Bala S DuvvuriProject Manager| ShellBangalore, Karnataka, India
Hi All,
Based on your experiences can you please share
1.How much % of the total project budget, say $2M, will you allocate for risk reserve.
2.What are the different ways to arrive at the quantitative analysis of the risk reserve to be used for example decision tree analysis etc.
3.How do you track how much you are spending from that risk spending
4.At what level do we need to alert different stakeholders that we are using risk reserve?
Hi Bala, Please find in below reply for above Q..?
1. To know How much or % of risk reserve; you should prepared a contingency plan and fallback plan then discuss the contingency reserve and management reserve.
Cost Risk Reserve= Contingency reserve + Management reserve
To calculate a Contingency reserve, it is an estimated reserve based on various risk management techniques, such as Expected Monetary Value (EMV) or Decision Tree Method.
For Management reserve, some organizations it is 5% of the total cost or time of the project, and for others it is 10%. Usually the management reserve is guessed based on the overall uncertainty of the project.
2. There are different ways to perform a quantitative analysis process; Like, Data gathering and representation techniques, Sensitivity analysis, Expected Monetary Value analysis, Decision tree analysis, and Modeling and simulation.
3.You can by tracking through cost baseline (s-curve); A project manager must regularly compare the amount of money spent with the budgeted amount and report this information to managers and stakeholders.
4.This is upon cost threshold in project management plan; Variance thresholds vary from company to company and are based on risk strategies and the management reserves an organization uses, which are typically 10 to 15 percent. Thresholds can also vary from project to project depending on how critical the business objectives are.
Here are some common threshold percentages you can use as a guidelines:
* Less than 5%: Cost variances are an early warning for potential problems.
* 5 - 10%: This range requires that you to take action.
* Greater than 10%: Requires immediate and substantial action/reporting. Saving Changes...
Your contingency reserve should be based on what your risk management plan contains in terms of mitigation. Saving Changes...
fosco frongiaSenior project manager| ENTE PATRIMONIALE CHIESA GESU' CRISTO SUGFino Mornasco, Como, Italy
I agree with Stephane, the contingency should be based in your risk management plan. it is needed that this one must be realistic and really based on the typology of the project and market Saving Changes...
Senior Projects Manager | Field & Marten AssociatesNew Westminster, British Columbia, Canada
I totally agree with Stephane as well - Your contingency reserve differs depending on geographical location, market, weather, policies so it all depends on your Risk Management Plan and how well it is prepared. Saving Changes...
Andreas MadjariSenior Consultant| consigma Management Beratung GmbHVienna, Austria
I fully agree with Stephane. Your risk reserve is determined based on your risk register. The PMBOK is as usual a very helpful resource here. Chapter 11, Project Risk Management, will guide you through the processes. After identifying and analyzing your risks, you will plan your risk responses. They mainly determine your impact on schedule and budget.
Not always is money the only key to your risk responses. Sometimes a risk can be mitigated at low or no extra cost by adapting your schedule.
I clearly relate the risk reserve to the risk register. If a risk becomes obsolete and did not occur, I can remove the related amount from the EAC, thus gradually lowering the risk reserve as the project progresses and uncertainty decreases.
As Fouad pointed out, in addition you will build a management reserve into your project budget. This would be based on the degree of uncertainty in your estimations. Saving Changes...
Andreas MadjariSenior Consultant| consigma Management Beratung GmbHVienna, Austria
--- deleted double post --- sorry. Saving Changes...
Agree with most of the above. Your Risk Management Plan has likelihood of occurrence and impact if it occurs. Those Risk Response factors should be used by the PM to discuss with the Project Sponsor, PMO, Steering Committee, and/or Stakeholders (as appropriate) to determine the contingency for each risk. Saving Changes...
Risk management plan should tell how the risks of the project will be managed. Refer to practice standard for risk management from PMI.
practice standard lists the various tasks you will perform such as identify risks, develop risk register, perform qualitative risk analysis, perform quantitative analysis (when needed) monitor and control risks.
The above are to be done throughout the project. Once you do the qualitative risk analysis, you should be able assign a value for those prioritized risks and when added up this should provide the contingency.
Generally risk can be assigned to an event/task and the cost can be assigned for this task. If the risk occurs, then you will spend the money towards mitigating this realized risk and you can track how much one is spending towards the risk mitigation during the monitor and control of risk.
When the risk is realized, it becomes an issue. Depending on the severity of impact, you can decide to inform the different stakeholders and also about the consumption of risk reserve, if they want to know more detail. Saving Changes...
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