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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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We all agree the management reserve is for the unknown risks. The best we can do with the management reserve is estimate it based on a percentage of uncertainty.

My point about the contingency reserve is to try to keep it as small as possible. It's too easy to say: well I've done my mitigation, I now have a residual risk that is estimated to cost so many euros - I'm done. You have to continue your analysis to reduce the contingency reserve and move as much as possible into the regular project budget.
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2 replies by Rami Kaibni and Vincent Guerard
Apr 10, 2016 11:06 AM
Vincent Guerard
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Thanks Stéphane,
Yes, all cost estimate need to be keep to a minimum, specially true if your making external bid. I agree that all what can be put in the regular budget should be put there. It is often easy to over evaluate contingency and risk, and as easy to cut them for any reason.
In the end they need to be realistic since it will be near to impossible to ask for new budget once bid/contract is sign or internal management has approve a project.
Apr 10, 2016 12:36 PM
Rami Kaibni
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Agree with your point Stephane.
Apr 10, 2016 8:24 AM
Replying to Brian Mukoyi
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Quality contributions. i would keep them separate and note what i have provided for in each. should there be additional risks i should be able to tell if my provision is not adequately covering and now have to look at other items to cover for these risks.
Thanks for your comment.
I prefer to keep thing separated, you can use from the right budget and at the end know what was better estimated and what not.
Apr 10, 2016 2:15 AM
Replying to Rami Kaibni
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Stephane, Ive read once about the TCR and I believe there will be as well COR (Cost of Risk) similar to COQ.

On another point, contingency reserve is usually part of the project budget while the management reserve is not. Usually when I project do estimates, I do contingency reserve for soft and hard cost and they will be part of the budget.
Good point Rami,
Cost of Risk need to be in the budget, similar to other Cost.
In my experience Management reserve is manage at the Corporate/Program level and in most case the PM don't know the amount.
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1 reply by Rami Kaibni
Apr 10, 2016 12:37 PM
Rami Kaibni
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This is true Vincent but in many cases the PM is aware of the management reserve amount. However, he has no control over it and if it will be used, he needs to get approval from higher management.
Apr 10, 2016 10:46 AM
Replying to Stéphane Parent
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We all agree the management reserve is for the unknown risks. The best we can do with the management reserve is estimate it based on a percentage of uncertainty.

My point about the contingency reserve is to try to keep it as small as possible. It's too easy to say: well I've done my mitigation, I now have a residual risk that is estimated to cost so many euros - I'm done. You have to continue your analysis to reduce the contingency reserve and move as much as possible into the regular project budget.
Thanks Stéphane,
Yes, all cost estimate need to be keep to a minimum, specially true if your making external bid. I agree that all what can be put in the regular budget should be put there. It is often easy to over evaluate contingency and risk, and as easy to cut them for any reason.
In the end they need to be realistic since it will be near to impossible to ask for new budget once bid/contract is sign or internal management has approve a project.
Absolument, Vincent.
Apr 10, 2016 10:46 AM
Replying to Stéphane Parent
...
We all agree the management reserve is for the unknown risks. The best we can do with the management reserve is estimate it based on a percentage of uncertainty.

My point about the contingency reserve is to try to keep it as small as possible. It's too easy to say: well I've done my mitigation, I now have a residual risk that is estimated to cost so many euros - I'm done. You have to continue your analysis to reduce the contingency reserve and move as much as possible into the regular project budget.
Agree with your point Stephane.
Apr 10, 2016 10:57 AM
Replying to Vincent Guerard
...
Good point Rami,
Cost of Risk need to be in the budget, similar to other Cost.
In my experience Management reserve is manage at the Corporate/Program level and in most case the PM don't know the amount.
This is true Vincent but in many cases the PM is aware of the management reserve amount. However, he has no control over it and if it will be used, he needs to get approval from higher management.
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