Project Risk Management Page 15
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17RESERVES: Formulating the amount of time or cost that needs to be
added to the project to account for risk. These are sometimes called
management reserves (to account for “unknown unknowns” items you
did not or could not identify in risk management) and contingency
reserves (to account for “known unknowns” items you did identify in
risk management). Reserves should be managed and guarded
throughout the project life cycle.
Exercise: You are planning the manufacture of an existing products
modification. Your analysis has come up wit the following. What is the cost
reserve that you would use?
30% probability of a delay in the receipt of parts with a cost to the
project of $9,000
20% probability that the parts will be $10,000 cheaper than expected
25% probability that two parts will not fit together when installed,
costing an extra $3,500
30% probability that the manufacture may be simpler than expected,
saving $2,500
5% probability of a design defect causing $5,000 of rework
30% x $9,000
Add $2,700
20% x $10,000
Subtract $2,000
25% x $3,500
Add $875
30% x $2,500
Subtract $750
5% x $5,000
Add $250
TOTAL
$1,075
Important Concepts or Questions to ask:
What do you do with non-critical risks? Answer: Document and revisit
periodically.
Would you select only one risk response strategy? Answer: no, you
can choose a combination of choices.
What risk management activities are done during the executing phase
of the project? Answer: watching out for non-critical risks that become
more important.
What is the most important item to address in project team meetings:
Answer: Risk.
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