Reserve analysis - Need clarification

Hi All,

I have query on contingency reserve & management reserve. PMBOK & Rita says, contingency reserve is considered to define cost baseline and management reserve is considered for determining the budget. In other ways, for a budget both the reserves are to be considered but for cost baseline only contingency reserve is considered.

With this understanding, I have attempted to answer a question which was wrong. The question is,

Question: Jackie is the project manager of large project. During the Determine Budget phase, she identifies that contingency reserves need to be made for unplanned but potentially required changes that could result from realized risks identified in the risk register. Which of the following is true about reserves?

Option A: Reserves are not a part of project cost baseline, but may be included in the total budget for the project

Option B: Reserves are not a part of project cost baseline, and will not be included in the total budget for the project

Option C: Reserves are a part of project cost baseline, but will not be included in the total budget for the project

Option D: Reserves are a part of project cost baseline, and will be included in the total budget for the project

I chose Option D, but the site says Option A.

In Reserve Analysis section, Page no.177 of PMBOK 4th edition states that,

Management reserves are not a part of the project cost baseline, but may be included in the total budget for the project.

Please clarify.

Thanks & Regards

IK.

admin's picture

What is the source of this question ?. Answer may not always be correct.

Hi,

I have faced this question couple of times in PMP Mock Lite exams. This particular question is in Mock Lite - 15. While explaining he mentioned the PMBOK page number as well which is why I got confused.

Thanks.

IK.

 I understand it has been long time and topic-started might not be interested in my comment, but I have related question.

I was reading RMC 7th edition about Risk Management, in particular, Reserve Analysis in MC Risks (page 400).

I noted that people might want to use contingency reserves for newly identified problems. However, it is not acceptable because this specific reserve can only be used for the specific response plan it was created for.

And PM must find some other way to accomodate for this problem by fast-tracking or crashing, etc.

It also says that asking for additional reserve is also not acceptable (sign of bad planning)

However, I think that PMP exam might ask a question similar to the one above. For example, during implementation of the project, PM discovers a problem which requires additional funds to fix it. Let's say the employee dropped the Hard Disk while carrying it to system room. It was not insured or no contingency reserve was defined for that. If the disk is not replaced, the product of the project is not acceptable. Crashing and fast-tracking will not help.

What should the PM do? Is he supposed to pay from his own salary which I think might be a valid option since he did not plan for this risk  :) ? What is the right approach?

I expect that probably he should request approval from senior management to use management reserves. I hope it is enough to cover that replacement :)

 

 Hello Guys,

 

can somebody help with the question that I raised below?

If needed I can create a new topic for that :)

 

Thank you

COntingency funds are used for the risks which are identified but there is no risk response for them. And management reserves are used for risks which were never identified, so for your hard disk problem management reserve can be used.

Hope that answers the question.

Abhishek, PMP

Reserves are not part of Cost Performance Baseline but it may be part of the budget depending upon the risks identified.


While evaluating performance of the project (EVM), Cost Performance Baseline is considered (reserves not included) against which actual performance is compared.  So, reserves are not part of cost baseline.


But, reserves are part of total budget of the project, which is required to mitigate at the time risks occurs.