Software project contingency percentage

It is used to quantify the impact of each significant identified risk, which in turn assists in the calculation of the contingency reserve.

The use of the Expected Value method starts with the identification of risks. Once the risks are listed, the probability of occurrence of each risk and the cost impact, if risk happens, is estimated. This was a simple example of using the Expected Value method. However, instead of using a single point cost impact estimate, a range of impact costs may be assessed.

In this case, the probability and cost estimates are replaced by distributions that are assigned by the team based on their understanding of the risks. Also, at that time significant correlations amongst risks and cost are incorporated into the analysis. Then a Monte Carlo or similar simulation program is run that uses these probability and cost distributions as its input. On the range estimating method, instead of a single point cost estimate, a range of possible cost outcomes is estimated.

Well, in single-point estimating, the estimator assigns a single cost value to each cost element of the estimate. However, a single point estimate for the project assumes that the project will cost this much and clearly does not take into account the uncertainties and risks affecting the project. However, the range estimating method assigns a range of possible cost outcomes to cost elements and evaluates the probability of achieving the overall cost estimate.

Instead, you need to identify the cost elements that can have a critical effect on the project outcome and apply ranges only to those critical items. Each cost element identified in the model is assessed with a range of minimum, maximum, and most likely values that are assigned by the team based on their understanding of the risks.

Also, significant correlations amongst cost elements are incorporated into the analysis. Then a Monte Carlo or similar simulation program is run that allows the cost to vary between the maximum and minimum values randomly.

This results in a total project cost estimate distribution as shown in the diagram below:. From this distribution, a cost value can be selected that has the desired probability of having a cost under-run or cost overrun. This is a risk neutral approach, the assumption being that some projects will overrun while others will under-run and, in the long run, they will balance out. This information can also be obtained on the graph by drawing the cumulative probability curve, which is not shown here.

The more conservative, risk-averse attitude is to have a higher confidence e. This is a safer route but by specifying a high probability the required contingency as well as the overall project cost will increase. The PMCoE representative talks over the workshop agenda with you in advance and provides you with the process, shown in Exhibit 5, they use to facilitate:.

The PMCoE representative stresses that the process of managing risk is a continuous one, and that the quantification of risk and summation of risk EMVs requires:. During the risk workshop you and the project team review the documentation provided by the development lead and compile a list of 10 risks, none of which are significantly correlated. In preparation for your discussion with project sponsors, you decide to include a description of one of the major project risks in your presentation, as shown in Exhibit 6.

In addition to the risk calculations shown in Exhibit 6, you plan to note the following in your presentation:. Upon finishing the work with your project team, the development team, and the PMCoE to determine the estimate uncertainty and risk exposure of the project, you now feel confident that you are prepared to request, and defend, the total project contingency funding.

A brief look at your notes and supporting documents, mainly the project cost estimate, Monte Carlo analysis, and risk register, allow you to quickly formulate your total contingency request as follows:. To further increase transparency, and facilitate an understanding of the reasonableness of your request, you decide to include the figure shown in Exhibit 7 in your presentation to the project sponsors.

Recalling your conversation with the project sponsor regarding the inclusion of contingency and impact on the business the case, you reassess the project based on the total project cost including contingency and find that the project still has a healthy benefit—to-cost ratio and positive net present value.

Finding this information useful, you decide to include the results of your analysis into the presentation, which is scheduled for tomorrow afternoon. Your presentation to the sponsors goes well and your request for contingency is approved. The project sponsors thank you for the level of rigor, transparency, and professionalism that you have brought to the project. So the question facing your sponsors is—how do they gauge the reasonableness of the project contingency as the project progresses?

Sponsors and project managers, have an interest in keeping an eye on contingency level:. You and your sponsors reach out to the PMCoE for guidance. After further consultation and discussion, your sponsors request that you include two metrics in the monthly project status report: 1 contingency to estimate—to-complete ETC , and 2 contingency to risk exposure EMV.

With each metric calculated as follows:. Your sponsors also request that your status report flag your contingency balance with a yellow stoplight when either metric exceed the established rule of thumb boundaries noted previously. In addition, your sponsors have requested that you present to them the status of the project in six months' time. Six months later, you provide a brief update to your sponsors and note, among other items, the following:.

In your update, you note that based on the agreed upon rules of thumb the contingency is adequate, possibly excessive even, and that the project may be able to release contingency back to the sponsors if the contingency to ETC ratio climbs and risks close without triggering.

Upon conclusion of the status update, the sponsors thank you and your team for their continued work on the project and request another update in six months so that the potential release of contingency could be revisited before next year's budget is finalized.

Well done, you are successfully executing your project using a structured contingency management process, and find that the incorporation of contingency into authorized total project cost has delivered the following benefits to you the project manager , the project team, and the project sponsors:. You also gained practice in the use of contingency management tools, techniques, metrics, and rules of thumb, each of which aid in the delivery of the project scope, on time and on budget in a safe manner.

Cost estimate classification system — As applied in engineering, procurement and construction for the process industries - Recommended Practice No. Project Management Institute. Practice standard for project risk management. This in-depth case study outlines a project to increase productivity with Saudi Arabian public petroleum and natural gas company, Saudi Aramco.

In this example, we will assume that the project team has already performed an analysis and risk assessment of the project schedule. The recommendation provided is that a 15 percent contingency reserve will be added to the tasks listed below:. The Primavera P6 schedule will now display the new UDF column; however, it will not contain any values:.

Ensure that the operator factor is the multiplication symbol and put your contingency factor in the final option in this example, we will use a multiplying factor by. Do not forget to assign a name to your global change. You will be prompted to save the log file, which you may or may not choose to keep.

Close the Global Change dialog box, and then you will see the 15 percent contingency reserve in the schedule:. ScheduleReader is an efficient tool that allows you to view and analyze contingency reserves built into the Primavera P6 project schedule.

ScheduleReader is widely revered for its ability to open XER files in the blink of an eye, making it perfect for quickly accessing any data in the project schedule. From here, you will see the Customize Columns dialog box. Once you close out the dialog box, you will see the contingency reserve column with the values just as you did in Primavera P ScheduleReader is Windows-friendly and it serves as an effective interface to view activities and promote analysis from tools such as Primavera P6.

ScheduleReader also offers an inexpensive licensing alternative to Primavera P6 for large project teams that do not have full access to Primavera P6 to be able to view and analyze the project schedules in XER format.

Team members without a Primavera P6 license can easily open and view schedules in the Primavera P6 XER format, thus allowing those lacking Primavera P6 access the ability to utilize similar views as those used in Primavera P6.

Utilizing ScheduleReader provides the project team with convenient features for team collaboration, such as its customizable layouts that can be viewed easily from an imported Primavera P6 XER file, whether the user has access to Primavera P6 or not. The imported XER files from Primavera P6 conveniently carry over the UDFs created within Primavera P6 to ScheduleReader so that critical data such as contingency reserve can be displayed and analyzed by all members of the project team.

Calverley has extensive experience in the planning and scheduling arena since , as well as extensive experience in the aerospace and oil and gas industries combined. Calverley is also a solid writer, editor, and process flow documentation expert. She possesses a full command of the proper English language, and she is also a published book author. Calverley developed and championed multiple process flows and written documentation via policies and procedures for various well-known companies.

How is a Project Contingency Reserve Calculated? Showing Contingency Reserve in the Primavera P6 Schedule A project contingency reserve can be shown in the Primavera P6 schedule, and there is a creative way to show it. Close the Global Change dialog box, and then you will see the 15 percent contingency reserve in the schedule: Showing Contingency Reserve in ScheduleReader ScheduleReader is an efficient tool that allows you to view and analyze contingency reserves built into the Primavera P6 project schedule.

Use the center arrow to move the UDF to the Inserted Columns section: Once you close out the dialog box, you will see the contingency reserve column with the values just as you did in Primavera P6: Efficiencies for Team Collaboration Using ScheduleReader and Analyzing Contingency Reserve ScheduleReader is Windows-friendly and it serves as an effective interface to view activities and promote analysis from tools such as Primavera P6.

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