Reserve Analysis
Reserve Analysis is a technique used to account for potential uncertainties in project estimates. In this method, additional resources, known as 'reserves', are included in the project cost and schedule estimates to mitigate risks. There are two types of reserves; contingency reserves and management reserves. Contingency reserves are estimated to account for identified risks, while management reserves are set apart to address unforeseen risks. This technique helps in managing the uncertainties and risks associated with the project.
Guide on Reserve Analysis
Importance: Reserve Analysis is an important aspect of the Capital Asset Pricing Model (CAPM) as it focuses on estimating contingencies, which are crucial for risk management. This serves to predict potential variations in the project's cost and schedules.
What it is: Reserve analysis is a technique used to estimate and determine the contingency reserve. It includes amounts to account for cost or schedule uncertainties.
How it works: Reserve analysis works by first identifying potential cost overruns or schedule delays. Then, it calculates a contingency reserve, typically expressed as a percentage of estimated costs or durations.
Exam Tips: Answering Questions on Reserve Analysis: To answer questions on reserve analysis, understand the fundamental concepts and clear your basics. Use formulae where required and do not omit any steps. Practice with different types of problems to get comfortable with the concept.
Additional Tip:In questions that present a scenario, try to distinguish between known knowns (facts), known unknowns (risks), and unknown unknowns (unforeseen situations). This will help you to determine when and how to use reserve analysis in a given situation.
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