Safety in numbers

the proper contingency budget can blunt the blow of surprises -- without surpassing spending limits

Every project has risks. Whether the cost of a building material suddenly spikes, the value of a currency nose-dives or the regulatory landscape changes mid-project, realized risks can kill a project's prospects. Contingency budgets offer a lifeline: They prevent setbacks from pushing a project off the rails and save project leaders from asking the sponsor for more funds. But determining exactly how much should be held in reserve funds to cover specific risks and managing the back-and-forth between the risk register and the contingency fund takes finesse. Bloat the contingency budge with too much padding, and the sponsor might reject it. Trim it to the bone, and those early estimations have a choke hold on the project team's ability to problem-solve. Striking the proper balance between flexibility and frugality requires project leaders to build a strong case for the value of a safety net.
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