Let\'s face it. Project budgets are always tight. No one can develop the perfect
ID: 462843 • Letter: L
Question
Let's face it. Project budgets are always tight. No one can develop the perfect cost estimate that covers every conceivable risk, and if you could, it would be too costly to implement. Problems are going to happen in the course of any project, and unless you have a contingency fund to manage those problems, you will have to go back to management for more money with every issue that arises. As a project manager, you should factor some of those problems into your estimate and request cost contingency to allow you flexibility to solve your problems within your overall budget.
Explanation / Answer
Various problems may suddenly occur in implementation of a project so as to have a contingency fund in a project budget. Some of these problems that have to be factored to estimate and request cost contingency are as follows:
1. There might be sudden delays in the project due to unexpected labor/transportation strikes, natural calamities, political disturbances and others. These delays will increase the costs of project.
2. The requirements of the clients may change suddenly and these changes have then to be incorporated. This will again give rise to project delays and subsequently increase the project costs.
3. Some project team members may leave abruptly leading to manpower shortage and thus delay in the project.
4. There might be sometimes delays in receipt of project resources from suppliers due to unforeseen circumstances.
5. There might be sudden changes in government policies, which may escalate the costs of the project.
6. One has to include possibility of accidental exclusion of certain cost items of the project.
7. One has to take into account human errors that may arise in estimating project costs.
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