Before approving the budget it is necessary to be sure to include the additional costs that may arise due to any unforeseen circumstances.Incidental expenses are additional funds that provide the ability to perform a variety of tasks, which can cost more than planned or even be unplanned.For example, unforeseen costs arise if costs were estimated too low, if the delivery costs outweigh the potential, if the task takes more time.
Also under contingencies understand the costs that are not directly associated with the production and sale of goods, including including penalties, fines, penalties for violation of the rules of traffic, failure to comply with obligations to supply, production of low-quality goods, compensation for damages suffered by consumers of defective products, late payment of deliveries and so on.
Payment unforeseen costs
Provision of funds for unforeseen expenses is a way to deal with the risks include the assessment of the relationship between the potential risk of affecting the final cost of the project and the amount of expenditures that are necessary to overcome potential disruptionsproject.The main problem in the creation of the reserve is a correct assessment of the potential impact of risks.
Unforeseen costs can be calculated in several ways.For example, one method is to assume that the costs have been included in the budget of the enterprise, they are the most likely.Then, a mechanical method of calculating unforeseen costs for each task.It uses a simple formula: 1 - (best cost / max cost) x optimal costs.Adjusted value of unexpected expenses is obtained taking into account the estimated costs and the most probable cost.This value is equal to the difference between the economic cost and maximum cost in the worst-case scenario.
big difference between the economic cost and maximum cost in the worst-case scenario entails the greatest contingencies.On the contrary, if the difference between these values is negligible, while unforeseen expenses will be less.
main problem when using this method of calculation is that it is dependent on the use of evaluation of optimum costs.In fact, the use of this valuation is appropriate only when it is based on the most likely near-optimal or best option.
Often, project managers use indices in the worst case if they find that the tasks associated with high risk.Then the unexpected expenses should be calculated by other methods.
alternative calculation method by which we can estimate other costs, including contingencies, is the addition of the reserve in excess of 10 percent of the budget required for the project.
After the project, for which a reserve has been allocated, you can compare actual and planned distribution costs.Based on the data, you can identify trends in the use of the allocated amount.The unused portion can again return to the reserve for other projects.It is important that all sections of the use of the reserve should be recorded, as well as to prepare periodic reports about them and reports together with the other information on the cost of the project.
