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Topics: Cost Management, Risk Management
Contingency reserves allocation & return
Most project managers will add some contingency reserves to their budgets to offset the negative financial impacts of realized risks. But how those reserves are allocated and returned varies between practitioners.

Allocation could be as a single lump sum/line item in the budget (e.g. not time sequenced) or defined for each key milestone or phase in the project (e.g. time sequenced).

Contingency amounts might also be given back to funding authorities over the life of the project as the risks they relate to expire or they might be preserved till the very end of the project.

I've got a poll running for one week to understand how contingency reserves were handled on your last project.

Please take a minute to complete it here, and feel free to add a comment if one of the four choices doesn't fit your situation: https://www.projectmanagement.com/polls/78...handle-continge

Thanks!

Kiron
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Poll completed!
Dear Kiron
Is two days enough time to gather a lot of opinions?
Luis -

Where do you see two days? As far as I know, there is no expiry date on polls in this community, and the LinkedIn one I created is one week (similar to the others) and has six days left.

Kiron
...
1 reply by Luis Branco
May 29, 2022 4:22 AM
Luis Branco
...
Dear Kiron
Normally you publish your articles on Sunday, that is, May 29
The date you posted this question was on May 27
I just asked based on this reasoning.
Correct me if I'm wrong.
Done. I chose the first option because it is closest to what we do but we allocate a lump sum amount for each budget item (Cost Code) in the overall budget.
Kiron

I chose single lumpsum (option 1) but it may be revised over the course of the project (e.g. at stagegates).

Given that we are dealing with risks and probabilities, lumpsum gives you the best benefits from the law of great numbers.

Thomas
May 28, 2022 5:07 PM
Replying to Kiron Bondale
...
Luis -

Where do you see two days? As far as I know, there is no expiry date on polls in this community, and the LinkedIn one I created is one week (similar to the others) and has six days left.

Kiron
Dear Kiron
Normally you publish your articles on Sunday, that is, May 29
The date you posted this question was on May 27
I just asked based on this reasoning.
Correct me if I'm wrong.
...
1 reply by Kiron Bondale
May 29, 2022 8:47 AM
Kiron Bondale
...
Now I see where you got the two days, Luis. Don't worry - the poll I post one week is the basis for my article at the end of the next week...

Kiron
May 29, 2022 4:22 AM
Replying to Luis Branco
...
Dear Kiron
Normally you publish your articles on Sunday, that is, May 29
The date you posted this question was on May 27
I just asked based on this reasoning.
Correct me if I'm wrong.
Now I see where you got the two days, Luis. Don't worry - the poll I post one week is the basis for my article at the end of the next week...

Kiron
Contingency reserve should be calculated from your risk contingency actions. (The contingency actions are only invoked when the risk is triggered. Hence, why the reserve is kept separate.)

The problem, of course, is that it is easier to align the contingency reserves witth the risks, rather than the deliverables. (Many risks affect more than one deliverable.)
Same here Kiron, most of the time its option 1 and if not then 3, which is slightly rare.

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