Risk/ Contingency management is the process of managing the contract risks and operations
uncertainties such that the current forecast and schedule always accurately reflects
remaining risk and known uncertainties. It includes understanding risks identified
and quantified in the proposal, and each subsequent estimate, as well as planning
the reduction of contingencies or risk funds over the life of project to match expected
reduction of risks.
The process includes the evaluation of remaining risks at regular intervals and ensuring
that remaining contingencies cover these risks. It also identifying new or potential
risks as the project progresses and choosing to estimate new contingencies needed,
or retaining existing funds when the originally associated risk item does not materialize.
4.1 Contingency Management
There are two components of Contingency, Operations Contingency, and Fixed Contingency,
and they are managed according to different guidelines. Fixed Contingency covers
contract risks associated with potential contract liabilities and is assessed quarterly
as part of Project Financial Status Review and revised at that time. Operations contingency
is evaluated and adjusted as part of the Cost Control Process. Work Content and Forecast
adjustments, as well as trends and discovered risk items are used as part of the
basis to adjust retained contingencies. An Operations Contingency Drawdown Plan should
be prepared and a structured review held monthly and the results used as a basic
input into each monthly Cost Report forecast update.
4.2 Project Team Roles for Risk/ Contingency Management
- Review contingencies and the contingency drawdown plan in light of contract conditions
and make adjustments as needed. Ensure that contingencies conform to approved strategy
and are at all times commensurate with contract risks and known uncertainties.
- Ensure that contingencies are used only for their designated purpose.
- Thoroughly document any reallocation of contingencies.
- Ensure that contract risk and operating contingencies at any point in time reflect
remaining risk; adjust drawdown plan as necessary.
- Reallocate operations contingency and contract risk funding only in proportion
to the diminishing risks. Avoid both premature and late contingency reallocation.
- Document deviations from plan.
Should provide the following to the Project Manager:
- Current Forecast and actual commitment information.
- An analysis of remaining contingencies as project progresses, and an adjusted drawdown
curve or table for PM's approval.
- Analysis of established or evolving trends.
- Monthly analysis of operations contingency.
- Amount of remaining operations contingency in monthly cost report.
- Provide PM with risk analysis as requested during project execution.
- Review drawdown plan for actual contract conditions as requested, and provide to
- Assists with risk analysis as requested during project execution.
- Assists with drawdown plan for actual contract conditions as requested.
Review approved contingencies and drawdown curves with Director of Finance and Director
of Project Management. Reallocation of contract risk requires approval of senior
management for example of the responsible Director of Project Management, Director
of Finance and Sr. VP Project Management.