Question

Q11: Your sponsor has asked you to explain 2 different methods to determine the amount of contingency reserve for a project and provide a recommendation for which works best and why.

Answer 1

Solution:

1. To calculate the contingency reserve first way will be to calculate the after-effects of the situation when the basic risks of the project are not addressed. Then calculating the reserve which will be needed to get the project back on working track again. This contingency reserve will include risks of budget constraint, risks of lack of resources, risks due not completing the project in stipulated time. The risks here can be grouped into intrinsic risks for the project and the contingency reserves for the same can be calculated using past information for the same.
2. The second contingency reserve method would include considering the risks due to external factors which are not related to the project like environmental, political, societal risks. These risks cannot be gauged and defining contingency reserves for these can be a challenging task. But looking at past data it can be estimated and set.

The best way would be two consider both the contingency reserves in a proportionate manner and decide on the contingency reserves for the same depending on the estimated forecasts of the data.