Reserve Analysis
Reserve analysis is a technique used to determine the amount of contingency and management reserves needed for a project to account for cost uncertainty and risk.
Explanation
Reserve analysis is an analytical technique used to establish both contingency reserves and management reserves for a project. It addresses the question of how much reserve is appropriate given the level of uncertainty and risk in the project.
Contingency reserves are budget amounts set aside for identified risks that are accepted and for which contingent responses are developed. Management reserves are budget amounts held for unplanned changes to project scope and cost that management controls. Together, these reserves help ensure that the project can absorb cost overruns without failing.
Reserve analysis can use various approaches, including percentage of estimated cost, fixed number, or quantitative risk analysis methods such as Monte Carlo simulation. As the project progresses and more information becomes available, reserves may be used, reduced, or eliminated. Any remaining contingency reserve can be released when the associated risk is no longer active.
Key Points
- •Determines both contingency and management reserve amounts
- •Can use percentage, fixed number, or simulation techniques
- •Reserves are reviewed and adjusted throughout the project
- •Unused reserves may be released as risks are retired
Exam Tip
Reserve analysis is a technique, not a reserve itself. It produces the reserve amounts. Know the difference between contingency reserves (for known risks) and management reserves (for unknown risks).
Frequently Asked Questions
Related Topics
Contingency Reserves
Contingency reserves are budget amounts allocated within the cost baseline to address identified risks that have been accepted and for which contingent or mitigating responses have been developed.
Management Reserves
Management reserves are budget amounts set aside for unforeseen work within the scope of the project, intended to address unknown risks that cannot be predicted during planning.
Estimate Costs
Estimate Costs is the process of developing an approximate monetary assessment of the resources needed to complete project activities.
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