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# Project Management Central

 How do you calculate the contingency reserve for positive risks? How do you calculate the contingency reserve for positive risks? Does the contingency reserve for positive risks increase the total contingency reserve of the project or decrease it? Posted: Apr 17, 2018 11:46 PM
I have had precious few positive risks in my projects.

My approach is not to make any changes to the contingency reserve until the risk manifests. At this point, the reserve is reduced by an adequate estimation of the benefit received.
The contigency reserve for positive risks are evaluated & calculated in the same way negative risks are but positive risks contingency decreases the total contigency reserve of the project.
It is tricky. Sometimes it is better to leave it after the fact. Let's say you have 100 negative risks and there combined impact is \$10,000. They range in probability from low to high. Now let's say you have 1 positive risk that a vendor is going to discount their software by \$10,000 sometime during the project and just before it is required, and the probably of that risk is high. Do you start with zero contingency because they cancel eachother out? I would argue that you keep the contingency associated with negative risks, and hold off on deducting the contingency associated with positive risk until it occurs, and even then, reduce it in stages to ensure the high impact/probability negative risks don't take you by surprise.
Contingency Reserve is a planned amount of fund, time or resource which is added to an estimate for risks that might happen. Expected monetary value can be used to calculate
Expected Monetary Value Calculation Steps
1. Assign the probability of occurrence for the risk.
2. Assign the impact of the risk as a monetary value
3. Multiply the probability by impact
Probability x Impact gives the Expected Monetary Value (EMV). This value is positive for opportunities and negative for threats.
Alaa -

It depends on the nature of the positive risks identified.

For example, if we are preparing for a trade show and there's a positive risk that we might get much more traffic to our booth than expected, then we might want to put some money aside to be able to get some last minute printing of brochures done or to hire a few more temp staff.

On the other hand, if we have an expected cost for expensive third party resources to complete a work package but we've identified an opportunity to get the work done quicker, then that would represent a savings relative to your original estimate and you could theoretically have a negative contingency reserve component tied to that risk.

Kiron
I think most of risks are connected to different stage in the project. So negative risks may be connected to earlier stage than the positive ones and vise versa. In that case it's not correct to just add the reserves. It means the overall contingency reserve is not a single amount but rather sometning like the cash flow.
I would say that Rami is right in theory. That is the PMI answer. But we know that real life and PMI do not always work the same. So in some cases I would follow Sante's thinking.
Alaa,

To me, your questions sound like more theoretical since actions depend upon a particular project scenario.

Project risk, as defined by PMI, is "an uncertain event or condition that, if it occurs, has a positive or negative effect on a project's objectives." So Positive Risk, which is generally referred to as Opportunity, is that uncertain favorable even which has positive impact towards project objective (scope, schedule, cost, and quality) if occur.

As you know, a contingency reserve is a reserve to provide a safeguard against any surprise. Typically this is money, but it might be additional resources or time. While this is not part of your project budget, you need to keep this reserve based upon risks you have in your project.

Now a reserve for your project to support you during rainy day is primarily to mitigate negative risks. But it is not limited to negative risks alone since positive risk response strategies play an important role here.

To conclude, there is no "one size fit all" answer for your questions as it depends upon project situation and risk response strategies. Hope this helps you to understand along with other responses above.
My answer was specifically and strictly theoretical. In real life, contingencies resulting from Positive Risks do not necessary lower the over contingency and in order to ensure an opportunity occurs at a point in time, you put some reserve to take the necessary measures to ensure it happens.
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