Managing Contingency in Mastt

Contingency act as a safety net to cover risks that have yet to be defined in a scope. As a result, the way you represent it in Mastt should make it easy to identify:

How much contingency is remaining, and
How much has been drawn down

There isn't one right method to set it up, and Mastt supports a few different approaches, however, we've identified two that work well in practice. The right one ultimately depends on how much detail your stakeholders need and whether contingency needs to be reflected in your Forecast Final Cost (FFC).

Here's what we'd recommend, what each approach gives you, and what to consider before choosing one.

Start with a dedicated contingency budget

Regardless of the approach you take, keeping contingency in its own budget item rather than building it into your contract budgets will allow you track it as one item.

As contingency is a project-level reserve, keeping it separate makes it much easier to see how much of that reserve is available and direct it to the contract items that may eventually need it.

One contingency line is usually enough, however, if needed to you have the ability to split it to distinguish between different reserves or who has authority to draw down from them. For example, you might keep separate Client Contingency and Project Contingency budgets.

The important thing is to decide what works for your project and stay consistent with it.

New to budgets? Start with How to Create Budgets and Sub Budgets.

Option 1 — Contingency with a forecast

Proceeding with this option will allow you to reflect contingency in the Forecast Final Cost, provide a record of each draw-down made, or if you wish for Budget Variance to sit at zero.

With this approach, you create a contingency forecast with the same reserves as the intial starting amount. As contingency is being drawn down on, the current contingency reduces, allowing you to transfer the amount where applicable.

This provide you with two outcomes: the ability to show forecast and accurately reflect how much contingency remains, while budget transfer show where the money has been reallocated.

For example, if initial contingency budget is $200,000 and a variation is approved for a value of $30,000, the remaining contingency becomes $170,000 and $30,000 is then transferred to the relevant contract.

The downside: There are a couple of extra steps each time requiring manual intervention every time the contingency is drawn down on. If you reduce the forecast but don't transfer the funds, the contract can appear overspent while the contingency still appears untouched.

Worth knowing: The initial starting amount remains unchanged while Current Contingency moves, so you retain a record of the original reserve throughout the project.

Option 2 — Contingency without a forecast

Proceeding with this option if your main goal is to understand how much contingency remains and don't require it to be reflected in the FFC or need a detailed draw-down history within Mastt.

Utilising the project-level variance will provide a view of the remaining contingency without the FFC. The contingency budget holds a positive variance, while approved variations will increase the spend against the relevant contract budgets and reduce the overall project variance.

For many, this is the simpler option. It works well when stakeholders mainly want a snapshot of the remaining contingency at a high level rather than a detailed history of each draw-down being made.

The downside: It's high level and only provides information for what of the contingency remains, but not necessarily what was drawn down or when. If you need a history of contingency usage, you'll need to keep that record separately.

Your other project budgets may also need to be fully allocated. If they aren't, the project variance won't represent remaining contingency on its own.

Brief your audience: a large positive Variance at project level can look like an underspend to someone who doesn't know the setup. A simple note in your reporting — “Variance on the project line represents remaining contingency” — can avoid confusion.

One approach we'd steer you away from

You can also post variations directly against the contingency budget and adjust the forecast to match. This can work mathematically and avoids the budget transfer, however, we generally don't recommend it.

It means the same contract can end up being represented across multiple budget lines, which makes reporting harder to understand. The question that usually follows is: “So what is this contract actually worth?”

Keeping contingency separate and transferring the funds when they're drawn down takes a little longer, but it keeps the contract value clear and makes the project easier to understand.

Pick one and stay with it

Both approaches can work. The important thing is not to mix them within the same project.

A project using one method for some draw-downs and another method for others can quickly become difficult to track, particularly when stakeholders are looking at variance or FFC.

If you need a clear history of contingency usage or want contingency reflected in your FFC, Option 1 is the better fit.

If you require a high level overview of what's remaining and don't need a draw-down history within Mastt, Option 2 is the simpler choice.

If you're unsure, we'd generally lean towards Option 2 for its simplicity. If you later find that stakeholders need a proper draw-down history, that's a good indication that Option 1 would be a better fit for future projects. That's why it's also important to discern from the beginning of the project who this information will be presented to and what requirements they may have.

Whichever approach you choose, the main thing is to keep it consistent. A straightforward setup that everyone understands is more useful than a detailed one that nobody can explain.