If you read the chapter on cost management in the PMBOK® Guide (the "Guide") 4th Edition, 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 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.
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. For example, the Project Management Institute ("PMI") promulgates the following definitions in its 5th Edition:
As you will note from the Glossary on this web site, we prefer rather different wording with more specific guidance and differentiation. For example:
1. PMBOK® Guide 4th Edition, Project Management Institute, Newtown Square, PA, 2008, Chapter 7
2. Parish, Roger. "PMBOK® Guide Fourth Edition - Unraveling Project Reserves". March 2010.
3. See the Wideman Comparative Glossary of Project Management Terms
4. PMBOK® Guide 5th Edition, in the text and the concluding Glossary
5. The PMBOK® Guide 4th Edition reads: "The amount of funds, budget, or time needed above the estimate to reduce the risk of overruns of project objectives to a level acceptable to the organization."
6. Editor's Note: the Wideman Comparative Glossary of Project Management Terms states: "Contingency Allowance is not the same as Contingency Reserve." Contingency Reserve is defined as "A provision held by the project sponsor for possible changes in project scope or quality. Scope and quality changes constitute changes in the project manager's mandate and will affect the project's cost and schedule." See definitions: D00308 and D00315.