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.
Explanation
Management reserves are an amount of the project budget withheld for management control purposes. They are reserved for unknown unknowns, which are risks that cannot be anticipated or planned for. These reserves are not included in the cost baseline but are part of the overall project budget.
Because management reserves are outside the cost baseline, using them requires a change request approved by the appropriate level of management. When management reserves are used, the funds are added to the cost baseline, effectively updating it through the integrated change control process.
Management reserves are typically expressed as a percentage of the total project cost, often ranging from 5% to 10% depending on the organization and project uncertainty. They provide a buffer for truly unexpected events that fall within the general scope of the project but were not specifically identified during risk planning.
Key Points
- •Allocated for unknown risks (unknown unknowns)
- •Not included in the cost baseline but part of the project budget
- •Require a change request and management approval to use
- •Typically expressed as a percentage of total project cost
Exam Tip
Management reserves are NOT part of the cost baseline. They require a change request to use. This is the key difference from contingency reserves, which are within the baseline.
Frequently Asked Questions
Related Topics
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.
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.
Project Budget
The project budget is the total authorized funds allocated for the project, composed of the cost baseline plus management reserves.
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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