Is there an standard to cathegorize the release of risk contingency/provision.
If I am at the end of a project, shall I consider my remaining risk contingency and provision as a potential opportunity (pick up)?
It looks like double dipping, while it is discussed and agreed to release by project sponsors I would have the contingency/provision + the opportunity in my books.
Shall the release be done directly without considering it an opportunity?
Is there any best practice documented somewhere? Saving Changes...
Risk contingency (some call it buffer which is not the correct term) is there in case the risk occurs, and only if the risk occurs. If the project ends, and the risk hasn't occurred, that contingency (if monetary) must be given back. It effectively means you are under budget. If there is leftover contingency, then just like a project that is under budget, the funds will be returned to the sponsor, customer, supplier or back into the business, depending how the project/contract is setup. Saving Changes...
Mansoor MustafaSenior PM| Government DepartmentRawalpindi Punjab, Pakistan
Agree with Sante Risk contingency not utilize or left after completion of project returned to sponsor, customer, supplier or back to the business Saving Changes...
Assume a turn-key project with fix price: being under budget means an improvement of profits.
Shall I create an opportunity in my registry to indicate that project will probably end up under budget? Saving Changes...
If it's a fixed price project with no incentive tied to coming in under budget, then not having to spend all your contingency reserves is definitely an opportunity-type risk event. But for cost reimbursable or internal project, I would echo Sante and Mansoor's guidance that the remaining unused reserves should be returned and not used as a "slush fund" to invisibly fund scope increases.
Kiron Saving Changes...
Anonymous
Is there a standard?
No. These types of situations are a function of the organizational policies and guidelines.
Is this an opportunity?
I do not think so, an opportunity has to be identified in advance and is specific. However, you can call it as you wish.
What this is, it seems like the project will complete below budget (why - could be over-estimating or good management :) )
What to do with it?
Go party :). No --- NO
You will report it once you know about it and cannot technically use it for anything except return to funder Saving Changes...
What is the agreement/contract the Project PM has with the organization and the organization with the client.
In my experience for fixed prices project, the unused risk contingency would be free when the project complete, increasing profit.
In some contract you may have special conditions to keep, split, give back…
In internal project it is just return to the corporate or contracting department.
You need to look at it from a larger perspective. Most projects should be complete with a remaining risk contingency others might not. At the portfolio or corporate level it is part of a larger envelope of risk reserve. Saving Changes...
Thank you very much all for the time you take to read my question and the time you invested written your answers.
Let me develop a little further, so I can give a context.
Let's assume a typical project: $1M, to be deployed in 1 year, external, fixed price, with a 3% risk provision built in the budget ($30K)
Month 11: everything good, smooth, in time, in budget (good management? good luck? risk provision overestimated?).
So I have to write my almost last internal monthly report. 2 possibilties:
A) I write a note as part of my risk log, suggesting that risk provision can be released as a margin pick up (profits) as project is almost done and there is no forecast to use any of the risk provision budget. To be discussed internally and authorized by senior management.
B) I write a note as part of my opportunity log, suggesting that risk provision can be released as a margin pick up (profits) as project is almost done and there is no forecast to use any of the risk provision budget. To be discussed internally and authorized by senior management.
Almost the same. But I have the gut feeling that option B is wrong as, from a high high point of view, in those excel sheets where petty details are forfeited for the sake of looking from a larger perspective, my project will appear with 30K in risk provision + 15K in opportunity.
Also, it looks like to me a little bit like "double dipping": yes, each risk may have the implicit opportunity that risk will not eventuate, but I will not write an opportunity in my registry for every risk in the log.
I've been looking for guidance or direction. But PMBOK focuses on worst case scenario, when you have real risks and they eventuated, or when you have "real" opportunities independent from risks. There is not really a lot of guidance in regards of risk provision release, or opportunities linked to risk not eventuating.
Any thoughts? how are you managing this circunstance in your projects? Saving Changes...
Anonymous
Dec 03, 2017 9:33 PM
Replying to Eusebio Salgado Benitez
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Thank you very much all for the time you take to read my question and the time you invested written your answers.
Let me develop a little further, so I can give a context.
Let's assume a typical project: $1M, to be deployed in 1 year, external, fixed price, with a 3% risk provision built in the budget ($30K)
Month 11: everything good, smooth, in time, in budget (good management? good luck? risk provision overestimated?).
So I have to write my almost last internal monthly report. 2 possibilties:
A) I write a note as part of my risk log, suggesting that risk provision can be released as a margin pick up (profits) as project is almost done and there is no forecast to use any of the risk provision budget. To be discussed internally and authorized by senior management.
B) I write a note as part of my opportunity log, suggesting that risk provision can be released as a margin pick up (profits) as project is almost done and there is no forecast to use any of the risk provision budget. To be discussed internally and authorized by senior management.
Almost the same. But I have the gut feeling that option B is wrong as, from a high high point of view, in those excel sheets where petty details are forfeited for the sake of looking from a larger perspective, my project will appear with 30K in risk provision + 15K in opportunity.
Also, it looks like to me a little bit like "double dipping": yes, each risk may have the implicit opportunity that risk will not eventuate, but I will not write an opportunity in my registry for every risk in the log.
I've been looking for guidance or direction. But PMBOK focuses on worst case scenario, when you have real risks and they eventuated, or when you have "real" opportunities independent from risks. There is not really a lot of guidance in regards of risk provision release, or opportunities linked to risk not eventuating.
Any thoughts? how are you managing this circunstance in your projects?
Eusebio, thank you for the context - this help
Here are my comments:
The challenge in selecting A or B is still with us. What are the organizational policies? They will dictate.
Assuming no policies, you are in the 11th month of a 12th-month project - what to return at this time? Probably the paperwork and time needed to reduced your funding amount is a hassle not worth it, if we weigh in that you are only 1 month away from completion and the amount is only 30,000. So, I will report the potential under-run.
I said potential - since unless you are done and the product is accepted you do not know if Murphy will still visit and you might need that money or some of it.
So report it
However, the scenario you raise shows a fundamental issue with the PM System or how to forecast the project. Following your context - this potential saving is not discovered until the end? I am not saying this is not possible but is unusual.
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1 reply by Eusebio Salgado Benitez
Dec 04, 2017 4:37 PM
Eusebio Salgado Benitez
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No policies, I clearly understand I have to report it. Not sure where. I think I understand from all responses that there is not a "consensus on best practice". So I think I will be the brave one raising the issue and trying to homogeneize the response in our BU so everybody is on the same page.
To your question. No, it is usually discovered and monitored much sooner. I've seen projects where the warranty budget is "taken" on monthly basis if not used, others on quarterly basis if not used, others are left until the end, but closely monitored... I guess it depends on the risks
Thanks very much everyone for your responses. I think I have my answer.
No policies, I clearly understand I have to report it. Not sure where. I think I understand from all responses that there is not a "consensus on best practice". So I think I will be the brave one raising the issue and trying to homogeneize the response in our BU so everybody is on the same page.
To your question. No, it is usually discovered and monitored much sooner. I've seen projects where the warranty budget is "taken" on monthly basis if not used, others on quarterly basis if not used, others are left until the end, but closely monitored... I guess it depends on the risks
Thanks very much everyone for your responses. I think I have my answer. Saving Changes...
