Question

Please describe how reserves are calculated for your projects. If you have not or do not work in a project environment, then find a relevant article or example to answer the question below (be sure to cite any outside sources).

In your response, consider answering the following questions:

Who determines how much should be requested?
What methods are used to determine the amount?
Who approves the amount?
When are reserves used on a project?
What are the strengths and weaknesses of your company's method?

Answer 1

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Who determines how much should be requested?

I believe that project management and project sponsor may have the right to determine.

What methods are used to determine the amount?

Usually, we use the risk register and EMV— the monetary value predicted.
EMV= PROBABILITY * IMPACT According to PMI (2013), the EMV is an easy means to measure the predicted person-hour delay. This project, for example, will delay some 10 days. And the estimate is 50%. And then they need to add 5 days to the calendar. I also give one example, too. The effect cost is $6,000 and the chance is 60%. So, they need to add another $360 to the contingency fund.

Who approves the amount?

A project manager may approve the amount. According to PMI (2000), the contingency reserve usually around 10%-15%. I believe that project managers and sponsors may approve the amount.

When are reserves used on a project?

According to PMI (2000), the amount of money or time needed above the estimate to reduce the risk of overruns of project objectives to a level acceptable to the organization (p.199). When the project occasionally has a significance loss, they may need to provide contingency reserve in advance. It could keep capital-chain stable.

What are the strengths and weaknesses of your company's method?

The EMV method is really powerful and easy to operate cost method. They just need probability and impact to calculate the expected delay days. However, EMV may not accurate because it could varies based on different situations.