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contingency budget (cost contingency)

Contributor(s): Ivy Wigmore

Contingency budget, in the context of project management, is an amount of money that is included to cover potential events that are not specifically accounted for in a cost estimate. The purpose is to compensate for the uncertainty inherent in cost and time estimates, as well as unpredictable risk exposure

A contingency is something that may or may not occur but that must be dealt with if it does. The word contingency implies that the potential of an event is foreseeable. In business, contingency plans are drawn up to specify foreseeable potential events, the actions to be taken to address them and the resources that will be required to do that, including money.

Events that are known possibilities are sometimes referred to as known unknowns. Additional funding may be included in contingency for unforeseeable events, which are sometimes referred to as unknown unknowns.

The amount allotted for contingency and details of what it is intended to cover may be laid out in documents shared with the clients or may be only specified within the project management organization. In some cases, contingency is not specified but is ensured through mechanisms like adding to the number of days allotted for a segment of the project, in which case it is sometimes referred to as padding. 

This was last updated in March 2019

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