Project Success and Contingency Reserve
Project success is typically based on whether our project came in on or under our estimated budget. If our
budget includes enough money to cover any and all circumstances then we should be “successful” every
time.
Complete this task: Explain why adding as much contingency reserve as needed to fully cover every risk
to its fullest would or would not be a good idea. Think of an example to determine how much contingency
reserve is needed for a project and why.
Project Success and Contingency Reserve
A contingency reserve is an excellent determinant to the success of a project.
Accordingly, this paper supports the notion that having enough contingency as a need to cover
every risk to its fullest entirely is a good idea to ensure the success of a project.
Determining a contingency reserve for a project is a vital part of risk management.
Before the determination of the amount needed for the contingency reserve, it is essential to
undertake a proper analysis of all potential risks. This will involve an examination of all past
projects to establish the causes for any cost overruns as well to establish the amount for the
overruns and understand the frequency at which the events took place (Ghorbani, 2017).
Determining the reserve amount will be guided solely by the overruns identified in the
course of risk analysis. An amount should be assigned to both the costs directly involved in the
specific project and the other losses incurred. For instance, if there was a need for reassignment
of staff to ensure timely completion of the project resulting into overtime payment, then the
overtime pay should be included in the contingency. By summing up the total overruns to the
PROJECT SUCCESS AND CONTINGENCY RESERVE 2
total associated revenue, one can obtain a percentage to be used for the contingency reserve for
current and future projects.
A contingency reserve plays a vital role in improving the predictability of the outcomes
of a project (Shrivastava, 2014). The act of pooling risk contingency costs together to ensure the
absorption of potential risk occurrences, and it is possible for the company to make a track of
risk occurrences. Data representation such as graphs and charts can be utilized for purposes of
tracking the use of reserve over time and the manner in which it impacts on project budgeting
and schedules. The lack of contingency reserves may result in unnecessary delays and cost
overruns due to extra days and money coming out of the actual budget and schedule.
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References
Ghorbani, S. (2017). What is a Contingency Reserve in a Cost Estimate? Project Control
Academy. R
Shrivastava, N. K. (2014). A model to develop and use risk contingency reserve. Paper
presented at PMI Global Congress 2014—North America, Phoenix, AZ. Newtown
Square, PA: Project Management Institute.
