What is a Contingency Reserve?
According to PMBOK
® (page 166 of the Third Edition), "Contingency Reserves are estimated costs to be used at the discretion of the project manager to deal with anticipated, but not certain, events. These events are "known unknowns" and are part of the project scope and cost baselines."
PMBOK goes on to say "One option to manage cost contingency reserves is to aggregate each schedule activity's cost contingency reserve for a group of related activities into a single contingency reserve that is assigned to a schedule activity."
What would this look like in MS Project?
In this example, we will establish a contingency reserve for the entire project. Note that this could also be performed at the work package level.
1. You must have already completed the steps of Activity Definition, Activity Sequencing, Activity Resource Estimating, Activity Duration Estimating (which includes effort estimating for the individual tasks) and loaded all this information into MS Project. You would have a schedule that looks something like this:
2. Insert the Cost field
3. Insert the Contingency Reserve activity. Make the duration of this activity .5 days less than the overall duration of the project (making it equal to the duration of the project will not allow MS Project to calculate the true critical path tasks within your schedule)
4. Input the Contingency Reserve amount in the cost field. Note that a detailed risk analysis would be preferred to help establish the true cost contingency reserve needed. But for our example we are going to assume the organization mandates a 10% Contingency Reserve be established for all projects.
Note: Making the Contingency Reserve duration nearly equal the Duration of the project spreads the reserve amount out over the life of the project.
5. The schedule can now be baselined.
6. So now reality sets in. We find it cost $1,000 more to perform a series of tasks than we had anticipated. By inserting our Baseline Cost and Cost Variance fields we can easily see this variance.
7. All we have to do to get the project back on budget is to deduct $1,000 from our Contingency Reserve cost amount.