Nicholas Nesto PMPProject Manager| Kraft FoodsEast Hanover, Nj, United States
Hello all,
Assuming that contingency reserve is based on the sum of all of your known risks’ expected values; what formula are you using to calculate management reserve (to cover your unknown-unknowns).
Thanks!
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Vladimir LiberzonR&D Director| Spider Project TeamMoscow, Russian Federation
It depends on the project and past experience. It is industry specific and project specific.
Reserves for unknown unknowns are usually called Management Reserves.
We usually calculate them as the percents of project duration and project budget. In typical projects these percents may vary from 3 to 10 percent depending on industry (construction, manufacturing, software development, etc.), for new projects from 5 to 25. Saving Changes...
Hans RobbersSenior Director| SalesforceVlissingen, Netherlands
Nicholas
Do agree with Vladimir. It is also dependent on how thorough you perform the risk analysis and its consequences.
Normally I use 5% for deviations in estimation and an additional percentage dependent on the project environment like, maturity of the stakeholders and the organisation, complexity of the organisation, technology used, number of sub contractors, project duration (if it needs to be fast paced the percentage goes up) etc.
hopes this helps
Hans Saving Changes...
Josh NankivelEngineering Project Manager| AppleSioux Falls, Sd, United States
I plug my 3-point estimates for all tasks into a monte carlo analysis tool I built, 10,000 iterations and plot for a 70% confidence interval. The delta between PERT and the 70% is what I use for management reserve, plus any specific major risks.
This makes for a very convincing story to justify how much management reserve I factor in. There is an artifact the tool produces which documents all of this.
I'm sure there are commercial products that do the same thing, I just built my own.
Management Reserves are kept as funds designated for unknown unknowns across all the projects under individual portfolio. So they are generally not allocated to specific projects, but every organization has some criteria for allocating these funds to individual project, based on many factors, like Organization's risk exposure, past experiences, and inflow demand of management reserves from different projects at a time.
