Mr. SachlaniProject Management & PMO Consultant| IndependentJakarta, Indonesia
I made aware for this change when preparing PMP Exam Preparation training material last year. I sent an email to PMI standard department for clarification but have no luck. So I bring this concern to this forum.
What I refering is the definition of Project Budget and Cost Baseline in PMBOK 7th Edition, on Section 2 page 63, Figure 2-18. Budget Build Up depicts that Cost Baseline. The picture depicted that Contingency Reserve is not part of Cost Baseline and Management Reserve excluded from Project Budget.
You may compare with Figure 7-8 Project Budget Components from PMBOK 6th Edition for comparison.
The glossary Contingency Reserve defines in page 237 still the same, “Time or money allocated in the schedule or cost baseline for known risks with active response strategies.” By this definition Cost Baseline should include Contingency Reserve.
I also find an inconsistency with PMI new published standard Process Groups: A Practice Guide that published after PMBOK 7th Edition. On page 219 Figure 9-2. Cost Baseline, Expenditure and Funding Requirements , the standard still using the same picture with the previous PMBOK, where the Management Reserve includes in Project Budget.
Any clarification is appreciated since we should confirmed which definition should we teach to CAPM or PMP aspirants.
Senior Projects Manager | Field & Marten AssociatesNew Westminster, British Columbia, Canada
Oct 25, 2023 1:16 PM
Replying to Josh Parrott
...
Mr. Sachlani, our apologies for not receiving a response when reaching out to the Standards Department. As a Product Manager with PMI in our Publications division, your inquiry was shared with me and I wanted to follow up here on this thread. I have been in touch with the development team from the PMBOK Guide Seventh Edition and received the following explanation regarding the coverage of Cost Baseline, Project Budget and Contingency Reserve, please see directly below.
The team charged with updating the 6th Edition to the 7th Edition was charged with moving away from a waterfall approach that was the predominant approach in previous editions. Rather, they were asked to present information in a way that could apply to projects that use a waterfall, hybrid or Agile approach.
The terms you see in the 6th Edition, such as “Activity Cost Estimates”, “Activity Contingency Reserves”, "Work Package Cost Estimates”, and “Control Accounts” are usually reserved for very large projects, especially those that use earned value management.
The 7th Edition team, in an effort to present the budget build up in a way that is more reflective of all projects, combined the information for activity costs, work package costs, and control accounts into the term “work”. Work cost estimates can happen at any level, activities, work packages or control accounts. Another way of visualizing this is:
Work Cost Estimates
Total of all Work Cost Estimates = Cost Baseline
Cost Baseline + Contingency Reserve = Project Budget
Project Budget + Management Reserve = Total funding needed for the project.
You will find that the glossary terms are in alignment with this explanation.
Also, regarding the PMP exam. It is important to note that the exam is not based on any single publication. Please direct your studies to learn the concepts presented in the Exam Content Outline. PMI also publishes a suggested reference list for content to use as part of your studies. Note that the PMBOK Guide Seventh Edition is now listed as one of several publications that can be used.
Thomas WalentaGlobal Project Economy ExpertHackenheim, Germany
Oct 25, 2023 1:16 PM
Replying to Josh Parrott
...
Mr. Sachlani, our apologies for not receiving a response when reaching out to the Standards Department. As a Product Manager with PMI in our Publications division, your inquiry was shared with me and I wanted to follow up here on this thread. I have been in touch with the development team from the PMBOK Guide Seventh Edition and received the following explanation regarding the coverage of Cost Baseline, Project Budget and Contingency Reserve, please see directly below.
The team charged with updating the 6th Edition to the 7th Edition was charged with moving away from a waterfall approach that was the predominant approach in previous editions. Rather, they were asked to present information in a way that could apply to projects that use a waterfall, hybrid or Agile approach.
The terms you see in the 6th Edition, such as “Activity Cost Estimates”, “Activity Contingency Reserves”, "Work Package Cost Estimates”, and “Control Accounts” are usually reserved for very large projects, especially those that use earned value management.
The 7th Edition team, in an effort to present the budget build up in a way that is more reflective of all projects, combined the information for activity costs, work package costs, and control accounts into the term “work”. Work cost estimates can happen at any level, activities, work packages or control accounts. Another way of visualizing this is:
Work Cost Estimates
Total of all Work Cost Estimates = Cost Baseline
Cost Baseline + Contingency Reserve = Project Budget
Project Budget + Management Reserve = Total funding needed for the project.
You will find that the glossary terms are in alignment with this explanation.
Also, regarding the PMP exam. It is important to note that the exam is not based on any single publication. Please direct your studies to learn the concepts presented in the Exam Content Outline. PMI also publishes a suggested reference list for content to use as part of your studies. Note that the PMBOK Guide Seventh Edition is now listed as one of several publications that can be used.
Hi
I think there is no contradictions between two versions 6th & 7th, the figure 2-18 in PMPBOK 7 is not indicating that the contingency reserve is not a part of cost baseline, note in this figure 2-18 the same visualisation for (project budget and management reserve) while project budget contains management reserve and note different colors for both rectangulars (cost baseline & contingency reserve) and the same for (project budget and management reserve) Saving Changes...
The Explanation is ok, but not entirely convincent!
Lets look at another important term to really understand once for all this cost topic presented in the 7th edition- the PV (planned value).
Question 1: does the PV includes the Contigency reserves ?
Question 2: What baseline should be used to control the costs/schedule of the project?
option 1: the baseline with the contingency reserve or
option 2: a baseline without the contingency reserve?
thank you
MN Saving Changes...
Michael BrowningDirector, Cybersecurity| Vanderbilt UniversityNashville, United States
Thank you, this was a very interesting read! Saving Changes...
Ramdayal Andrew writes, The cost baseline represents the project cost, which
includes the contingency reserves. The project
budget is the cost baseline + management reserves.
Somewhat different definition, than delivered by Josh Parrott
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