NAV Budgeting: Why Contingency Planning Should Be More Than a Formality

I've seen a few projects where customers said they didn't need a contingency plan, because they decided to adjust the budget as changes occurred.

While this may sound reasonable at first glance, it ignores the fact that there is an important distinction between adjusting the budget based on change requests and consuming the contingency reserve.

Let's start with the project budget. After most planning activities have been completed, after all project activities have been defined and estimated, and after the resources have been assigned to the activities, you create the project budget.

After you define the budget using Microsoft Dynamics NAV, you create the cost baseline. The cost baseline is the approved plan for project costs at any given point in time, and it reflects the how much the project is expected to cost at that specific point.

Baseline is useful when determining the success of a project, because any difference between the actual costs and cost baseline tell you how much above or below budget your project went.

However, a budget is not the Holy Scripture. Once it has been defined, it can easily change.

Let's take a look at a house building project, since it's easy to imagine. You approve the plans, define activities and resources, and establish the budget at $200,000. Then half way into the project your customer changes his or her mind about the house and decides to have two additional balconies. A typical example of a change request. You change the plans, and adjust the project budget by an additional $40,000.

This is an example of re-baselining. After you get a change request, which affects the ...