The image on p255 of the PMBOK Guide, Sixth Edition clearly shows that management reserves are over and above your BAC which would imply that it is not included in PV calculations.
That also aligns with practice as management reserves are usually not in the control of the PM (and sometimes not even the sponsor) to spend.
Kiron Saving Changes...
Thomas GilpinProject Manager| WVU School of Public HealthMorgantown, Wv, United States
Kiron - Thanks! Since posting, i have found that exact content, as well as further confirmation in the PMI EVM Standard. Saving Changes...
Marek RudnickiPMO, Program Management, Project Management, Business Development| FreelancerPoland
If You mean workload and cost I always advocate not to include reserve into the original calculation and make it separate and transparent to the organization how it is handled.
Most organizations, I worked, support this view.
I am talking from the PMO/Portfolio "seat" now.
The real reason is if you have reserve included you will consume it. Mostly unnoticeable.
If the reserve is outside, your tracking can alert you earlier to any coming deficiencies.
You also have a chance to think about how to mitigate issues before you reach for reserve.
Then if nothing works you ask the organization for a reserve.
But the homework is done.
This is probably not a very popular approach among PMs. :) Saving Changes...
I am in complete agreement with Marek's comment that, "if you have reserve included you will consume it."
Feeling a bit philosophic this evening so I'll add to that a little regarding the EVM concept. Planned Value is exactly that: How much you expected to spend (planned tasks) to meet a customer's expectations (value). Contingency reserve is for what you didn't plan to spend. This is the unexpected work that is "non-value added", otherwise known as known-unknows.
People sometimes take offense at the term "non-value added" thinking it means someone's job is not worthwhile. It really it means "Would the customer pay more for this task?" Is quality control worthless? Of course not, but the customer expects a working product and not, "The base price is $$$ but if you want it to function there will be additional costs." In that sense, quality control is non-value added.
It is very common during the initial estimation phase that you don't know everything. In many domains, like if you are modifying a used product, you know with near certainty that you will find problems (known unknowns), and you build that knowledge into your plan. If you have the historical data, accounting for some level of known-unknows is a great use of analogous or parametric estimates . It's not contingency because you plan to do the work, even if the specific tasks are still TBD.
Management reserve is for when the TBD work, turns out to be more than normal. These are the unknown unknowns. This could be a systemic problem like your new virtual office network is overloaded and everything is taking longer than before, or emergent issues like your hardware is stuck on a container ship wedged in the Suez canal. Getting the boat unstuck is non-value added, but you can't deliver the product without it happening. Saving Changes...
Senior Projects Manager | Field & Marten AssociatesNew Westminster, British Columbia, Canada
I totally agree with Kiron. Management reserve is not only outside if your budgeted cost but it’s also not under the control of the project manager. Saving Changes...
The cost baseline BAC obtained from planned values, includes only contingency reserves, and are funds that the Project Manager has the authorization to manage and control.
Contingency reserves are used to mitigate cost impacts of "know unknowns" (risks remaining during planning risk responses).
For other part, management reserves are additional funds that are separated to cover "unknown unknowns" (unforeseen risks of the project). So, these type of reserves can't be part of the planned values.
The total budget will be the planned Cost Baseline BAC plus the management reserves, and is the quantity of money the Company must have available for the project. Saving Changes...
Mark WarnerProject Manager| AURATucson, Az, United States
I agree. Contingency is typically included in the TPC (but not the BAC). Management Reserves are held outside of your project, often by the funding agency, sponsor, or upper management. We're currently in the process of requesting management reserve from our funding agency to cover the costs of COVID on our project over the past year. COVID was an "unknown unknown" when it hit, and, hence, is not a target for conventional project contingency. Saving Changes...
Peter RapinSubject Matter Expect; Project Delivery| Independent ConsultantOntario, Canada
There are various "add-ons" to a cost and time budget that should be recognized and defined in the project charter.
1) estimating accuracy is usually defined as a plus/minus of project costs. As an example, a Class A estimate is typically expressed as +/- aa%. This value is normally within the PM authority.
2) Risk allowance is usually defined as the possible cost of known risks as calculated during the risk analysis process. This can be a detailed quantification of cost or presented as a percentage, +/- bb%. This should also be PM authority.
3) Management reserve - I see this as the difference between the value of the project deliverable to the end user and the estimated cost to deliver. Basically expenditure of the reserve eats into the return-on-investment (ROI). As an example, the project will reduce our costs by $xxx over ten years less the cost of the project of $yyy equals our ROI. If the projects costs $yyy plus $zzz then our ROI will be reduced accordingly. At some point the ROI becomes 0 or less. This 'reserve' is normally with senior management authority. Saving Changes...
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