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Topics: Construction, Estimating, Organizational Project Management, Risk Management
Do distinguish contingency reserve and risk reserve in your project?
I have seen various approaching estimating project some due to to the project field, some due to client request. One thing I have seen is to keep two reserves, one link to contingencies and the other associated to risk. Yes there is management reserve, but that was not the point of the question.

So do you keep those separate or merge them, don't estimate both, or other?
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Both of the reserves are estimates and they are both related to risk:

Contingency Reserve: The cost of the Known-Unknowns Risks.
Management Reserve: The cost of the Unknown-Unknowns Risks.

It is not a keen idea to merge both for several reasons of which two of them are:

1- Management reserve does not form part of the budget but it is only part of the financing requirements. Contingency is part of the budget.

2- PM has control over Contingency Reserve but in case of Management Reserve, he has to take approval from higher management.

Hope this helps.
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1 reply by Vincent Guerard
Apr 09, 2016 10:12 AM
Vincent Guerard
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Agree the Management reserve is something else.

I have seem place where a clear distinction is made between contingency and risk reserve.

Simply asking if you've seen that, and if you seen any benefit in one or the other.
Anonymous
I understand that in addition to Management Reserve - you see two different Contingency Reserve ... one as a general allowance and one specific to risks.

I have not seen this practice but why not - I know, as Rami said, they all link back to risk directly or indirectly. But from the question, I am assuming that some organization might do a risk assessment and include risk contingency for that (the identified and assessed risks) ---- and --- they include another allowance for "others" which indirectly is un-identified risks.

If the project include the use of new technology - we used to include another contingency allowance (we called technology allowance) for that portion of the project that is using the new tech.
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1 reply by Vincent Guerard
Apr 09, 2016 10:14 AM
Vincent Guerard
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Thanks Mounir,

Is the technologie reserve not a risk reserve? I would have put it there with other risks.
I ever estimate both. And I ever keep both separate just for take a clear look about what is each thing in my project. BUT, to be honest, the way I will publish them is a matter of organizational culture. Please, do not understand I am hidding something, I am saying that to publish I take a closer look to my stakeholders and the organizational culture. And to be clear: for me, client is the next in the process I follow.
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1 reply by Vincent Guerard
Apr 09, 2016 10:17 AM
Vincent Guerard
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Thank you Sergio,

That sound just like one way I have seen it. Estimate them separately and keep both budget on different lines. Then use one or the other according to the source of usage.

Regards,
Contingency reserve is used to manage identified risks or “known-unknown” (known=identified, unknown=risks).
Contingency reserve is kind of estimated reserve that is often allocated for time or cost.

Management reserve is used to manage the unidentified risks or “unknown-unknown” (unknown=unidentified, unknown=risks).
Management reserve is a random reserve; it is a random figure, which is defined according to the organization’s policy.

Organization may decide to keep the Management Reserve at the program level.

But for important public project both should be taken care of.
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1 reply by Vincent Guerard
Apr 09, 2016 10:28 AM
Vincent Guerard
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Hi Raj,

I've seen different way of doing in practice. Risk is an uncertainty that if it occur will impact the project, it comprise a serie Known-UnKnown and should have one UnKnown-UnKnown.

What I have seen is a contingency that is pin to some level of estimation uncertainty, where the budget is manage at a more local level.
Risk contingency was manage at the PM level.
And Management Reserve, that is often linked to UnKnown-UnKnown is manage at an Enterprise level, part of it could be at the Program level.

Regards,
I like the explanation of Ramit. I also ever do like Sergio: estimate both, keep both seperate, and public it in the suitable way with organizational culture.
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2 replies by Rami Kaibni and Vincent Guerard
Apr 07, 2016 10:26 AM
Rami Kaibni
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Thank you Hau
Apr 09, 2016 10:29 AM
Vincent Guerard
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Thank for your input Hau
Contingency plan with it is estimate remedy cost for sure should be kept in mind among stakeholder; however the controversial issues will start evolving from the identification of risks, estimates of its severity and the appropriate measure that should be taken.

So refining the associated factors in my consideration will lead to the formulation of the agreed proper cost estimate (irrespective of having one or two costs estimates) reflecting the influence of the more dominant individuals and factors.
Thank you very mucj Heu.
You should have both. There are several arguments for:
a) contigence reserves related to risks: if anything goes wrong, you are ready to react because you thought about it previously and saved time or money, so your stakeholders will be glad to see that you solved it easily.
b) management reserves related to everything: when you couldn't be able to see threats in advance - because nobody is perfect - management reserves is there to help your project keeping on rail. When your stakeholder or sponsors ask for changing scope near the end of project, management reserve are there to absorve it.
c) if you identify risks, evaluate them, ask for more time or some money in order to react to risk events (if occurs) and your sponsor doesn't agree with giving you more security, so he is accepting the risk and his management reserve will be used, otherwise the project will fail when facing problems, by lack of money, and you won't be blamed.
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1 reply by Vincent Guerard
Apr 09, 2016 10:42 AM
Vincent Guerard
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Thanks for your input Rogerio,

Yes, close to some way I have seen. Contingency reserve is manage more at a task level, Risk reserve at the PM level, and Management at the corporate or client level.

If no risk reserve is given to the project or PM, one would assume that the client is keeping risk and management reserve on is side and would ask the PM to justify any request.
Apr 07, 2016 2:54 AM
Replying to Hau Doan Huu
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I like the explanation of Ramit. I also ever do like Sergio: estimate both, keep both seperate, and public it in the suitable way with organizational culture.
Thank you Hau
Hi Vincent, your question is about the difference of risk reserves and contingency reserves. It is not about management reserves.

For PMBoK I think risk and contingency reserves make no difference. Contingencies are to cover risks, as a reserve (in money or time) or as a Plan B. There might be other risk responses besides contingencies though (like mitigation, transfer).

If you have seen both in a risk mgmt book or elsewhere, they should have explained the difference too.
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1 reply by Vincent Guerard
Apr 09, 2016 10:46 AM
Vincent Guerard
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Hi Thomas

Yes I was asking about your experience on usage of Contingency and Risk reserve.

One way I have seen is :
- Contingency reserve that is pin to some level of estimation uncertainty, where the budget is manage at a more local/task level.
- Risk reserve was manage at the PM level, and
- Management Reserve, that is often linked to UnKnown-UnKnown is manage at an Enterprise level, part of it could be at the Program level.
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