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Guide: Contingency Reserves based on PMBOK Guide Seventh Edition

What is Contingency Reserves?
According to the PMBOK Guide Seventh Edition, contingency reserves (also known as 'known-unknowns') are funds intended to cover project risks. These are estimated costs that may arise if certain identified risks materialize during the project execution.
Why is it important?
Contingency reserves are significant as they ensure project continuity in case project risks occur. They help in managing the cost changes and prevent the project from going over budget.
How it works?
Once all potential risks are identified, estimated costs for each risk are calculated and set aside as the Contingency Reserve. It is important to note that a Contingency Reserve is only used for the risks that have been identified and not for any unknown risks.
Exam Tips: Answering Questions on Contingency Reserves
Understanding the difference between contingency reserves and management reserves is the key to answer such questions. Remember, contingency reserves are for 'known-unknowns' and are included in the cost baseline, while management reserves are for 'unknown-unknowns' and are not included in the cost baseline. Also, if a question involves a scenario where the contingency reserve is being used for an unexpected cost, this is incorrect as the contingency reserve is only for identified risks. Always read the questions carefully and pay close attention to the mentioned scenario.

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Contingency Reserves practice test

Contingency reserves are amounts of money set aside in a project budget to cover specific identified risks associated with the project. These risks can affect cost, scope, or schedule, and are typically accounted for during the project risk management process. Contingency reserves are a form of proactive risk management strategy intended to protect the project budget from unplanned increases in cost. They are generally calculated as a percentage of the total project budget based on historical data and project risk assessments. In case there are any cost overruns or unexpected costs, contingency reserves can be used to keep the project on track.

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