Introduction
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. 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 as I described in Part 1 of this paper. In this Part 2, I will recommend a solution to the still remaining issues in the Fifth Edition of the Guide that I identified in Part 1.
An essential reason for generating a standard is to clarify concepts and unify the professional discipline - which is why I hope that these issues will be fixed in the sixth edition of the Guide.
Adding Cost Contingency Reserves
I recommend that contingency reserves be added to the project overall, as shown in Figure 1, and not at the activity or work package level as shown in Figure 2.[22] Done in this way, the tasks identified in the schedule contain the realistic estimates, and this new, separate element contains the cost contingency reserve.
Contingency planning can address either cost or time, or it can incorporate contingencies for both. Cost contingency reserves can be activities that have monetary resources attached, but nothing else (no actual work product). These can appear in their own section of the schedule, as shown inFigure 5, or at the end of a series of activities within the main body of the schedule. Thus, the cost contingency reserve rolls up into the project's performance baseline over time, with the cost contingency reserve becoming available (from a scheduling perspective) at the time that work is scheduled to be accomplished, and for the tasks for which it was inserted.
If cost contingency reserves are included in their own section of the schedule (a section set aside for contingency reserves) and are also shown as having a duration that spans the work being done, they should appear as stand-alone activities (no dependencies) to avoid the contingency activities potentially showing up as the critical path.
If one is only concerned about cost contingency reserves and not schedule/time contingency reserves, and if cost contingency reserves are inserted at the end of a series of activities, they would need to have a duration of zero if they are not to affect the schedule and/or correct identification of the critical path.
Figure 5 - Contingency planning that addresses monetary reserves only
As dates are reached for these contingency activities (those containing the monetary contingency reserve amounts), the funds associated with them are distributed to the project by the project tracking software. Thus, the project receives increments from the contingency reserve at discrete points in time.
22. See Part 1 of this paper.
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PART 1
