Lessons · Project management · contingency and management reserve
Contingency and management reserve: two pots, two owners
Contingency reserve is for the risks you identified and sits inside the cost baseline, spent by the project manager; management reserve is for the unknown, sits above the baseline, and is released by the sponsor.
Hone is a place to practise a career, one idea a day. This is one of its lessons, written out in full and free to read without an account.
What it is for
A known vendor risk happens, and you pay from contingency: your decision. A regulation changes that nobody could have listed: management reserve, and you ask the sponsor. Spending the wrong pot for the wrong reason is how a project manager loses the authority to spend either.
How to think about it
Contingency: the sum of the EMVs, or a percentage justified by the register, inside BAC. Management reserve: a percentage above BAC, held by the sponsor. Keep the two on separate lines so that the report says which pot was used and why.
Worked example
Work-package estimates: $450,000The bottom-up total.
Contingency reserve: $30,000 for the risks in the registerInside the baseline. BAC = 450,000 + 30,000 = $480,000.
Management reserve: 5% of the baseline = $24,000Above the baseline. Total project budget = 480,000 + 24,000 = $504,000.
Month 5: the vendor risk happens, $8,000 from contingency, reported as suchKnown risk, known pot, the project manager's call.
Your turn
Write which reserve is part of the cost baseline.
BAC includes the reserve and not the management reserve.
Solve one, graded on the server
The trap
Adding management reserve into BAC so that CPI looks better. The baseline is the measure; padding it hides exactly what the measure exists to show.