Contingency and management reserve

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Contingency and management reserve

  1. 1. Gain the AdvantageMeasure the RiskRisk Advantage LimitedPeter CampbellFAPM MIRM MBCS MIETSociety for Risk AnalysisDirector: Risk Advantage LimitedChairman: APM Risk SIGContingency andManagement Reserve1
  2. 2. Gain the AdvantageMeasure the RiskRisk Advantage Limited 2• Why do we need Management Reserve.• How is it Defined.• How do we evaluate it.• How do we Manage it..Agenda
  3. 3. Gain the AdvantageMeasure the RiskRisk Advantage Limited 3Management Reserve:Why?• Projects usually havetheir targets set veryearly.• Estimates at this timemay not be accurate.• Identified threats maynot respond tomitigation action.• Emerging Threats.
  4. 4. Gain the AdvantageMeasure the RiskRisk Advantage Limited 4Contingency orManagement ReservePRAM. Contingency:A margin of resource or specification in excess of the baseestimate to enable the achievement of project objectives inthe face of the impact of specific risk events.APM BoK. Management Reserve:A sum of money held as an overall contingency to cover thecost impact of some unexpected event.Contingence:Resource set aside for responding to identified risks.Interfacing Risk and EVM Guide.Specific Risk Provision to Manage identifiable and specificrisk.Non-specific Risk Provision to manage emergent risks.
  5. 5. Gain the AdvantageMeasure the RiskRisk Advantage Limited 5PMBOK Guide 4th Edition.Cost base line is the sum of project cost estimate andcontingency reserve; i.e.Cost Baseline = Project Cost Estimate + ContingencyReserveProject budget is the sum of project cost base line and themanagement reserve; i.e.Project Budget = Cost Baseline + Management ReserveTherefore, Management Reserve is not a part of the costbaseline but it is a part of the project budget andContingency Reserve is a part of cost baseline as well asproject budget.Contingency orManagement Reserve
  6. 6. Gain the AdvantageMeasure the RiskRisk Advantage Limited 6Contingency orManagement ReserveContingencyContingency is the amount of money used in theestimate to deal with the uncertainties inherentin the estimating process. Contingency isrequired because estimating is not an exactscience.Management ReserveAn amount added to the Programme or Projectbudget to allow for specific risk threats thatmay, or may not, occur.
  7. 7. Gain the AdvantageMeasure the RiskRisk Advantage Limited 7Contingency Reserve:Used to manage identified risksestimated based on Expected MonitoryValue (EMV). Project manager has authorityto use this reserve.Management Reserve:Used to manage unidentified riskscalculated as a percentage of cost, or timeof project. Project Manager requiresmanagement approval to use this reserve.Contingency orManagement Reserve
  8. 8. Gain the AdvantageMeasure the RiskRisk Advantage Limited 8Contingency orManagement ReserveScope:Management Reserve is not a source offunding to cover scope change.Opportunity:You don’t need a reserve for things thatare planned to generate their ownresource.
  9. 9. Gain the AdvantageMeasure the Risk© Risk Advantage Limited} ManagementReserveBaseline Budget(Cost Baseline)TimeCostSpecific Threat ReserveThreatMitigation/ControlCostNon-Specific Threat ReserveCalculating the Budget9Project Budget
  10. 10. Gain the AdvantageMeasure the RiskRisk Advantage Limited 10Calculating the BudgetBaseline BudgetSpecific ReserveNon-Specific ReserveEmergent ThreatIdentified ThreatApproved Budget(PMB)
  11. 11. Gain the AdvantageMeasure the RiskRisk Advantage Limited 11Calculating the Budget
  12. 12. Gain the AdvantageMeasure the RiskRisk Advantage Limited 12Managing the ReserveIdentify Change.Change Management Risk ManagementThreat Occurs.Evaluate andApprove Change.ImplementChange.Risk Draw-down.Issue Response .
  13. 13. Gain the AdvantageMeasure the RiskRisk Advantage Limited 13£0£2,000£4,000£6,000£8,000£10,000£12,000£14,000£16,000£18,000£20,000£22,000£24,000£26,000£28,000£30,000£32,000£34,000£36,000MinimumMaximumBudgetSpecific Risk Provision ExposureRisk appetitePMBSpecificrisk provisionNon SpecificprovisionConfidenceQuestions?peter.campbell@riskadvantage.co.uk

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