Question

What are Contingency and Management Reserves?

Answer 1

answer-

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As we all know that a project always have chances of risks or events that could be know or unknown which could affect cost, schedule and overall project success. So there are two types of reserves used to manage such risk.

Contingency reserve is money or finance allocated to project budget to deal with risks that are known to project manager. In situation, where project manager has idea or prediction that certain event will cause risk to project then this budget is used to bring back project on track. The risks in such reserve are called Known unknown as risk that have unknown nature but known to management that would happen.

for example- A company has gotten project to area where weather conditions like rain fall, snow are high likely so company's management know such risk and have a contingency reserve for such known risk.

The method that are used in calculating Contingency reserve are Expected Monetary Value (EMV) or Decision Tree technique. This budget is added to cost baseline like Cost Baseline = Project Cost Estimate + Contingency Reserve

Management reserve is money or finance allocated to project budget for risks that are not known to management and project manager.Events that are uncertain and have no knowledge about.This is why risks in this reserve are known as "Unknown unknown". These risks are not shown in risk register of a project.

Management reserve requires approval of top/senior management as it not calculated reserve also not included in cost baseline of project.This reserve is rare and very less used as management tend to lower cost and want to project in or under budget. This also takes time to get approvale on each and every step from senior management.

This reserve is calculated as percentage of the cost or duration of the project.

NOte- hope these ideas and views will help you in your question home work. Please please give this an UPVOTE if it helped you. it helps me too. i appreciate it. THANKYOU..