Purpose
Contingency funds are financial reserves set aside to cover unexpected expenses or risks that arise during a project, business operation, or personal financial planning. They help manage uncertainties without disrupting the overall budget.
Types
- Project Contingency: For unforeseen costs in projects, like scope changes or delays.
- Operational Contingency: For unexpected business expenses, such as equipment failures.
- Personal Contingency: For unexpected personal expenses, such as medical emergencies.
Estimation
Contingency funds are often a percentage of the total budget, typically around 5-10%, or determined through a risk assessment based on the project or situation’s complexity.
Management
Funds are kept in a separate account and reviewed regularly. Accessing them usually requires approval, ensuring they are used for legitimate unforeseen expenses.
Utilization
Funds are tracked and reported to ensure transparency and proper use, helping manage unexpected challenges and keep projects or operations on track.
