Definition of Management Reserve
Any project has risks that may affect the cost, schedule or quality of the completed work.
The risks to a project that cannot be foreseen or planned for are covered by the management reserve.
Depending on the size and complexity of the project, the likelihood of one of these ‘unknown unknowns’ occurring increases.
By definition, the ‘unknown unknowns’ are not easy to quantify, but the size of the management reserve will probably be smaller in a well-defined project, with an experienced team, in a geographical area that is known by the Company and contractors, with little new technology or major uncertainties.
The management reserve is often controlled by a management committee of the owner(s) rather than by the project team. This depends on the authority matrix.
The likelihood of risks that can be forseen – often called ‘known unknowns’ – can be assessed and their typical cost can be calculated. The result is the contingency reserve.
There is a high-level description of reserves and contingencies here.