This Guest paper was submitted for publication and is copyright to Roger L. Parish, PMP, © 2009
published March 2010

Introduction | Cost Management as Described in the Guide 3rd Edition 
Management Reserves | Cost Management as Described in the Guide 4th Edition 
Vocabulary - An Alphabet Soup | The Project Manager's Challenge
A Recommended Solution | Project Performance (Earned Value) Reporting | Conclusion

Cost Management as Described in the Guide 4th Edition

In the PMBOK Guide 4th Edition, PMI has made significant changes to the framework for understanding reserve analysis. The new explanation is anything but straightforward. There are two reasons for this. One is that different industries use different approaches (so-called best practices) to account for and use reserves. At the time the final draft of the PMBOK® Guide 4th Edition had to be finalized, consensus had not been reached as to a best practices framework that provided a single, unified approach.

The second reason that makes the subject confusing is the way vocabulary is used. The 4th Edition uses multiple terms that, after analysis, all seem to mean the same thing. Apparently, there was no time to edit the draft to settle on what terminology should be used, and to use it consistently throughout the chapter. In the text that follows, I will attempt to bring clarity to this shortcoming.

A graphic reflecting the 4th Edition's approach to managing project reserves is shown in Figure 2. Unlike the 3rd Edition model, this model requires significant explanation as follows.

Figure 2: Reserve analysis as presented in PMBOK® 4th Edition
Figure 2: Reserve analysis as presented in PMBOK®, 4th Edition

Contingency and Management Reserves

Contingency and management reserves are described in much the same way in PMBOK®, 4th Edition, as they were in the 3rd Edition. A notable change, however, has been to drop the terminology known unknowns and unknown unknowns. Of note is that the term management contingency reserve has been dropped, which was confusing in the previous edition. This is a definite improvement.

Authority to Access Reserves

The 3rd Edition was explicit in declaring that the project manager had control of and could access contingency reserves. This made sense since these reserves were largely there for the purpose of absorbing the effects of normal variability.

In the 4th Edition, the language has become more obscure, stating that "the project manager may be required to obtain approval before obligating or spending management reserves."[7] The subject of access to contingency reserves is not mentioned. However, the statement above would seem to imply that the project manager has the authority to access and manage contingency reserves.

A significant change in the 4th Edition is to suggest that the project manager may also have control of the management reserve, but authority for that may also rest with someone else (perhaps the project sponsor).

Management Reserves  Management Reserves

7. PMBOK® Guide 4th Edition, p177, para
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