In the construction industry, it is essential to determine contingencies during the project to actively manage the known and unknown risks that may affect the successful delivery of the project. Contingencies safeguard a project in case certain risks materialize without affecting the overall performance of the project. Therefore contingencies are an essential part of construction project management and risk management.
You can think of contingencies as “a leeway for unplanned situations.” The construction industry is highly unpredictable and demanding. One single slip can lead to project delays and cost overruns. This is where contingencies come into action to act as a buffer against the unplanned. In this article, we have defined the concept of contingencies in the construction industry, its types, and ways to determine them.
What is Contingency in Construction?
According to the Project Management Institute (PMI), “The most common active acceptance strategy is to establish a contingency reserve, including amounts of time, money and resources to handle the threat if it occurs.” Therefore, contingencies are a way to manage risks and uncertain factors associated with a project, thus improving its performance and delivery.
Another word used for contingencies is “buffer” because these can absorb all uncertainties and risks associated with a project. It is a tool that is used to manage uncertainty and risk associated with a construction project.
Types of Contingencies in Construction Projects and How to Determine Them
According to the PMI, contingencies are resources, and different types of resources lead to different types of contingencies. However, the following are some of the most common types of contingencies seen during construction projects:
1. Time and Cost Contingencies
When contractors are negotiating completion dates and costs for projects, they introduce time and cost buffers or reserves by taking into account subcontractors and suppliers. Most of the time, construction project management experts don’t use a formal method for determining time and cost contingencies and establish as much buffer as the project allows.
Large scale projects that last longer have hidden time and cost contingencies that may affect the project completion. These contingencies are subjectively defined for different projects and contexts. To determine these contingencies, managers take into account a set of risk factors that may affect the project completion.
2. Inventory Buffers
Inventory buffers or material stockpile is formed to help in the production of the construction project. Inventory buffers are important, especially where conditions are quite uncertain. However, experts recommend contractors to be very careful when determining inventory buffers and their size. If oversized, these buffers will be wasteful and hinder the performance of the project. The best amount of inventory buffer leads to higher labor performance.
Inventory buffers, including raw materials, are useful for maximizing workflow. Inventory buffers depend upon the quantity required and delivery schedule. Inventory buffers need highly accurate estimates; otherwise, it will lead to material wastage and loss.
3. Capacity Buffers
Most construction project managers use potential work time extensions like overtime and increased resources like labor and equipment as capacity buffers. Capacity buffers are often defined as “additional equipment and craftsmen provided to operation beyond the anticipate need for completion.” Contractors need to define capacity buffers excess volume of resources that they may require before starting the project.
Unlike inventory buffers, capacity buffers don’t go to waste as they offer greater flexibility and better performance. When selecting your subcontractors and suppliers, make sure to ask them if they have the in-excess capacity to meet your project demand. Suppliers and subcontractors determine capacity buffers.
4. Scope and Quality Buffers
Scope and quality buffers a limited as construction companies respect the agreed upon scope and quality specifications for each project. During the bidding, contractors define scope and quality buffers for the project. Most construction companies use scope and quality buffers as a way to optimize the time and cost of the project. These buffers aim at the management of the quality and scope of the project to enhance its performance.
Contractors need to communicate with the client to see if the project requires some technical changes in the scope and then have scope and quality buffers accordingly. But never make changes in the scope and quality of the project without getting the approval of the client. Scope and quality buffers are essential to keep your clients happy and satisfied with the project.
Use Contingencies to Protect Projects
These are some of the common types of contingencies in the construction industry and ways to determine them. Construction companies use contingencies as a buffer to cover risks during the project. When it comes to determining contingencies, it depends upon the type of project and project managers. Contingencies and buffers can be temporal and financial in nature, i.e., it ensures you have additional time, resources, and people available during the difficult phases of the project.
Contingencies can be assigned to individual construction activities or the whole project, depending upon its size and performance. So, don’t forget to use contingencies to protect your projects and deliver them successfully.
