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Forum Home > Project Management Professional (PMP) > About program "risk types" & "risk reserves" with examles

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To keep it simple there are only 2 types when it comes to risk identification: known risks / un-known risks.

All known risks are documented in risk register will be quantitatively assessed by Expected Monetary Value (EMV)

Expected Monetary Value (EMV) is calculated based on Impact X Probability and this input will be taken into account to determine the "Contingency reserves".

At the same time, despite of putting the best efforts in risk management its impossible to determine all the program risks. Hence, there is a possibility always there could be some unknown risks also exists and in order to cover those risks there need to be reserves which should support it. This reserve will be fixed based on the management discretion. hence its termed as "management reserves".

for example in a high risky program, the senior management may consider to place a higher value to cover un-known risks and similarly a low value for low risky program.

When a program re-baselining happens there will be risk factors also taken into consideration by analyzing the contingency reserves required based on the current list of "known" risks. Also, based on the current state risk exposure how risky is the program will be estimated / evaluated and a management reserve will be fixed on it accordingly. "management reserve" is a dynamic value and the numbers are fixed based on purely management discretion and its justified based on risk exposure which helps understand how risky the program on a given period of time. because risk exposure may vary from time to time throughout the program life cycle.

Also, management reserves are very much dynamic in nature and the cost estimation purely happens based on the risk exposure in a given time much before the unknown risk occurrence. (its not expected to be identified after the unknown risk occurrence).

Management reserves has to be identified in much earlier stage in order to do the overall program budget also.

Overall program budget = overall activity based estimates from PWBS + contingency reserves + management reserves

Every time when program budget get re-baselined all the above 3 factors will be re-evaluated at a minimum:-)

February 3, 2015 at 4:47 AM Flag Quote & Reply

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