Contingency as a Buffer and the Case for an “Adjustment to Balance” Allowance

By Ghaith Al-Hiyari posted 03-10-2018 06:10 PM


I just finished reading one of technical articles in the Cost Engineering Journal  (Jan / Feb 2018 edition). The article is titled “How to Successfully Use Earned Value on Projects” by Joseph Lukas, PE, CCP.

While the article had tons of useful tips and laid down the general sound principles for EVM. One offshoot paragraph that discussed schedule and budget contingency management left me a bit unsettled. The paragraph reads as follows:

The reason for having a schedule contingency is to buffer changes to the project completion date.Each time a schedule is updated, the completion date can change based on the actual progress of tasks . However, clients find it frustrating when the project team gives them a new completion date every-time a schedule update is done.A better approach is to adjust the project contingency duration up or down based on actual progress to keep the project completion date constant.every time a schedule update is done.”

I can’t help but feel objection for using a contingency allowance, whether it is in its cost or schedule form to balance the bottom-line of the project cost or schedule to a specific number or date. I strongly suggest that the contingency draw-down should follow the rules that contingency was planned for. If contingency was made available to counter certain risks or uncertainties in the project, those allowances should be drawn down when those risk events cease to exist.

Now, if clients or management find it frustrating when the project team gives them a new completion date or bottom line at every schedule or cost update, which is understandable, an adjustment to balance line item or task, can be introduced to the bottom line of the cost report or schedule, independent of the contingency allowance, to tune out any nominal fluctuations in the bottom-line of the schedule.

I think the separation between the contingency allowance drawdown and the adjustment to balance buffer can promote sound cost and schedule management.

I would be happy to hear your thoughts on this.