Contingency planning helps your project team deal with project risks if they happen. We’ve gathered expert tips on creating effective contingency plans and the best tools to help determine the appropriate amount of contingency for any project.
Included on this page, you’ll find step-by-step guidance to prepare a contingency plan, the top challenges in preparing and using contingency plans, and information on how to determine the right amount of contingency for a project. In addition, you can find a downloadable project contingency plan template to help get you started.
Contingency planning is what your project team does to prepare for specific risks that might happen during a project. A contingency plan might include extra funds, extra staff, or steps to take if a particular issue arises.
Contingency planning is “surviving disruptions,” says Erika Andresen, a business continuity and resilience expert, author, and Founder of EaaS Consulting. “It’s determining the priorities and making strategic decisions about how and when and where you're going to spend money and time in order to prepare for those things.”
“I consider it to be the ‘what if?’” says Melody Smith, a human resources and information systems consultant and CEO and Principal Consultant with New Jersey-based CAM Consulting Solutions. “I am the ‘what if?’ person. It drives people crazy. What if this happens? It may not; let's hope it doesn't. But it is being prepared to know that something is always going to happen, and because something is going to happen, you want to be able to have a plan of attack on how to address it, as far as making sure you have enough resources.”
Project experts usually refer to project contingency as the resources set aside as part of contingency planning. These are extra financial or staff resources or extra project time that your team might need to use if a risk happens.
One form of project contingency is cost contingency. These are extra funds allotted to the project for the team to spend if certain risks happen. Another more common form of project contingency is contingency time. This is extra time built into a project schedule to account for project risks.
Experts say that project contingency, both contingency time and cost contingency, is needed in all but the smallest projects.
Contingency time is extra time that project leaders build into the overall schedule of a project. The project team can use this extra time to deal with the impacts of certain risks and avoid missed deadlines or contract penalties.
Experts sometimes use other terms that mean the same thing as contingency time, such as schedule contingency, time contingency, schedule buffer, schedule margin, and schedule float.
“Very rarely do most projects deliver on time,” says Diane Davidson, Owner of Clever Fox Advisory, a strategic planning consultancy focused on improving finance operations. “Now, I'm not talking years late, but there’s typically at least a week or two-week delay. Something always comes up. Somebody who's very important goes on vacation.”
Davidson says she builds in contingency time on almost all projects. “If we finish early, before using all contingency time, great! We save money on the project,” she says. “But if we don't finish early, then you don't have to worry about me coming back to you to say, ‘Hey, I need more money to finish this project.’ The project will still finish on budget.”
Experts recommend a number of best practices for establishing contingency time in a project schedule. Many of these practices focus on ensuring that contingency time is visible in the project schedule. This helps the team use contingency time appropriately.
Here is the correct way to establish contingency time:
Experts also warn of common pitfalls with contingency time. Here are some practices to avoid when adding contingency time to your project schedule:
| Contingency Reserve | Management Reserve |
| Allocated to help project team respond to potential risks that have been identified, or “known unknowns” | Allocated for risks that cannot be quantified or foreseen, or “unknown unknowns” |
| Part of overall project budget | Not part of project budget |
| A specific amount of reserves estimated by the project team | Not estimated at a specific level but based on organizational standards |
| Fully authorized and allocated by the project manager | Not authorized or allocated by the project manager without additional approval |
Experts sometimes recommend adding a rough estimate of contingency to projects. Most often this is contingency time. When estimating the amount in this way, experts most often recommend adding 20 percent of extra time to a project for contingency.
For example, if a project is expected to take 200 hours, the team would add an additional 40 hours for contingency time.
Davidson says project leaders must be careful not to add too little contingency time — or contingency costs — to a project.
“I've seen where people have a 12-month project, and they’ll say: ‘We’ll build in an extra week,’” says Davidson. “Well, that’s not even a day per month. Or ‘This is a $6 million project — let's put in another $20,000. That’s two days of work for the number of people.
“Twenty percent [of added contingency] is what I've typically found,” she says.
For many projects, experts do not recommend using a broad contingency estimate. Instead, project leaders should estimate contingency with more precise tools. Some options include team estimates, Monte Carlo simulations, and phase contingency estimates.
Here are some more precise ways to estimate contingency time:
“I think the most important elements of a contingency plan are to determine the project phases and pad the hours during the more complex stages of the program,” Davidson says. For a software development project, she continues, “This is typical during the development and testing phases. The planning and closing phases usually do not involve as much overhead and can be shortened as needed.”
Experts recommend creating a contingency plan for any risk that could have a significant impact on a project or organization. After your team identifies project risks and conducts a thorough risk analysis, it should begin creating a contingency plan.
It’s important to understand that contingency plans can be created only for risks that your team identifies. A contingency plan cannot be created for risks that your team has not identified or would have no ability to identify or foresee.
Project risk management is the practice of identifying, managing, and mitigating risks in projects. A contingency plan is one part of project risk management. Other parts of project risk management include creating a risk log and assigning owners to risks.
To learn more about project risk management, see this comprehensive guide on risk management planning.
Mitigation plans and contingency plans are similar but not identical. A mitigation plan helps you reduce the likelihood or impact of a risk, while a contingency plan helps you map the response to a risk once it occurs.
In general, a contingency plan focuses on quickly and appropriately dealing with a risk after it happens, while a mitigation plan focuses on preventative measures that make a risk less impactful or less likely to occur.
| Mitigation Plan | Contingency Plan |
| Objective is to prevent or lessen risk before it happens | Objective is to appropriately deal with risk after it happens |
| Examples of Mitigation Plan Action | Examples of Contingency Plan Action |
| Your organization consults flood maps as it decides on a site for a warehouse. It then builds the warehouse outside the floodplain or raises the ground floor of the warehouse above the level for a 100-year flood. | As a flood threatens the area where your organization built warehouses, your organization places sandbags around all existing facilities and ensures that valuable materials and items are removed from the ground floors. |
| Your organization employs cybersecurity consultants to protect your organization’s IT systems against outside attacks. You use software and other technology to monitor for and detect possible attacks. | After an external entity succeeds in attacking your IT systems, your organization immediately starts its process to deal with the attack. It informs top IT experts within your organization, brings in external help, and shuts down parts of the system. |
| Your organization is planning an outdoor event for donors and top clients. Important parts of the event will be negatively affected if it rains. You plan the event for a month when rain is less likely in your region. You also arrange for and reserve large tents and protective shelters that can be quickly constructed on-site if it rains. | You arrange for an employee to monitor the weather and make a decision on when and whether the tents need to be constructed. You hire pre-arranged workers to construct the tents on the day of the event after rain has been forecast. |
A contingency plan should have several basic elements to help your team respond to risks when they happen. Those elements include a risk probability assessment, details on triggers for an event, and an overall response strategy.
Other important elements include a timeline for the contingency plan and a plan for communicating with important organizational leaders and project team members about the specific risk and contingency plan.
Learn more about the important elements of a contingency plan in this helpful guide to contingency planning.
Experts recommend that your project team follow a number of basic steps to create a good contingency plan. First, identify and prioritize risks. Next, create and share your contingency plan. Finally, continually monitor and review your plan.
Here are the main steps of preparing a project management contingency plan:
Download a Blank Project Management Contingency Plan Template for
Excel | Google Sheets
Download a Project Management Contingency Plan Example for
Excel | Google Sheets
Download this completed example project management contingency plan to help you understand contingency plans. You can use this example plan template — with sections on contingency assessment, contingency analysis and evaluation, and mitigation measures — to write a contingency plan for risks in your own project.
Contingency plans are vital for managing any project that involves risk. When project managers create contingency plans, they prevent negative risks from derailing or significantly hampering the progress of a project.
Here are a few of the basic reasons contingency plans are an important part of project management:
Although contingency planning has many benefits, some project teams will face challenges when creating and using contingency plans. Challenges include getting buy-in from organizational leaders, being overconfident in an initial plan, and following through on contingency plans.
Here are some common challenges project managers might face during contingency planning:
It’s important to manage a contingency budget well in project management to ensure the project team has all resources it needs to complete a project successfully. Managing a contingency budget means understanding contingency reserves, contingency costs, and contingency funds.
For more resources and information, see this guide to managing a contingency budget.
A contingency reserve is the amount of resources that an organization sets aside to deal with project risks. Most often, project managers allocate funds in a contingency reserve, but some managers may also include staff time.
Organizations will often use estimates and detailed calculations to determine the amount of contingency reserve they need for a project, either in costs, time, or both.
A common method for determining the amount of contingency reserve is to calculate expected monetary value (EMV) with a quantitative risk matrix. This calculation takes the probability of a risk happening and multiplies that by the estimated financial cost of the risk happening. The calculations for each risk are added together for the total contingency reserve that would be required.
EMV = Probability x Impact
Tip: Despite the name, expected monetary value can estimate contingency time as well as contingency cost.
The below graphic shows how a team might track its contingency reserve for a project, month by month. It would track the contingency reserve in concert with the project’s total budget and the running costs for the project.
Contingency cost in project management is a part of the project budget that is allocated to risk events that are not in the original cost estimate for the project. This money can help reduce the impact of known risks and compensate for unknown risks.
In project management, a contingency fund is the amount reserved to cover contingency costs. Also called the contingency reserve, this fund addresses contingency costs, rather than contingency time.
Project leaders should keep in mind the importance of good contingency planning as they build their project teams. For example, having a team with diverse skill sets and a mix of experience levels will help create a balanced response to risk events.
Here are a few things project managers should keep in mind when building contingency planning into project teams:
Good contingency planning can happen only when project leaders are transparent and clear about project scheduling. This means clarity on time goals for various phases of the project and what contingency time might be available.
Project managers should also continually monitor the schedule, make changes when necessary, and be transparent with the entire team about those changes.
It’s especially important for project leaders to be transparent about schedule issues and changes with organizational leaders and other important stakeholders.
As a consultant in project management, Davidson says it’s important to have conversations with clients early and often about project scope, budget, and deadlines. “It's better also to prepare because the worst thing you can do is get to the fifth month and say, ‘We're not going to deliver on time,’” she says. “I see more people get in trouble because they don't have the upfront honest conversations in the beginning. They overpromise and underdeliver.”
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