When the idea for a project first comes up, you rarely have an exact idea of all the resources you will need. As the groundwork progresses, however, you start to define the scope, assumptions, deliverables, approach, and so on. This gives you enough information to put together an estimate of the effort and other resources required for the project. From there you estimate the duration and cost of the project, gain approval, and begin the work.
As you know, the estimates that you prepare up front are just that—estimates. The only time you know for sure the effort, cost, and duration of the project is when the project is complete. Until then, you are dealing with some level of estimating uncertainty and risk.
Here is a quick look at contingency plans and the scenarios that may necessitate them.
All projects have some level of uncertainty. If possible, you account for the estimating uncertainty through the use of a contingency budget. If you believe that your estimates are 80 percent accurate, you could request a 20 percent contingency budget.
For example, if your project were estimated to cost $100,000, you would request an additional $20,000 contingency budget to cover some level of estimating inaccuracy and to account for activities that are clearly in scope but that you may have missed in the original estimate. Any money remaining in the contingency budget is returned to the client at the end of the project.
Some projects require that the project manager take this contingency even further. On some projects, you must actually plan for what the contingency resources look like and how you will get them when needed. You need to have a strategy for having reserve resources available when needed. These could be labor or nonlabor resources, such as hardware, equipment, or supplies.
There will be times when you need to plan ahead for reserve resources. These instances fall into the following categories.
In a typical project, if you find that the work is taking longer than you anticipated, you would ask for additional time and a budget increase. However, if the deadline date is critical and cannot be moved, you may not have time to look for new resources when you first realize you need them. You may need to have ready-made plans for where they are and how to acquire them.
For example, let’s look at the Y2K projects of a few years ago. If you were entering the final six months of 1999 and had a lot of work remaining, chances are you would have had a game plan for completing the project on time, plus a plan for acquiring additional people if necessary. Having internal employees identified and in reserve would allow you to move quickly if you determined that more resources were necessary.
High incremental cost of obtaining resources
You may have resources that are less expensive when purchased in bulk but costly when purchased incrementally. For example, if the solution you are building requires new hardware, you may find that the price per unit is lower when you purchase more units. Let’s say that you estimate you will need 100 units. Depending on your estimating uncertainty, you may choose to purchase 110 instead and have 10 units in reserve. You would do this because the price to purchase the extra 10 units now (as part of the bulk order) is much less than having to purchase 10 units later, when the incremental cost would be much higher.
Long lead times for specialty resources
Sometimes there is a long lead time to acquire hard-to-find specialty resources. You may need to have them in reserve in case you require them later. For example, you may work with consulting firms ahead of time to find specialty resources, such as experts in some obscure tool, with the understanding that the requirement is not 100 percent certain. The firms can work ahead of time to locate these people and try to have someone available on short notice in case you need them later on the project.
Creating a reserve plan as part of a risk plan
Use the following steps to identify the need for reserves and have them ready when needed:
- Recognize the need. The first critical step is simply to understand that you have a need for reserves to begin with. If you do not recognize that you are in this situation until the need arises, it will already be too late to react. The need for reserve resources will typically come out as part of your risk management strategy. You may have identified a certain project risk and determined that the way to mitigate the risk was to have certain resources in reserve.
- Determine the costs and benefits. There is obviously a benefit to having potentially necessary resources in reserve. There is usually a cost as well. For sure there is the project management time required to put together and execute the risk plan. However, many times there are also additional project costs as well. Let’s look at the three examples:
- In the Y2K example, there may not have been an incremental cost associated with identifying additional resources if they were internal to the company. The cost would have been incurred only if the resources were needed.
- In the second example, you purchase 10 extra hardware units and have them in reserve. Those additional 10 units increase the cost to the project. If you end up needing the units, there is no additional cost. (In fact, you probably will have saved some money.) However, if you don’t need them all, the remaining units may be unused and would be an extra cost that the project would not have had to spend otherwise.
- In the third example, you ask consulting firms to look for a specialty resource. You would typically not have an incremental cost up front, unless you paid a consulting firm to have people available and in reserve. However, if you ended up needing an additional resource, the billing rate will probably be higher to reflect the additional work that the consulting firm invested.
- Gain approval. The risk, cost, and benefit information should be taken to the project sponsor for approval. You want to be sure that the sponsor agrees that your reserve plan is rigorous enough to reduce the risk to the project. You also want to make sure that the sponsor is aware of any incremental costs to the project and will approve those costs if the reserve resources need to be acquired.
- Manage the risk plan. The activities associated with the risk plan need to be moved to the work plan and managed proactively. The project manager should also reevaluate the risks on a scheduled basis, probably monthly or at the end of major milestones, to ensure that the reserves are still necessary and provide proper risk protection to the project.
On most projects, if you find that you need more resources, you talk to your sponsor and revise the budget and schedule if necessary. However, on some projects, you do not have the luxury of additional time. In those cases, the project manager must identify where the project may be at risk and have a plan in place to make sure resources are in reserve if needed. Sometimes you actually need to have the resources physically available. Other times, you just need to know that you could acquire them on short notice if necessary. The need for project reserves would typically be identified and managed through the risk management process, with reserve resources being a response to a specifically identified project risk.