PMI CAPM (Certified Associate in Project Management) Examination Content OutlinePredictive, Plan-Based MethodologiesMedium
A project manager is developing the project management plan for a new product development initiative. The project involves significant uncertainty regarding market acceptance and technological feasibility. To account for these unknowns, the project manager includes extra funds, beyond the estimated costs for known activities, to cover potential cost increases or schedule delays due to these specific identified risks. What is this additional fund called?
- ACost of Quality
- BContingency Reserve
- CBudget Baseline
- DManagement Reserve
Show answer & explanationAnswer & explanation
Correct answer: B. Contingency Reserve
Contingency reserves are funds, budget, or time allocated above the cost or schedule baseline for identified risks. These reserves are for 'known-unknowns' and are part of the project's cost baseline.
Why the other options are wrong
- A. Cost of Quality refers to the costs incurred to prevent, appraise, and fail to meet quality requirements, not a reserve for risks.
- C. Budget baseline is the approved version of the time-phased project budget, which includes contingency reserve but is not the reserve itself.
- D. Management reserve is for 'unknown-unknowns' and is controlled by management, not part of the project cost baseline.
Contingency Reserve
Funds, budget, or time allocated above the cost or schedule baseline for identified risks (known-unknowns). It is part of the project's cost baseline.
- For 'known-unknowns' (identified risks).
- Part of the project's cost baseline.
- Managed by the project manager.
Memory trick: Contingency for known, Management for unknown.