Zero value of contingency reserve?

PMP Fighter's picture

A project manager is trying to plan for a contingency reserve as part of the cost estimates for the project. Which of these would be an incorrect way to plan for contingency reserves?

A Start the project with a zero value for contingency reserve.

B Plan for contingency reserve as a fixed number.

C Plan for contingency reserve as a percentage of the estimated cost.

D Use quantitative analysis methods to arrive at the contingency reserve.

The answer is A,

explanation:
A - It would be incorrect to start the project with a zero value for contingency reserves. One of the three methods listed could be used to arrive at a contingency reserve number. As more precise information about the project is available, the contingency reserve may be used, reduced or eliminated. [PMBOK 5th edition, Page 206] [Project Cost Management]

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But what mean zero value? i refer to PMBOK, but cannot find any meaning of this term.

admin's picture

Zero value simply means that contingency reserve is 0.

You are assuming that none of the risks will materialize hence you keep contingency reserve as Zero.

Projects will always have an element of risk. It makes sense to have some amount of contingency reserve even if you have no identified risk to apply it to. The risk could be that you failed to identify risks correctly.

No one would ever accept you don't have some number for contingency reserves. These are for known unknowns. It will never be at 0.