Contingency Plan vs Fallback Plan

contingency-plan-vs-fallback-plan

Today we are going to discuss the contingency plan and the fallback plan. This topic is very important from a PMP and PMI-RMP exam point of view. You may see a few questions testing your knowledge on this topic.

So understand this topic well.

Contingency and fallback plans are developed to manage identified risks. Since both plans are used to manage risks, you may wonder which plan you will use if any risk occurs.

A risk can be one of two types: identified risk, unidentified risk. Identified risks can be further divided into many categories, such as: primary risk, secondary risk, residual risk, etc. Now you may think that if any of these risks occur, which plan will you use to contain the risk?

This complicates the situation.

You have two kinds of reserves to manage the reserve: contingency reserve and management reserve. Now the question comes to mind which reserve will you use to implement the contingency plan and fallback plan?

This again complicates the situation.

So to find the answers to these questions, I did some research and went through many resources, and finally came to an understanding.

Today I am going to share that understanding with you, and I hope that it will help you understand the topic well.

Okay let’s get started.

Contingency Plan

Merriam-Webster defines the term “contingency” as “an event that may but is not certain to occur”.

This means a contingency is an event that may or may not occur. Therefore, you can say that the contingency plan is a plan that deals with events that may or may not occur.

In project management, a contingency plan is a part of the project management plan and it describes every action that you will take if the risk is about to happen or has happened.

Please note: this plan is developed to manage identified risks.

Let’s see a real world example of a contingency plan.

A real world example

You are working on a construction project and there is a risk that rain may fall during your project execution, which will damage your consumables lying out in the open.

Therefore, you make a plan that says if there is an indication of rain fall, all consumables will be covered with a plastic sheet. You further add that after the rain stops, you will bring a blower/vacuum pump to clean and dry the wet consumables.

This is the contingency plan for this risk event.

On the Internet, you will find the many definitions of contingency plan which may appear different to you, but they may be individually correct and represent the definition. During my research I found two such definitions on some forums where people were arguing about the authenticity of these definitions.

Therefore, I am giving you these two definitions so that you can have a look at them and understand the different wordings of the definition of Contingency Plan.

  • Contingency plans are the plans describing the specific actions that will be taken if an opportunity or a threat occurs.
  • Contingency response strategy will be executed if there is a sufficient warning sign (risk trigger).

In fact, if you examine these definitions, you will find that these are not different than what I have told you, just phrased differently.

Fallback Plan

Fallback plan is implemented when the contingency plan fails or is not fully effective. In other words, you can say that the fallback plan is generally made for residual risks. It is a backup plan for the contingency plan.

The fallback plan is also a part of the project management plan and defines the cases where actions have to be taken.

Let’s see a real world example.

A real world example

Let’s reconsider the above given example once again.

Suppose the rain continued to fall for a very long time, longer than you anticipated, which causes the consumables to be not usable any more.

In this case, you will implement your fallback plan which you already had planned. Your fallback plan says that if the rain continues to fall for a very long time, causing consumables to be damaged, you will reorder consumables from a pre-identified supplier, and start the work.

Before I go any further, let me share with you another example from my own experience.

For my blog, I always keep an updated copy of all posts and comments on my computer, so in case my blog gets hacked, I can restore my blog from this backup.

Now suppose what would happen if my site got hacked, and at the same time my computer also crashed; how would I restore my blog?

This is where my fallback plan comes into play. To save myself from such disaster, I always send updated copies of my blog posts and comments to two separate email accounts from different email providers.

Now, if my blog is hacked and even my computer crashes, I can restore my blog from my backup saved in my email accounts.

So, no worries at all.

The difference between Contingency Plan and Fallback Plan

There is no difference between the contingency plan and fallback plan. In fact, the fallback plan compliments the contingency plan and it comes into play when the contingency plan fails.

Similarities between Contingency Plan and Fallback Plan

There are many similarities between these two plans, such as:

  • Both are used to manage identified risks.
  • To manage the contingency plan and fallback plan, a contingency reserve is used.

Summary

Contingency and fallback plans are the backbones of your risk management plan which help you manage the identified risks. If any identified risk occurs you will implement the contingency plan; however, if the contingency plan seems to be ineffective or has failed, you will implement the fallback plan.

Please note that to implement these plans, you will utilize the contingency reserve and not the management reserve, because the contingency reserve is used to manage identified risks. The management reserve is used to manage unidentified risks.

Here the discussion about the contingency plan and fallback plan comes to an end.

I believe that now you understand these terms; however, if you still have some doubts, write in the comment box. I am ready to discuss.

Comments

  1. RKS says

    After reading this article bit confused between Risk response and Contingency plan. Both look same to me now, but is it really same or any difference? Please let me know if contingency plan is more or less same as RIsk response.

    Kindly clarify.

    • says

      Contingency Plan is a Risk Response Plan. When a Risk occurs, you'll implement the contingencyplan.And if the contingency plan fails, you'll implement the Fallback Plan. Fallback Plan is also a risk response plan but it is implemented when contingency plan fails.Contingency and Fallback Plans – both are the risk response plan.Hope it clears your doubt.Sent from my iPhone

    • Sumeet Gupta says

      If I may add my two cents to the discussion, contingency reserve is ‘money’ while contingency plan is, well, a plan. Contingency reserve is the amount calculated, typically using a Decision Tree or EMV calculations. As a part of estimating costs, we estimate all the activities and add up their individual costs. In parallel, we also calculate the amount we will need to cover all the identified risks, in case they occur. This amount is the contingency amount, which is at the PM’s discretion. The activities’ total cost and the contingency amount is added up and forms the project’s cost baseline.

      The contingency plan is simply the plan that will be followed if and when an identified risk occurs. It is the series of steps that need to be taken and is documented in the Risk Management Plan. To sum up, if and when an identified risk occurs:-

      #1 We need to follow the steps as defined in the risk’s contingency plan
      #2 We need to use the contingency reserve to tackle this risk monetarily

      • prashant gandhi says

        Contigency Reserve can be any resources that are kept aside for responding to Identified Risks and when the risk response is triggered. It can be utilized in the form of Time, Money, Human and non human resources as well as Scope.

        We tend to imagine that Money is the only element of the reserves, and most times that is logical but not the entire element of the list.

        Scope reduction is not a viable solutions in many cases, but when everything is tight (Time, Money, Resources are down to 0 and management reserves cant be touched), I have seen situations where compromising on Scope reduction of course via change request is the only possibility left because compromising on quality is most times un acceptable. This is why I have included scope in the list. Thanks.

        Prashant-

        • Fahad Usmani says

          You are right Prashant, a reserve is reserve, it might be time, cost, material or anything else.

          Regarding Scope Reserve, can you explain it a bit more?

          • prashant gandhi says

            First of all my apologies for late response.

            There is no such thing that I am aware of as “Scope reserve”, although Scope is a dimension (much like Cost, Schedule, Quality etc) that can undergo compromise while utilizing Contingency Reserve and Management Reserve. This is very rare though.

            When we say in real world that we are invoking set aside Contingency Reserve (for known risks/unknowns) usually we have set aside either Time (crashing/fast tracking etc options), or we have set aside $$ (without padding). Most times Quality is not compromised;

            So in broader sense saying something like “we will provide the product on time, without budget but it will not be a quality product, so expect issues” is not an acceptable approach for several reasons. Clients dont want to hear that they are getting something below grade. Also, the cost of support may go un acceptably high if the quality is compromised.

            Now, what if you do not have time, and money and quality cannot be compromised and still the delivery is required? That is when de-scoping comes into rescue. Fortunately, most projects come up with few “must haves”, few “should haves”, few “could haves” and few “good to haves”. The initial budget is calculated considering all of the above. However, when you approach the above scenario, the de-scoping starts from reducing to eliminating “good to haves” and move back wards. Obviously this requires:
            1. Change Request
            2. Client Consensus
            3. Viability

            Viability plays important role in this. What if a good to have feature does not fall under critical path, does not cost much and yet is to be done by a resource that would not be utilized in either crashing or fast tracking project? In that event, though you might have Client Consensus for removing that good to have feature and Change Request can be approved, it offers negligible benefit at the end making the de-scoping effort less productive.

            Having said this, de-scoping is not a widely favored approach – but it does exist and this offers some times valuable leeway for making your time, cost, quality and Risk intact.

            Hope this helps. Good discussion here!

            • prashant gandhi says

              So in broader sense saying something like “we will provide the product on time, ***within*** budget but it will not be a quality product, so expect issues” is not an acceptable approach for several reasons. Clients dont want to hear that they are getting something below grade. Also, the cost of support may go un acceptably high if the quality is compromised.

              • prashant gandhi says

                You are welcome Fahad. I have a quick question. Do we need to open a Change Request if we want to invoke the Contigency Reserve? (I know we need it for Management Reserve).

                Also, If we need to implement the work around because something unforeseen occurred and we did not have any response strategy against it – OR – our plan B failed as well – do we need to invoke the CR? I think answer to this is “yes”, but need to confirm. What are your thoughts in these 2 scenarios? Thanks.

                • Fahad Usmani says

                  In first case, you will not raise the change request. You are going to use the contingency reserve, and no change request is required for it as there is no change in any baselines, scope or project plan.

                  In second case, ideally if any unforeseen incident occurs, you should use the management reserve.

  2. salam says

    1.Project risk has its origins in the uncertainty present in all projects.

    2.Known risks are those that have been identified and analyzed, making it possible to plan responses for those risks.

    3.Specific unknown risks cannot be managed proactively, which suggests that the project team should create a contingency plan.

    4. A project risk that has occurred can also be considered an issue

    Dear Fahad,

    The above given are the four sentences of the last paragraph of page 275 PMBOK. I have a great confusion on the sentence #3. Does it state that coningency plan for unknown risk?

    Please clarify

    • Fahad Usmani says

      As per my understanding, these are the risks for which it is difficult to draw a contingency plan. In other words you can say that there is very little or no information available about them.

  3. Anant says

    Please refer to PMBOK 4 page 275 and 305,
    Known risks are those risks which have been identified and analysed and making it possible to plan response for those risks (Question what is that response called?)
    Specific unknown risks can not be managed proactively and hence the project team should create a “contingency plan”.
    11.5.2.3 Gives some what more information but still rferes to “some risks”. (PMBOK 5 is little more clear but still).
    My understanding is contingency reserves (cost/time) are provided to meet known unknown risks. Contingency Plans are executed using those contingency reserves to tackle known unknown risks They become known when they occur. Question> does it refer to the “Specific Unknown risks” mentioned at item 11.5.2
    Fallback is back up plan for Contingency plan but it is a well planned activity not a an adhoc plan
    Workaround is an ad hoc response when unknown unknown occurs and I suppose Management reserves should be used to cater to them.
    Is my understanding correct?

    • Fahad Usmani says

      As per my understanding, answers to your questions are as follows:

      “Question what is that response called?”

      You may call them contingency response.

      “does it refer to the “Specific Unknown risks” mentioned at item 11.5.2″

      Specific unknown, it mean you are talking about known unknown.

      For the rest, you are right and management reserve should be used for workaround.

  4. mahdi says

    1- “The most common active acceptance strategy is to establish a contingency reserve, including amounts of time, money, or resources to handle the risks.”PMBOK
    So can we say when PM is setting aside some money , time or resources as contingency reserve he/she is using Accept strategy?

    2-I saw in the “Deep Dive into Project Risk Management” _ an e-book on PMI webpage_ : “There can be two kinds of reserves for time and costs: contingency reserves and management reserves. Contingency reserves are kept for the unknown and are a perfect fit for risks.”
    Is the second sentence wrong?

    • Fahad Usmani says

      Both statements are correct.

      Contingency reserve is used of known risks (known-unknown), and management reserve is used for unknown risks (unknown-unknown).

      Accept is a risk response strategy which you used for known risks.

  5. mahdi says

    I think so, so when we use two terms of “known” or “Unknown” together, the second one means “risk”. So unknown-unknown= unknown risk and known-unknown=known risk.

    I am in doubt about dept meaning of accept strategy. I feel some books don’t agree with me!
    For example what do you think about this?

    ” Your team has identified a risk with some of the chemicals you are using on your highway construction project. It is really difficult to mix them just right and, based on past projects, you’ve figured out that there’s a high probability that about 14% of the chemical supply will be lost in mixing problems. You decide to buy an extra 15% of the chemicals up front so that you will be prepared for those losses and your project won’t be delayed. Which response strategy are you using?
    1-Avoid
    2-Accept
    3-Mitigate
    4-Transfer
    “( Head-First_PMP.2009)

    • Fahad Usmani says

      You are right that second terms mean the risk.

      Now come to your question:

      In your plan since you are acknowledging the risk, and making the plan to buy an extra 15% of chemical to mitigate the risk, hence it is neither a Avoid strategy or a Transfer Strategy.

      It can not be an Accept strategy because you have made a plan to deal it.

      So as per me the best answer would be ‘Mitigate’.

  6. mahdi says

    But I dont agree with you. We are reading in the PMBOK about Accept strategy: “This strategy can be either passive or active. Passive acceptance requires no action except to document the strategy, leaving the project team to deal with the risks as they occur. The most common active acceptance strategy is to establish a contingency reserve, including amounts of time, money, or resources to handle the risks.”

    So, Please put “chemical” in the situation of question in the place of “resource” in the above paragraph. The project manager buys 15% extra resource to handle the risk. He wants to have it as a reserve and IF some chemical were lost this 15? will be used. It is a proactive acceptance.
    In this meaning that you said all strategies except passive accept will be “mitigate” because they are decreasing potential negative impact or probability of risk.
    do you agree?

    • Fahad Usmani says

      In accept strategy (active) you don’t do anything to reduce the probability of risks. You don’t take any action unless the risk occurs, though you assign a contingency resource for it.

      You deal with it if it occurs.

      While in mitigation, you try to reduce the probability of happening of risks.

  7. Dugardeshi says

    There are some low priority risks which are pushed into risk register as watchlist. when these risks occur what reserve will be used ? contingency or management reserve?

    • Fahad Usmani says

      As per the PMBOK 5th edition page: 332,

      “Threats found in low-risk zone may not require proactive management action beyond being placed in the risk register as a part of watch list or adding a contingency reserve”.

      In your risk management/response plan, you have to decide that how you are going to manage the low priority risks. If you don’t keep contingency reserve, you will have to use the management reserve.

  8. Shoeb R Khan says

    Hi Fahad,
    You do the 3 point estimate (for Time and Cost) based on risk available in project charter and doing so you may uncover some additional risks.
    These risk along with the ones identified during project initiation are dealt with risk management.
    During risk management you prepare risk response but, some residual risk remains even after risk response planning.
    Now my question is, we keep contingency reserve to “cover cost for risk response that we created” or for the “residual risk remaining that remains after risk response planning” or for both.

    Regards,
    Shoeb.

    • Fahad Usmani says

      You will analyse the residual risk. If it requires further planning, you will go for it, other wise just keep in watch list for future monitoring.

  9. Staneja says

    Do i need to issue a change request to utilise Contingency reseres?

    Do i need to issue a change request after utilising the contingency reserves to reflect the update to the cost baseline?

    Do i need to issue a change request to implement contingency plan?

  10. Staneja says

    Hello,

    PMBOK says contingency plan and fallback plan are same

    11.5.2.3 contingent response Strategies
    Some responses are designed for use only if certain events occur. For some risks, it is appropriate for the project team to make a response plan that will only be executed under certain predefined conditions, if it is believed that there will be sufficient warning to implement the plan. Events that trigger the contingency response, such as missing intermediate milestones or gaining higher priority with a supplier, should be defined and tracked. Risk responses identified using this technique are often called contingency plans or fallback plans and include identified triggering events that set the plans in effect.

    • Fahad Usmani says

      Fallback plan is developed for residual risks.

      The PMBOK Guide, fifth edition: 11.5.2

      A fallback can developed for implementation if the selected strategy turns out not to be fully effective or if an accepted risk occurs.

  11. Imad Alsaeedi says

    Hi Fahad,
    You mentioed above that :

    In project management, a contingency plan is a part of the project management plan and it describes every action that you will take if the risk is about to happen or has happened.

    My question please : is a contingency plan is a part of the project management plan ????
    Thanks,
    Imad

    • Fahad Usmani says

      Contingency plan is used to manage identified risks, and workaround is a response to an unidentified risk when it occurs.

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