Contingency Reserves
Contingency reserves are budget amounts allocated within the cost baseline to address identified risks that have been accepted and for which contingent or mitigating responses have been developed.
Explanation
Contingency reserves are funds set aside to handle identified risks, also referred to as "known unknowns." These reserves are included in the cost baseline and are under the control of the project manager. They represent an estimated amount needed to address specific risks if they occur.
Contingency reserves can be estimated using various methods, including a percentage of the estimated activity cost, a fixed amount, or through quantitative analysis techniques. As the project progresses and identified risks either occur or are retired, the contingency reserves are adjusted accordingly.
The project manager has the authority to use contingency reserves without requiring a change request because they are part of the cost baseline. However, the project manager must document the use of these reserves and report on the remaining balance. This is different from management reserves, which require a change request for use.
Key Points
- •Allocated for identified risks (known unknowns)
- •Included within the cost baseline
- •Managed by the project manager without change requests
- •Adjusted as risks are resolved or retired throughout the project
Exam Tip
Contingency reserves are part of the cost baseline and are controlled by the project manager. They address known unknowns. No change request is needed to use them.
Frequently Asked Questions
Related Topics
Management Reserves
Management reserves are budget amounts set aside for unforeseen work within the scope of the project, intended to address unknown risks that cannot be predicted during planning.
Reserve Analysis
Reserve analysis is a technique used to determine the amount of contingency and management reserves needed for a project to account for cost uncertainty and risk.
Cost Baseline
The cost baseline is the approved version of the time-phased project budget, excluding management reserves, used as a reference for measuring and monitoring cost performance.
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Part of
Cost Management
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