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If you have read the chapter on cost management in the PMBOK® Guide (the "Guide") 4th Edition, you undoubtedly came away with your eyes glazed over after reading about reserve analysis. In fact, even the discussion presented in the 3rd Edition probably required that you read it through more than once and even then may still be left trying to grasp the concepts. In this paper, I will address some of the issues arising out of the Guide's texts and make an attempt at clarification. I shall also propose my own approach to good practice.
As readers of this web site already know, there is much confusion over the
terminology, and specific definitions, in use in the project management industry
generally. For example, the Project
Management Institute ("PMI") promulgates the following definitions in this instance:
Contingency - See reserve.
Contingency Allowance - See reserve.
Contingency Reserves - Allowances for unplanned but potentially required changes that can result from realized risks identified in the risk register, or the amount of funds, budget, or time needed above the estimate to reduce the risk of overruns of project objectives to a level acceptable to the organization.
Management Reserves - Budgets reserved for unplanned changes to project scope and cost.
Reserve - A provision in the management plan to mitigate cost and/or schedule risk. This is often used with a modifier (e.g., management reserve, contingency reserve) to establish the types of risk being mitigated.
As you will note from the Glossary on this web site, we prefer rather different wording with more specific guidance and differentiation. For example:
Contingency Allowance - Specific provision to cover variations that may occur in the expected values of elements of cost or schedule, but not scope or quality. In addition, the Editor's Note to this definition states: "Contingency Allowance is not the same as Contingency Reserve."
Contingency Reserve is defined as "A provision held by the project sponsor for possible changes in project scope or quality. Scope and quality changes constitute changes in the project manager's mandate and will affect the project's cost and schedule."
Similarly, Management Reserve is defined as: "An amount of the owner's total allocated budget withheld under the owner's management control, rather than assigned as part of the project's scope under the control of the project manager.
These anomalies are discussed further in the page titled: Cost Management as described in the Guide 4th Edition.
1. PMBOK® Guide 4th Edition, Project Management Institute, Newtown Square, PA, 2008, Chapter 7
2. See the Wideman Comparative
Glossary of Project Management Terms
3. PMBOK® Guide 3rd and 4th Editions, in the texts and the concluding Glossaries
4. Wideman Glossary definition #[D00308] - Contingency Allowance
5. Ibid, definition #[D00315] - Continggency Reserve
6. Ibid, definition #[D03648] - Management Reserve