Guide to Contingency Planning in Project Cost Management

What Is Contingency Planning?
Contingency Planning refers to proactive management strategies designed to handle potential risks, issues or changes that could affect a project's cost, timetable, or performance. It involves identifying potential threats, prioritizing them, creating response plans, and allocating resources to deal with them if they occur.
Why Is It Important?
Contingency planning is vital in project management to ensure the smooth execution of a project even when issues or changes occur. It helps in mitigating potential adverse effects, ensuring project continuity, cost control, and maintaining timelines.
How It Works
The process of Contingency Planning involves:
1. Risk Identification: Identifying potential threats or changes.
2. Risk Analysis: Evaluating their likelihood and potential impact.
3. Plan Development: Establishing plans to address identified risks.
4. Resource Allocation: Allocating reserves (time, cost) to handle potential issues.
Exam Tips: Answering Questions on Contingency Planning
1. Understand the 'what', 'why', and 'how' of contingency planning.
2. Get familiar with the process of risk identification, analysis, plan development, and resource allocation.
3. Know how to apply the concept in project management context.
4. Use specific examples to highlight your understanding.
5. Understand the difference between contingency and management reserves.
6. Keep terminology clear and use it correctly.