Introduction | A Brief Description of Cost Management as Described in the Guide 3rd Edition
Contingency Reserves, 3rd Edition | Management Reserves, 3rd Edition
Cost Management PMBOK® Guide 5th Edition | The Problem with Changes in Scope
The Project Manager's Challenge | PART 2

Roger Parish is a results-oriented, hard-hitting presenter and consultant whose seminars and courses have been used by the US Marines as well as major corporations and governmental entities to strengthen their organizations. Having worked as a top-performing leader, project manager, and organizational consultant for the past 30 years, Roger's knowledge and expertise is sought out by organizations nationwide. Roger is president and founder of Spectrum Consulting Group, LLC. He may be reached by Email at rparish@scgsolutions.biz or by phone at (503) 780-4758.

Introduction

If you read the chapter on cost management in the PMBOK® Guide (the "Guide") 4th Edition,[1] you undoubtedly came away with your eyes glazed over after reading about reserve analysis. Indeed, the problems ranged from a mish-mash of conflicting terminology to unclear concepts to almost total confusion as to how to implement reserves. Because of this, I took the Guide's 4th Edition to task in my last paper[2] for presenting an incomprehensible treatise on the subject and sought to clarify the use of reserves.

Not wishing to write a piece that was only a critique, I presented a number of recommendations as well. Fortunately, the information presented in the 5th Edition of the Guide is much improved. In this paper, I will review the current treatment of cost management in the Guide, but make reference to the Guide's 3rd and 4th Editions to provide context and enhance understanding. However, because of the much-improved explanations provided in the Guide's 5th Edition, I will not rehash all of the problems contained in the 4th Edition.

Editor's Note:

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.[3] For example, the Project Management Institute ("PMI") promulgates the following definitions in its 5th Edition:[4]

Contingency - An event or occurrence that could affect the execution of the project that may be accounted for with a reserve.
Contingency Allowance - See Reserve.
Contingency Reserve[5] - Budget within the cost baseline or performance measurement baseline that is allocated for identified risks that are accepted and for which contingent or mitigating responses are developed.
Cost Baseline - The approved version of the time-phased project budget, excluding any management reserves, which can be changed only through formal change control procedures and is used as a basis for comparison to actual results.
Management Reserve - An amount of the project budget withheld for management control purposes. These are budgets reserved for unforeseen work that is within scope of the project. The management reserve is not included in the performance measurement baseline.
Reserve - A provision in the project management plan to mitigate cost and/or schedule risk. 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.[6]

A Brief Description of Cost Management as Described in the Guide 3rd Edition

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