Project controls - contingency and tolerances

The practice of adding contingency funds onto a project costing has often made clients sceptical. You only have to recognise that the term slush fund is used negatively and that they make the correlation between contingency and slush fund more often than not. If this attitude is present then it undermines the level of trust between you - not good for projects.

Prince2 project management practices ditched the contingency fund concept in its revision in 2009 replacing it with risk fund. They see the fund as linked to unforeseen project risks.

Max Wideman (in Comparing Prince2 and PMBOK)gave a good explanation of the difference between contingency, tolerance and change control in 2003 that can stand today, although remember contingency would be changed to risk fund.

In the context of control, PRINCE2 establishes a good distinction between "tolerance", "contingency" and "change control". Tolerance is the permissible deviation from plan allowed to the project manager without having to bring the deviation to the attention of the project board.

Contingency, in PRINCE2 terms, is a plan including the time and money set aside to carry out the plan, which will only be invoked if a linked risk actually occurs.

Change control is a procedure designed to ensure that the processing of all project issues is controlled, including submission, analysis and decision making.

Remember, we liked the tolerance concept as clients were predisposed to think of this positively. Effectively if you agree with your stakeholders that you have room to manoeuvre within say 10% of time and budget, then you won't have to keep pestering them with small things that impact every project. However, Prince reworked their tolerance concept in the 2009 revamp of project management practices to apply to time and cost, as before, but these are now extended to scope, quality, risk and benefits tolerances.

Elizabeth Harrin's pages are well worth a look as she explains tolerance in detail and defines all of the extensions from the latest version of Prince2 methodology.

• April 2010 Project Financial Management: Tolerance
• January 2010 Inside Prince2: Tolerances

Often the difference in perception between positive and negative comes down to the words used – food for thought!