1. Gain the Advantage
Measure the Risk
Risk Advantage Limited
Peter Campbell
FAPM MIRM MBCS MIET
Society for Risk Analysis
Director: Risk Advantage Limited
Chairman: APM Risk SIG
Contingency and
Management Reserve
1

2. Gain the Advantage
Measure the Risk
Risk 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. Gain the Advantage
Measure the Risk
Risk Advantage Limited 3
Management Reserve:
Why?
• Projects usually have
their targets set very
early.
• Estimates at this time
may not be accurate.
• Identified threats may
not respond to
mitigation action.
• Emerging Threats.

4. Gain the Advantage
Measure the Risk
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Contingency or
Management Reserve
PRAM. Contingency:
A margin of resource or specification in excess of the base
estimate to enable the achievement of project objectives in
the face of the impact of specific risk events.
APM BoK. Management Reserve:
A sum of money held as an overall contingency to cover the
cost 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 specific
risk.
Non-specific Risk Provision to manage emergent risks.

5. Gain the Advantage
Measure the Risk
Risk Advantage Limited 5
PMBOK Guide 4th Edition.
Cost base line is the sum of project cost estimate and
contingency reserve; i.e.
Cost Baseline = Project Cost Estimate + Contingency
Reserve
Project budget is the sum of project cost base line and the
management reserve; i.e.
Project Budget = Cost Baseline + Management Reserve
Therefore, Management Reserve is not a part of the cost
baseline but it is a part of the project budget and
Contingency Reserve is a part of cost baseline as well as
project budget.
Contingency or
Management Reserve

6. Gain the Advantage
Measure the Risk
Risk Advantage Limited 6
Contingency or
Management Reserve
Contingency
Contingency is the amount of money used in the
estimate to deal with the uncertainties inherent
in the estimating process. Contingency is
required because estimating is not an exact
science.
Management Reserve
An amount added to the Programme or Project
budget to allow for specific risk threats that
may, or may not, occur.

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Measure the Risk
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Contingency Reserve:
Used to manage identified risks
estimated based on Expected Monitory
Value (EMV). Project manager has authority
to use this reserve.
Management Reserve:
Used to manage unidentified risks
calculated as a percentage of cost, or time
of project. Project Manager requires
management approval to use this reserve.
Contingency or
Management Reserve

8. Gain the Advantage
Measure the Risk
Risk Advantage Limited 8
Contingency or
Management Reserve
Scope:
Management Reserve is not a source of
funding to cover scope change.
Opportunity:
You don’t need a reserve for things that
are planned to generate their own
resource.

9. Gain the Advantage
Measure the Risk
© Risk Advantage Limited
} Management
Reserve
Baseline Budget
(Cost Baseline)
Time
Cost
Specific Threat Reserve
Threat
Mitigation/Control
Cost
Non-Specific Threat Reserve
Calculating the Budget
9
Project Budget

10. Gain the Advantage
Measure the Risk
Risk Advantage Limited 10
Calculating the Budget
Baseline Budget
Specific Reserve
Non-Specific Reserve
Emergent Threat
Identified Threat
Approved Budget
(PMB)

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Measure the Risk
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Calculating the Budget

12. Gain the Advantage
Measure the Risk
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Managing the Reserve
Identify Change.
Change Management Risk Management
Threat Occurs.
Evaluate and
Approve Change.
Implement
Change.
Risk Draw-down.
Issue Response .

13. Gain the Advantage
Measure the Risk
Risk 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
£36,000
Minimum
Maximum
Budget
Specific Risk Provision Exposure
Risk appetite
PMB
Specific
risk provision
Non Specific
provision
Confidence
Questions?
peter.campbell@riskadvantage.co.uk