& '
Contingency Reserve VS
Management Reserve
pmveditor
February 5, 2019
)
Sharing this is easy:
! LinkedIn " Facebook 0
# Twitter $ Email
! ! ! ! ! 5 (4)
There can be no project that is immune to
risks. There is no question that whether a
project faces risks or not, it is only about
how risks are managed as they occur. Proper
risk management is the responsibility of
every Project Manager. There are two types
of risks, 1) Known Risks and 2) Unknown
Risks
Risks. They are also called Identified Risks
and Unidentified risks.
Check Risk management basics to have a
more clear understanding of the basics and
familiarity with Risk terminology.
As part of Risk Management, Reserves are
created in every project to accommodate
risks. Now, What is a Reserve ?
What is a Reserve ?
PMBOK defines a Reserve as a provision in
the project management plan to mitigate
cost and/or schedule risk. So, one has to
understand that, there will be different
reserves for Schedule and Cost i.e.. Schedule
Reserve and Cost reserve.
During the initial phases of a project, an
Initial Reserve is created with whatever the
limited amount of information is available.
Later, after risks are identified and risk
responses are planned, a Revised Reserve
is created.
2 Types of Reserves
Based on the type of risks that a reserve
intends to accommodate or manage, there
are two types of reserves
1. Contingency Reserve or Buffer Reserve
2. Management Reserve
Contingency Reserve or
Buffer Reserve
Contingency Reserve is used to manage
Known-UnKnowns (known= identified,
Unknowns=risks) or Identified risks
that have active risk response
strategies available
available.
PMBOK defines Contingency Reserve as
Time or Money allocated in the schedule
or cost baseline for known risks with
active response strategies.
Contingency reserves are part of
Performance Measurement Baseline
( PMB
PMB)). Here it is important to
understand that, Contingency Reserves
for Schedule risks are part of Schedule
Baseline, while Contingency Reserves for
Cost risks are part of Cost Baseline.
Contingency Reserves are not fixed
randomly
randomly. These reserves are properly
calculated with various techniques
such as Decision Tree analysis, Monte
Carlo simulation, Expected Monetary
value (EMV).
Project Manager has full authority
over the contingency reserves, however,
he can delegate this power to the risk
owner if he wishes.
Contingency reserves can be allocated
at the Activity level.
Management Reserve
Management reserves are used to
manage Unknown-Unknowns
(Unknown=Unidentified,
Unknowns=risks) or Unidentified
Risks ( Active risk response
strategies are not available for this
type of risks.
risks.))
PMBOK defines a Management reserve
as an amount of project budget or
project schedule held outside the
Performance Measurement Baseline
(PMB) for management control
purposes, that is reserved for
unforeseen work that is with in the
scope of the project.
Management reserves are not part of
the Performance Measurement
Baseline.
These reserves are not estimated
using a technique
technique, but are allocated
based on organizational norms.
Management reserves are under the
control of the higher management
management,
and project manager do not have
authority on these reserves. Use of
these reserves, cannot be done at
Project managers discretion. A formal
request should be raised and it should
be approved for using these reserve.
Management Reserves are allocated at
the Project level only.
Some related aspects
Contingency reserve = sum of all activity
contingency reserves
Work Package Cost Estimates = sum of all
activity cost estimates
Cost Baseline = Contingency Reserve +
Work Package Cost Estimates
Project Budget = Cost Baseline +
Management Reserve.
It is important to understand the
relationship between Estimating and Risk
Management. Estimating and Risk
management are interlinked. While proper
estimating will help identify more risks,
proper risk management will reduce the
range of schedule and cost estimates by
making them more accurate.
How useful was
this post?
Please rate it, We value your opinion.
!!!!!
Sharing this is easy:
! LinkedIn " Facebook 0
# Twitter $ Email
$ Categories: Uncategorized
% Tagged: Cost Management, PMP, Risk
Management, Schedule Management
) *
(
Related Articles (
Risk Management Terms –
Attitude, Appetite,
Tolerance, Threshold, Averse
pmveditor
February 20, 2019
RECENT POSTS
KANBAN – Method, Principles, practices
SCRUM – Theory, Team roles, Events, Artifacts
Agile & Agile Methodologies (Agile Umbrella)
Waterfall vs Agile Comparison
Agile Manifesto – 4 Core Values & 12 Principles
RECENT COMMENTS
pmveditor on How to become a PMP – STEP
BY STEP Guide
Jason Kyle on How to become a PMP – STEP
BY STEP Guide
Michele J on KANBAN – Method, Principles,
practices
Tony Sobbers on KANBAN – Method,
Principles, practices
ARCHIVES
December 2019
April 2019
March 2019
February 2019
January 2019
SUBSCRIBE TO PM VIDYA
Name*
Email*
Subscribe
CCS Candy Estimating
Software
Win More Tenders, Faster
Developed Using Best Practice, By Industry
Experts. Designed To Think Like An Estimator.
[Link]
OPEN
© 2019 - PM Vidya
!"#
