Community Forum – Capital Projects Contingency Funds

How do you handle contingency funds for capital projects?

How does your organization handle contingency funds for capital projects?

Do you have a provision for contingency funds for the projects? Y/N

If yes, do you have a standard process, such as a set amount, a percentage of the total, or other for determining how much per project?

If yes, is there a difference in the standard process depending on the type of capital project, e.g., R&D, Maintenance, Facility Expansion?

– General manager, large consumer products company

Community Responses

Response 1
Greg Wade, Global Chief Supply Chain Officer, Molson Coors Brewing Company
Contingency Capital

We do not have a special fund, contingency is built within the capital request.  As a project goes through a stage gate type process the cost is narrowed down to the point where we normally put a 10% contingency, sometimes a bit less on large projects where the absolute value of the contingency is fairly large.  We use the same approach regardless of the project category as noted in the question above.  Happy to speak directly if it is helpful or connect the engineers to the engineers.

–

Response 2
Having been in charge of the capital projects budgeting process for a 6 business unit corporation, we used a fixed percentage that we had established by looking at a long history of project outcomes. In our case we found that an 8% contingency was sufficient to cover over runs and minor mission creep.

Response 3
We base our contingencies for capital projects on a sliding scale depending on the depth of technical detail that has been imparted to the project.  These guidelines have been amassed over  long periods of time.  Generally, speaking, we use contingencies of ~10% for well defined projects to cover the unexpected circumstances.  Project discipline is required to prevent scope creep and some deterrent must exist to enforce rigor.  

– John Rovison, FMC Corp.