Similar
practices are available for resources, costs, and workscope, but often receive even
less attention. The following discussion addresses both cost contingency and
scope creep.

The Concept of Management Reserve

There are two primary causes of cost overruns. The obvious one is that more
money is spent for the defined work than was budgeted. The second cause is that
work is added to the project without additional funding to cover the cost of the
additional work. In any discussion of cost contingency, we must address the com-
mon incidence of scope creep, which we do below.

As we get into the subject of cost contingency, I introduce the concept of
management reserve. This is a term that I use for cost contingency, because it
better defines the methods that I employ to address the issues of cost and
scope management.

Management reserve is a sum of money that is put into the project budget, but
is set aside for work that has not been specifically defined and planned. Hold on
to this thought for a moment as we explore the conditions that lead to the need to
employ management reserve.