If for a planned risk response ( A vendor defaulting on supplying project related equipment's), a contingency reserve is kept & as the project progresses , that risk doesn't happen , then what should the PM do next 1. Update the risk register & release the contingency reserve associated with that risk 2 . Retain the contingency reserve as a buffer for overall project risks 3. Inform the project sponsors & stakeholders that the procurement equipment's have been successfully purchased 4. Update the lessons learnt register stating that contingency reserve was not necessary
I hope you are a PMP now? If not, best wishes on your exam. You must update the risk register first. That is the key thing. The follow-on action is to be done at some point by releasing the reserve back to the firm. *PMBOK PAGE 245: As more precise information about the project becomes available, the contingency reserve may be used, reduced, or eliminated.
Hello Phil. Would you please help me with this one. . PMBOK at page 246 says: Cost Estimates Include Quantitative assessment of the probable costs required to complete the project work, as well as contingency amounts to account to account for identified risks , and management reserve to cover for unplanned work. Does this mean Cost estimate includes both contigency and management reserve? But I have also read that at control accounts work package (cost) estimate and contingency reserves are aggregated - doesnt this mean that the reserves arent part of orginal cost estimate? And how about cost baseline? Is it sum of all control accounts (cost)? And do we add mgmt reserve to cost baseline to yield project budget? I am so confused - please help me. Thank You once again
Good question. Firstly, I do not expect this to be tested on the exam any more to this depth. However, all they are saying is, that the same way contingency reserves are estimated intentionally, management reserves (for unknowns) should be estimated using some method. Since they are unknowns, it is likely historical information, a best guess or intuition at best ;-) Management reserves are generally estimated for an entire project at first until when needed and then deduced at the activity or control account level and then added to the specific activity/control account estimates (when needed down the project timeline). Your other observations are correct. Cost Baseline = Sum of all control accounts Control accounts = Sum of all Work Package Estimates + Contingency Reserves Work Package Cost Estimates = Sum of all Activity Cost Estimates + Activity Contingency Reserves] BUDGET = Cost Baseline + Management Reserves Management Reserves = for unknowns and only added to the cost baseline at the needed time and with permission. This is what we call re-baselining. Increasing the cost baseline by adding some of the management reserves with permission and through proper change control.
No one in the PM realm can can break down the PMBOK and make it make sense as well as you. Thank you for all you do. It’s much appreciated! ❤️
Very kind of you Nancy. I appreciate that. Best wishes.
If for a planned risk response ( A vendor defaulting on supplying project related equipment's), a contingency reserve is kept & as the project progresses , that risk doesn't happen , then what should the PM do next
1. Update the risk register & release the contingency reserve associated with that risk
2 . Retain the contingency reserve as a buffer for overall project risks
3. Inform the project sponsors & stakeholders that the procurement equipment's have been successfully purchased
4. Update the lessons learnt register stating that contingency reserve was not necessary
I hope you are a PMP now? If not, best wishes on your exam.
You must update the risk register first. That is the key thing. The follow-on action is to be done at some point by releasing the reserve back to the firm.
*PMBOK PAGE 245: As more precise information about the project becomes available, the contingency reserve may be used, reduced, or eliminated.
Hello Phil. Would you please help me with this one. . PMBOK at page 246 says: Cost Estimates Include Quantitative assessment of the probable costs required to complete the project work, as well as contingency amounts to account to account for identified risks , and management reserve to cover for unplanned work.
Does this mean Cost estimate includes both contigency and management reserve? But I have also read that at control accounts work package (cost) estimate and contingency reserves are aggregated - doesnt this mean that the reserves arent part of orginal cost estimate?
And how about cost baseline? Is it sum of all control accounts (cost)? And do we add mgmt reserve to cost baseline to yield project budget? I am so confused - please help me. Thank You once again
Good question.
Firstly, I do not expect this to be tested on the exam any more to this depth. However, all they are saying is, that the same way contingency reserves are estimated intentionally, management reserves (for unknowns) should be estimated using some method. Since they are unknowns, it is likely historical information, a best guess or intuition at best ;-)
Management reserves are generally estimated for an entire project at first until when needed and then deduced at the activity or control account level and then added to the specific activity/control account estimates (when needed down the project timeline).
Your other observations are correct.
Cost Baseline = Sum of all control accounts
Control accounts = Sum of all Work Package Estimates + Contingency Reserves
Work Package Cost Estimates = Sum of all Activity Cost Estimates + Activity Contingency Reserves]
BUDGET = Cost Baseline + Management Reserves
Management Reserves = for unknowns and only added to the cost baseline at the needed time and with permission. This is what we call re-baselining. Increasing the cost baseline by adding some of the management reserves with permission and through proper change control.
@@Praizion Thank you sp much for explainng this in so much details. This is GOLD!
I enjoyed the overview of risk management.
Would you direct me to resources that discuss this topic in greater depth.
Bob Duda
Hey Bob - www.risk-doctor.com and check out the risk doctor channel and our joint risk management course: vimeo.com/ondemand/riskd