questions on cost management
2 years 10 months ago #5587
I am preparing for the PMP exam. I would like to get your expert advise on the cost mgmt topic specific to qs listed below. Could you please share with me your inputs for these two questions?
Pmbok pg 213: " as changes warranting the use of mgmt reserves arise, change control procedures...")
My q contd:
If there is an event "unknown unknown " that occurred while managing a proect, then does pm have to go through the integrated change control process to get the mgmt reserve approved to be included into cost baseline? So in that situation, does the mgmt reserve if approved to be allocated for use? does the mgmt reserve become "contingency reserve"? Will the PM and his team then engage in reserve analysis ( a tool/technique) to reconcile contingency reserves to mgmt reserves be performed? Right?
1. PMbok pg 214-
Cost baseline will include projected expenditures plus anticipated liabilities ".
Is this sentence, especially the word "projected expenditures " indicate that cost baseline includes project cost estimates ( aggregated control accts cost plus contingency reserves for anticipated liab that is known unknowns)?
2. Determine budget/Outputs- Project Fund requirements and Cost base line
My Q: Isn't getting the funds disbursed the next step after the cost baseline is approved? What really happens in the project funding requirements? ( an output). What do I need to know from an exam view point for this output?
Are Total funds same as project budget. That is costbaseline plus management reserve. Right?
I will be happy to take a stab at this and I am glad you are using forums to prepare for your exams, just one more source for information!
With regard to the following question:
" Pmbok pg 213: " as changes warranting the use of mgmt reserves arise, change control procedures...")
If there is an event "unknown unknown " that occurred while managing a proect, then does pm have to go through the integrated change control process to get the mgmt reserve approved to be included into cost baseline? So in that situation, does the mgmt reserve if approved to be allocated for use? does the mgmt reserve become "contingency reserve"?
Answer: If an unknown unknown occurs you are correct that the management reserve is to be used to address such an event. There are typically two steps that have to be followed in this case:
1. The PM will document/specify the unknown unknown event, determine the impact to cost or schedule, and request from management (typically outside the project team) the use of some amount of the management reserve to address the issue. Assuming approval has been granted the PM will need to go through the Integrated Change Control Process and submit a change request to add this amount to the Cost Baseline. Any changes to the Cost Baseline require an approved change request. As you may remember the Management Reserve is not part of the Cost Baseline like the Contingency Reserves are. See Figure 7-8 on pg. 213 of the PMBOK Guide 5th ed.
The Management Reserve does NOT be come a Contingency Reserve as the Contingency reserve is to be used for "known" unknowns. The Management reserve once approved is used to address the unknown unknown event that has become an issue.
Will the PM and his team then engage in reserve analysis ( a tool/technique) to reconcile contingency reserves to mgmt reserves be performed? Right?"
Reserve Analysis, used as a T&T during both Determine Budget and Control Cost. During Cost Control a reserve analysis maybe conducted to monitor the use of either contingency or management reserve. This analysis serves to determine if either reserve is still needed/warranted or if additional reserves may be required. Additional management reserves may be required if the event (unknown unknown) has required all of the management reserves that were set aside and it is foreseen that additional reserves for future unknown unknowns may be needed. So to directly answer your question it is not a bad idea to conduct a reserve analysis when reserves have been used or as project conditions and costs become better understood as the project is executed.
It is important to keep in mind the most likely questions you will encounter on the exam:
1) Know the difference between Contingency and Management reserves their use/application - Contingency Reserves are for known unknowns and Management Reserves are for unknown unknowns.
2) Know the steps required to use each - Contingency Reserves do not require management approval or a change to the Cost baseline, since Work Packages estimates + Contingency Reserves = Cost Baseline. Conversely Management reserves do require management approval AND require a change request to modify the Cost Baseline since Management reserves while part of the Project Budget are not reflected in the Cost Baseline.
3) Any changes to the Cost Baseline require Integrated Change Control procedures are followed i.e. submission and approval of a change request to modify the baseline.
One last point, any change to a baseline whether it be the Cost, Schedule, or Scope Baseline will require an approved change request.
I hope this adequately addresses your question as well as helping you to focus on what information you are likely to be tested on regarding the intended use of each reserve, their differences, and the procedural requirements to use each type of reserve.
Moderators: Yolanda Mabutas, Timothy Enalls, Scott Gillard, Mary Kathrine Padua, ERIC BARTLETT, Kevin Nason, Steven Mudrinich, PMP, Mark Wuenscher, PMP, John Wolverton, Tracy Shagnea, PMP, Jada Garrett, Mark Lacattiva, Patrick Floris PhD PMP, Ty Weston, PMP, Genevieve Pluviose, PMP
This interview with Simona Fallavollita (LinkedIn Profile) was recorded at the magnificient Project Management Institute (PMI)® Global Conference 2017 in Chicago, Illinois. We discuss the how, what, why and when of the changes that are coming to the PMP exam.