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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.
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.
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.
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.
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.
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.
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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