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How to handle risk reserve

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Bala S Duvvuri Project Manager| Shell Bangalore, 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?

Thanks
bala
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Tim PM Project Manager| NHS Yes, United Kingdom
Do people practice reducing the value of this reserve over the project duration? After all, it's unlikely that the day before go live you would have a 10% spend suddenly appear.
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1 reply by Vincent Guerard
Apr 09, 2016 7:04 PM
Vincent Guerard
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Hi Tim,

It all depend on the type of project you doing, For a construction project you can face a fire or a flood hours before the transfer could be a big part of your risk reserve.

During all the duration of the project the risk should be reevaluated in the risk register and reserve adjusted accordingly
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Stéphane Parent Self Employed / Semi-retired| Leader Maker Prince Edward Island, Canada
What I do is show a percentage of the reserve as "earned". That way I can build it into my earned value.
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Andreas Madjari Senior Consultant| consigma Management Beratung GmbH Vienna, Austria
Tim, in many cases it happens that the "unknown unknowns" also eat up on your risk reserve. Some risks were not anticipated or are detected later in the process. As they may also need mitigation measures, the risk reserve needs to reflect this as well.
In an ideal world, the amount decreases significantly towards the end of the project. In many cases though the reserve is used up due to unforeseen risk events, still preventing an ugly budget overrun and being used according to its intention.
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Tim PM Project Manager| NHS Yes, United Kingdom
Thanks Andreas, yes indeed it is often used up by then. I've also often encountered the problem that it has not been possible to spend it- where a supplier could not be engaged in time for a particular mitigation approach. Sometimes things just have to be de-scoped. Also of course there are also times that other projects need some of your project's risk reserve, when it is of most importance to the programme...
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Vincent Guerard Coach - Trainer - Speaker - Advisor| Freelance Mont-Royal, Quebec, Canada
Dec 15, 2015 8:59 AM
Replying to Tim PM
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Do people practice reducing the value of this reserve over the project duration? After all, it's unlikely that the day before go live you would have a 10% spend suddenly appear.
Hi Tim,

It all depend on the type of project you doing, For a construction project you can face a fire or a flood hours before the transfer could be a big part of your risk reserve.

During all the duration of the project the risk should be reevaluated in the risk register and reserve adjusted accordingly
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Ricku Panthi PM Consultant| Perennial Systems Pune, Maharashtra, India
Risk reserve (Contingency Risk Reserve) mostly is around 10% of the project cost.

Risk Spending can be tracked as and when the risks for which there is Risk Reserve occurs.

The level at which the stakeholders should be informed about the utilization of Risk Reserve should be discussed and agreed upon during the Plan Risk Management phase.
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Visswanathan KKN Senior Project Manager Hyderabad, India
The risk reserve varies depending on type of project and organizations maturity for handling those projects. If it is an R & D project or the organization has no previous experience in executing that kind of project, then the reserve size may be more when compared with projects the organization routinely executes.

Normally the project and finance contingencies are derived based on initial analysis of requirements during the bid stage. The management contingency is normally taken as a % of project value and it can be 5% or more depending on number of factors mentioned above.
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