In project management, the term ‘reserve’ refers to cost buffers and schedule (duration) reserves. Reserves can be broadly classified into contingency reserves and management reserves.
- Contingency reserves are used to manage known risks.
- Management reserves are used to manage unknown risks
- The contingency reserve is an estimated figure, while the management reserve is a percentage of the cost or duration of the project.
Reserves are provided at the activity level, work package level and at the project level. The project’s budget consists of bottom up aggregation of costs and reserves.
At the activity level one provides activity contingency reserves to take care of the unforeseen events while performing the activity. These are known as ‘Activity contingency reserves’. At the work package level ‘Work package contingency reserves’ are provided to take care of the work package level contingencies. At the project level ‘Management reserve’ is provided to take care of the project level contingencies.