Contingency

LU K E J U D S O N
A S S T. P R O F. ( C O N T R A C T )
B E M , S PA , D E L H I .
Contents
Introduction
Definition
Contingency Theory
Types
◦ Based on Stakeholders
◦ Based on Usage
Estimation
INTRODUCTION
What is Contingency?
Contingency is probable the most misunderstood,
misinterpreted and misapplied work in project execution.
Contingency does mean different things to different people.
(Patrascu 1988)
INTRODUCTION
What is Contingency?
Contingency can be defined as a provision for those
variation to the estimate basis which are likely to occur but
which con not be specifically identified at the time estimate
is prepared
INTRODUCTION
PMBOK
(PMI, 2017) Contingency has been described as “the
amount of money or time needed above the estimate to
reduce the risk of overruns of project objectives to a level
appropriate to the organization”.
 Contingency theory
Organizational context:
Researchers from Ohio State University developed Contingency
theory in 1950, research findings of leadership behavior.
Suleiman (Suleiman et al., 2018) summarizes that, there could
not be “one best way” or “Best fit” for all organizations due to
previous theories such as bureaucracy theory or Weber and
scientific management of Tylor, because of the neglected
influence of various environmental contingencies on
organizational structure and leadership style.
 Contingency theory
Management accounting context:
Otley (Otley, 2016) defines contingency theory of management
accounting began to develop in the 1970s. Otley summarizes through
a survey on ‘contingency theory of management accounting’,
between 1980-2014, that, invariable there are a range of contingency
theories and it might be suggest that all research in management
accounting is essentially contingent. In that it seeks to discover when
specific techniques might be most appropriate for particular
organizations in their specific circumstances.
 Contingency theory
Control systems context:
Bobkova (Bobkova.N.G., n.d.) Project managers see planning and control functions as
key factors in defining and accomplishing organizational objectives. It is generally
accepted that the utilization of successful planning and control frameworks guarantees
that “members of an organization actually do what they are supposed to do in an
efficient and effective manner”. According to Bobkova, contingency theory centered
on three key concepts:
1) There is no universal or one best way to manage.
2) The design of an organization must “fit” the environment.
3) Effective organizations not only have a proper “fit” with the environment but
also between its subsystems.
Definition
Contingency Provisions
PMBOK (2013) PMBOK (2017)
A reserve to handle to reduce the risk of
risk overruns
(time, money, or Management
resources ) reserve to resolve
unknown unknowns
(Known Unknowns)
(unforeseen)
 Definition
Contingency Provisions
DOE AIA Architect’s CPWD RIBA
Hand book
Project Complexity 3% for project costing Design
Unpredictable INR 1 core contingency
Design completeness changes
status 5% for project costing Construction
•To account for error, less that INR 1 core contingency
Market conditions omissions
In addition to
Special Conditions •Scope change foreseen work
•Unknown conditions
 Definition
Contingency Provisions
“Contingency theory concludes that there is not a single best
way to manage processes of organizing, decision-making and
leadership since different environments provide different
antecedents”(Grötsch et al., 2013).
Types
Based on Stakeholders
To Management – An amount hopes will not be expended and used for the use
of other projects.
To engineers – a saving account to cover additional costs or to cover up
deficiencies.
To Contractor – to cover additional cost caused by: productivity loss, lack of
clarity in the construction contracts.
To cost engineer – to cover up errors in the estimation
Types
Based on Usage
Design tolerances
Buffers
Reserves
Estimation Methods
Percentage
Lump sum amount allowance Probabilistic Methods
◦ Artificial Neural Networks
Deterministic (%)
◦ Fuzz logic
Detailed % ◦ Monte Carlo Simulation
Detailed % by considering probability of ◦ Regression Analysis
occurrence Heuristics
Method of Moments
Cost Item Allocation
PERT
Contingency is Cost Control Tool
(Patrascu 1988)
Cost increase due to productivity loss.
Ex:
Due to harsh weather condition productivity may go down. So one has to take
precautions with the allocated contingency of that item instead of accepting the loss by
providing a situation/condition/environment. That means a contingency plan should be
there.
Contingency
Parameters
Cost of Quality – a type of contingency Consequential cost
Cost of Delay also a type of contingency Direct cost
(additional interest paid)
Cost of change
Insurance cost
Inflation cost
Rework cost
Unforeseen costs (Items)
Cost of Safety
Additional costs
Indirect costs