In addition to an organization’s policies, a key determinant in establishing the level of management reserve is the overall uncertainty associated with the project. They can only be released to the project manager when a true unknown unknown risk occurs that is not otherwise mitigated by contract or insurance. They also are not under the project manager’s control, as noted above. While part of the project budget, these reserves are not part of the cost baseline. Management reserves are primarily determined by the organization’s policies. In either instance the financial viability of the project―its return on investment―may be impaired. Similarly, cost growth above certain thresholds may require the owner to seek additional and potentially much more expensive financing. For example, a management reserve for schedule may be associated with a reduced market share for a commercial item. The same concerns about the correlation between cost and schedule apply to management reserves.
Similar to contingency, management reserves should be established for both cost and schedule. Management reserve, in contrast to contingency or contingency reserve, is associated with unidentified risks. In very large programs with multiple contractors and risk tiers, the sharing of risks between various tiers or parties can provide a shared focus on risk mitigation and resolution if the risk manifests. Ownership and control of contingency is often confused with the situation for management reserves, which are not controlled by the project manager.
The project manager, either the owner’s, program manager’s, engineer’s, or contractor’s, may delegate authority for this reserve (or the actual reserve) to the owners of the risk.
Pmp management contingency reserve full#
The project manager has full authority to use the contingency when a previously identified risk occurs. Importantly, it is the project manager who controls the contingency reserves. They are part of the project’s cost budget, and are calculated by any one of a number of different risk assessment techniques or methodologies. This is one example of how cost and schedule are highly correlated.Ĭontingency reserves are not randomly selected. This in turn will likely carry a schedule penalty. Extending the schedule, for example, carries with it additional general conditions costs, as a minimum, as well as cost growth, which may result from more extensive site preparation and conditioning. It is important, however, not to lose sight of the interrelationship between cost and schedule. Separate contingency reserves should be determined for both cost and schedule. Consider also that active risk management strategies are integrated into the project execution plan.
This lack of a consistent understanding and now the confusion expanding to governmental programs has triggered writing this Executive Insight.Ĭontingency or contingency reserves are associated with identified risks: known unknowns. Recently, this same confusion around contingency and management reserves has been seen in one of the largest governmental programs underway. A less than consistent understanding of what each of those terms mean and imply is often apparent. Many senior level discussions for large, longer duration projects concern the appropriate levels of contingency and management reserves.
Contingency reserves are under the control of the project manager or subordinate risk owners.Small and medium sized projects and organizations often combine contingency and management reserves.Contingency and management reserves are established both for cost and schedule.Management reserves are used for unidentified risks (unknown unknowns) and are linked to an organization’s policy and a project’s level of uncertainty, and are often set as a percentage of project cost or duration.Contingency reserves are used to manage identified risks (known unknowns) and are calculated/estimated and linked to specific risks.
Pmp management contingency reserve pdf#
This article was published as a National Academy of Construction Executive Insight and a pdf may be found at:
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