Resource Contingency Reserves: How Much Is Enough?

The current business market is going through a transition phase that focuses too heavily on risks. Some companies save a specific amount for resource contingency which comes in handy in a financial crunch. However, it is quite a task to determine the resource contingency budget. Some business experts suggest that you use a flat percentage derived from past projects. This will give you an approximate idea of the required organizational funds. Another question that businesses face is the allocation of contingency funds over time and what to do with the money when it is not used. In his blog Easy in Theory, Difficult in Practice, Kiron D. Bondale talks about resource contingency and how you can allocate it efficiently.

The Resource Contingency Allocation Approach

Bondale shares several contingency approaches that are commonly implemented in organizations:

Allocate as a single lump sum and keep it intact until the project ends.Assign a single lump sum and return it gradually after the termination of every project phase.Assign funds to a specific phase of the project.Assign funds to a project and return them after assessing the risks associated with the tasks.

The Importance of Contingency Reserves

Bondale states that companies should keep a check on budgetary over-and under-runs. If the business penalty is in some way higher than expected, use the contingency reserves to save the project. In some cases, reserves are closely knitted to business risks that may or may not take place.

While some companies plan to return the contingency reserves once a specific project phase is completed, various firms think differently. They hold on to the reserve budget until the project is completed or at least out of the woods. You must have come across instances where the projects were postponed repeatedly. In such a scenario, watch your budget expense. Do not spend the contingency reserve unless necessary, and delegate tasks to speed up your project process.

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