Change Management Terms

Definition of Contingency Reserve

Any project has risks that may affect the cost, schedule or quality of the completed work.

The likelihood of some of these risks – often called ‘known unknowns’ – can be assessed and their typical cost can be calculated. The result is the contingency reserve. This amount is part of the project cost and can be called on as the expected risks materialise. The project manager may be able to control access to the contingency reserve, depending on the authority matrix.

The project as a whole has a contingency reserve. The size of this contingency should depend on the risks and may be:

Each contract or work package may also have some contingency amount associated with it.
It is obviously important that there is good control over this - to ensure that contingencies are not counted twice, for example.

There are other risks to a project that cannot be foreseen or planned for, often called ‘unknown unknowns’. The management reserve is intended to cover this risk.

There is a high-level description of reserves and contingencies here.