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Topics: Risk Management
3 related questions
Network:38



1- As we know the contingency reserve may only be used to handle the impact of the specific risk it was set aside for, so if a risk is identified analyzed, actively accepted and a contingency reserve assigned for it . If the risk happened, the impact will be more than contingency reserve that I set aside (because the reserve is only a percentage of it), how I can fund the remaining percentage?

2- If an identified risk have passed and have not happened, what I should do with its contingency reserve fund?

3- If I’m in the middle of the project, and new risk have been identified for which I need contingency reserve, how I can fund it? in other word Can I add to cost baseline?
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Network:872



Ahmed -

1 - two choices: if other negative risks which could have been realized by this time haven't been realized and are unlikely to be realized and you haven't returned the contingency reserves for them, you could use that to offset the higher cost of the realized risk. If that isn't an option, you would be seeking approval to dip into management reserve OR would look at a change request to approve using remaining project budget to cover the offset in which case you might need to reduce scope or take some other type of action which will require official approval through your change control process.

2 - depends on your organization's policies and your sponsor's views. In some companies, that amount has to be returned to the funding body. In others, it remains with the project manager to cover realized risks with higher than expected cost impacts or even realized risks which were not identified. Finally (and possibly worst choice) is the sponsor views it as his/her "slush fund" to fund scope increases...

3 - Two words if you will do this: change control. Other than that, you are looking at using management reserves or getting into a negative cost variance...

Kiron
...
1 reply by Ahmed Sherif
Apr 05, 2018 6:47 AM
Ahmed Sherif
...
thank you so much.
Network:38



Apr 04, 2018 1:55 PM
Replying to Kiron Bondale
...
Ahmed -

1 - two choices: if other negative risks which could have been realized by this time haven't been realized and are unlikely to be realized and you haven't returned the contingency reserves for them, you could use that to offset the higher cost of the realized risk. If that isn't an option, you would be seeking approval to dip into management reserve OR would look at a change request to approve using remaining project budget to cover the offset in which case you might need to reduce scope or take some other type of action which will require official approval through your change control process.

2 - depends on your organization's policies and your sponsor's views. In some companies, that amount has to be returned to the funding body. In others, it remains with the project manager to cover realized risks with higher than expected cost impacts or even realized risks which were not identified. Finally (and possibly worst choice) is the sponsor views it as his/her "slush fund" to fund scope increases...

3 - Two words if you will do this: change control. Other than that, you are looking at using management reserves or getting into a negative cost variance...

Kiron
thank you so much.
Network:1594



You are accountable for project costs not for project finance. So, you have to inform project costs to your finance people and they will work with you to decide what to do (returning the money not expended, keep the money or get more money). What you must not do is not publish the situation without the agreed time to do that.

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