Romi DhillonLondon, United Kingdom, United Kingdom
Hi,
Had a general question. I have been given the info below. I am wondering if the risk budget is a separate pot of money which is separate to the budgeted amount of 500k (at the beginning of the project) or whether it is included in the BAC. I am inclined to think that it is a separate pot of money.
• Contract value: £1M
• Contract Acceptance Costs:
o Risk budget: £85K
o Baseline EAC: £500K
• Current Costs:
o Risk budget: £85K
o Current EAC: £700K
o Actuals to date: £400K Saving Changes...
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Mario CoquillatProject, Program and Portfolio consultant, mentor and trainer| CoquillatPMSan Pedro Del Pinatar, Murcia, Spain
Based on PMI standard if we´re talking about a risk budget outside the baseline, it´s about the management reserve, which is not managed by project manager, but the upper management.
If we´re talking about a risk budget inside the baseline, it´s about the contingency reserve which is assigned to known risks and is managed by project manager. Saving Changes...
As Mario has indicated it would be good to understand what that risk budget is supposed to be used for. If it is for known-unknowns, then you'd want to understand whether it was based on a quantification of identified risks or just taken as a percentage of overall costs and whether it is within your control as the PM which would meet PMI's definition of contingency reserves.
Kiron Saving Changes...
Henry HattenrathProject Consultant| Tectonic Engineering MSA LLCNew York, Ny, United States
Romi - As noted by Kiron and Mario more information is needed to help provide the best feedback. In my opinion, the risk budget is a project level allocation that may or may not include funds to mitigate or respond to risks identified for the contract execution. Unless you are the contractor's Project Manager, most Project - Project Managers are not usually fortunate to manage a project with a single contract.
On the other hand, the risk budget should not be confused with a contingency fund that makes up the budget for the contracted amount. Saving Changes...
Senior Projects Manager | Field & Marten AssociatesNew Westminster, British Columbia, Canada
Romi - I agree with my colleagues here. In a nutshell, there are two categories:
1- Risk of Knows Unknows which is called Contengency Reserve and is part of your Cost Baseline and is built into your schedule and cost.
2- Risk if Unknown Unknowns which is called a Management Reserve and is part of your funding but not part of your Cost Baseline (It is a percentage established by higher management and the PM does not have authority to spend this amount without prior approval).
Hope this helps. Saving Changes...
Karthik RamamurthyAuthor, Say YES to Project Success| Founder KeyResultzChennai, Tamilnadu, Tamilnadu, India
Romi: Thanks for posting a very interesting question!
Mario, Kiron, Henry, and Rami have already posted some very interesting views. I agree with them that more info is needed and that "unknown unknowns" are managed with "management reserves" which are not under the control of the project manager.
I'f like to post another interesting perspective with respect to "contingency reserves" for "known unknowns" which PMs have control over. I've used this with great success in several projects.
* Sponsors are generally reluctant to allot large amounts of contingency reserves.
* While contingency reserves are usually allotted for specific risks, inexperienced PMs may use them for other tasks, therefore reducing stakeholder confidence.
* In these situations, using the "Escrow" concept can be very effective. Contingency reserves are allotted, but not released to a PM unless very specific, previously documented condiions are met
* This approach helps break out of the vicious cycle of distrust over usage of contingency reserves. Saving Changes...
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