Does your company sizes financial reserves for projects?

Listen below the podcast about contingency reserves x management reserves which originated this poll.

In this podcast, Ricardo talk about the difference between the Contingency Reserve and the Management Reserves. He explains that both work with a financial protection for the project and that the management reserve is about the perception of the risks of the company.

Poll Results

Results Analysis

It’s a very interesting result. If we have in mind that people that come to the site and answered the survey know about project management, this result is not very coherent with those who apply the good practices, once 62% of interviewees said they don’t have any reserves.

Usually, managers consider the majority of reserves as “fat” and unnecessary. I heard other comments about this that state that once a project manager knows about the reserve he will automatically consume it (Parkinson’s Law).

According to the survey, 18% of the interviewees have contingency reserves, i.e., reserves for the risks identified on the risk management plan. This data indicates, at least, that there is a certain risk plan for this group.

8% assumed to have only management reserves and possibly they only have them because this is a management standard and this doesn’t depend on a complete analysis to be determined. Usually, organizations attribute a percentage of the project’s budget as a management reserve due to what they learned from previous projects and market studies. So, these 8% plus the 62% that don’t have any reserve totalizes 70%. This suggests that 70% of the interviewees don’t apply adequately the processes of risk management.

On the other way, 11% of the participants affirm to have both reserves and this is a mature practice of risks management. By protecting the known risks using the contingency reserve and the unknown risks using the management reserve, we have a high protection against risks’ fluctuations.

Obviously, the sum of the two reserves can overtax the project budget, confirming that every protection has a price to be paid or, at least, an amount to be reserved for it.