CompTIA Project+ (PK0-005)Project Life Cycle PhasesMedium
A project manager is developing the initial project budget. She has received estimates from various departments for labor, materials, and equipment. What is the MOST appropriate next step to finalize the project budget?
- AAdd a contingency reserve to account for unforeseen risks.
- BBegin procuring materials and scheduling resources.
- CApprove the budget immediately based on the collected estimates.
- DCommunicate the budget to all project stakeholders for approval.
Show answer & explanationAnswer & explanation
Correct answer: A. Add a contingency reserve to account for unforeseen risks.
After collecting cost estimates, adding a contingency reserve is a crucial step in budget finalization. This reserve accounts for known-unknown risks and helps manage cost uncertainty, making the budget more realistic and robust.
Why the other options are wrong
- B. Procurement and scheduling are execution phase activities, not part of budget finalization.
- C. Approving immediately without reserves leaves the project vulnerable to cost overruns.
- D. Communicating the budget comes after it has been finalized, including reserves.
Contingency Reserve
Funds, budget, or time identified to offset the impact of scheduled risk events that are 'known unknowns' (i.e., identified risks for which mitigation plans are developed).
- Part of the cost baseline.
- Managed by the project manager.
- Accounts for identified risks.
Memory trick: Budgeting is like packing for a trip; you pack the essentials, then add a 'just in case' bag.