Reserves not a part of Cost Baseline

Submitted by steelproject2012 on Thu, 01/17/2013 - 18:07

Can someone explain the seeming descripancy in the explanations below:

PMBOK4th says Reserves are not a part of Project Cost Baseline, but Rita M 6th Edt says Reserves are a core part of the baseline. Pls read below excerpts for your perusal and response.

DETERMINE BUDGET: TOOLS & TECHNIQUES

PMBOKGUIDE 4TH Edtn Pg. 117:

RESERVE ANALYSIS:

CONTINGENCY RESERVES:  are allowances for unplanned but potentially required changes that can result from realized risks identified in the risk register.

Management reserves:  are budgets reserved for unplanned changes to project scope and cost. The project Manager may be required to obtain approval before obligating or spending Management Reserve.RESERVES ARE NOT A PART of the project COST BASELINE, but may be included in the total budget for the project.

RITA’s 6th Edtn Pg. 237

A project estimate cannot be completed without (risk management activities and) the inclusion of reserves....These reserves make up the difference between the cost baseline and the cost budget. The cost baseline contains the contingency reserves; it represents the funds authorized for the project manager to manage and control. The cost budget = cost baseline + Management Reserves.

Contingency Reserves are added to achieve the cost baseline.

 

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Josupra

Thu, 01/17/2013 - 20:18

 Contingency reserves are included in the cost baseline. Where as Managment reserves are added to the cost baseline to determine the final budget of the project. Refer reserve analyss in PMBOK.

P.S: the latest Rita version is 7th edition which is updated based of PMBOK 4th edition not 6th. 

steelproject2012

Thu, 01/17/2013 - 20:42

@Josupra

Yes, that's my point... I understand Reserves are part of the Cost Baseline, but what do u get from the references I quoted from PMBOK?

Josupra

Thu, 01/17/2013 - 21:56

 I think my page #s are a bit different. Can you give me the section #

rjbuzzing

Tue, 02/05/2013 - 04:52

You Quoted an incomplete statement, it says - "Management Reserves are not part of the project cost baseline but maybe included in the total budget"

For other folks, this is actually from Page 177, PMBOK 4th edition.

So i guess the conclusion is:

Contigency Reserves are part of baseline which inturn is a part of total budget whereas Management Reserves are  NOT part of cost baseline but are part of total budget.

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sspawar

Tue, 04/30/2013 - 16:31

 CR is a part of individual activity /wp/ca cost estimate.

Where as MR is  not a part of cost baseline.

Refer my earlier reply:

http://www.pmzilla.com/using-reserves-case-over-budget-right#comment-22747

Some interesting facts

  • PMBOK 4 says  Cost baseline = project budget = project cost = determine budget,=authorized budget to PM = All EVM based on this ,except authorized funding , (it may or may not be inclusive of MR at any point of time as the situation prevails)
  • When MR is added to DB  it is called Total budget.(see main topic reference)
  • As per Reeta (in one figure) shown -- Total activity cost estimates ( Estimate costs ) + CR = CB , here little mistake in this figure or it makes a meaning that CR is added in aggregated Estimated Costs, this is wrong concept.
  • As per PMBOK CR is added with each activity estimate individually , before of aggregation.(p 168/last para 3-4 line)
  • And DB is simply a aggregation of these individual activity cost estimates.
  • Reeta says CB + MR = cost budget., here as per PMBOK cost budget is not any term. PMBOK uses in place of this = Total Budget.
  • As per PMBOK 5 TOTAL BUDGET TERM IS REPLACED NOW BY PROJECT BUDGET. and figure 7.8 and 7.9 have a very lucid explanation over.

(pl read CR = contingency reserve, MR= management reserve, CB= cost baseline, DB = determine budget)

 

NISHA

Sat, 06/27/2015 - 17:48

Thank you so much..u cleared my confusion so well..

Was horribly consfused between these two terms from Rita and PMBOK.

Thanks

Nisha

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