A contingency plan in project management is a defined, actionable plan that is to be enacted if an identified risk becomes a reality. It is essentially a “Plan B”, to be put in place when things go differently than expected. The main output of contingency planning are contingency reserves and management reserves,
Contingency is allocated to cover the known-unknowns and is defined as, items, conditions, or events for which the state, occurrence and/or effect is uncertain but is likely to result in additional costs. This excludes major scope changes, extraordinary events, management reserves, and escalation.
Management reserves as an added fund to the estimate to allow “discretionary management purposes outside of the defined scope of the project” . Therefore, management reserve is only controllable by the project manager when approved by upper management and contingency reserve is within the project manager’s control. Management reserves on the other hand is allocated for the unknown-unknowns and is usually determined by the organization while contingency can be determined using different methods like;