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Contingency Planning and Reserves

Allocating resources for risk responses.

This topic covers the development of contingency plans and the establishment of time and cost reserves to address identified risks.
5 minutes 5 Questions

Contingency Planning and Reserves are critical components of risk management in project contexts, specifically addressed within the PMI Risk Management Professional framework. Contingency Planning involves developing predetermined action plans that will be implemented if identified risks materialize. These plans serve as response strategies that have been thoughtfully designed in advance, rather than reactive measures created during a crisis. Effective contingency plans outline specific steps, responsibilities, triggers, and timelines for implementation. Contingency Reserves are specially allocated resources (typically time and money) set aside to address identified risks should they occur. These reserves are calculated based on quantitative risk analysis and represent an estimated amount needed to manage specific known risks. Key characteristics of Contingency Reserves: 1. They are intended for "known unknowns" - risks that have been identified during risk assessment processes 2. They are formally incorporated into the project budget and schedule baselines 3. Their allocation is based on quantitative analysis such as Expected Monetary Value (EMV) or Monte Carlo simulation 4. They are managed by the project manager This differs from Management Reserves, which address "unknown unknowns" - unidentified risks that may emerge. Management reserves require higher approval levels for use. The process of establishing contingency reserves typically involves: 1. Identifying risks through comprehensive risk identification 2. Analyzing probability and impact of each risk 3. Calculating appropriate reserve amounts through quantitative methods 4. Documenting how and when reserves may be accessed 5. Establishing governance for reserve usage Effective contingency planning and proper reserve allocation demonstrate mature risk management practices, allowing projects to maintain baseline objectives despite risk events. This proactive approach helps minimize disruption, maintain stakeholder confidence, and increase the likelihood of project success.

Contingency Planning and Reserves are critical components of risk management in project contexts, specifically addressed within the PMI Risk Management Professional framework. Contingency Planning i…

Concepts covered: Management Reserves, Contingency Reserves, Schedule Contingency, Reserve Analysis, Fallback Planning, Workarounds, Contingency Planning, Risk Triggers, Buffer Management

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PMI-RMP - Contingency Planning and Reserves Example Questions

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Question 1

When allocating Schedule Contingency in a project with multiple parallel activities, which approach is most effective?

Correct Answer: Apply contingency based on the critical path risk exposure

When allocating Schedule Contingency in projects with parallel activities, basing it on critical path risk exposure is most effective for several reasons: 1. The critical path determines the overall project duration 2. Risk exposure on the critical path has the highest potential impact on project completion 3. This approach focuses resources where they matter most 4. It allows for risk-based decision making Other approaches are less effective because: Adding equal buffers to all paths wastes resources on less critical activities and may not provide adequate protection where needed most. Distributing contingency based solely on activity duration fails to consider risk levels and complexity. Basing contingency on the number of activities does not account for complexity, duration, or risk levels of individual activities.

Question 2

How should Schedule Contingency be distributed in a project where all critical path activities have equal risk exposure?

Correct Answer: Evenly across all critical path activities based on duration

When all critical path activities have equal risk exposure, the most appropriate way to distribute schedule contingency is evenly across all critical path activities based on their duration. This approach is logical and fair because: 1. Equal risk exposure means each activity has the same probability and impact of risk 2. Duration-based distribution ensures time buffers are proportional to activity length 3. This method maintains the project's critical path integrity The other options are less suitable because: Distributing based on cost and resources doesn't align with schedule risk management principles when risk exposure is equal. Using complexity levels as a distribution factor contradicts the premise that all activities have equal risk exposure. Stakeholder preferences and historical metrics should not override the mathematical reality of equal risk exposure across activities.

Question 3

In a project with unexpected risk events materializing, what is the best approach to reassess Schedule Contingency?

Correct Answer: Analyze risk event impacts and adjust contingency based on remaining risk exposure

The best approach to reassessing Schedule Contingency when unexpected risk events materialize is to analyze risk event impacts and adjust contingency based on remaining risk exposure. This is the most appropriate response because: - It follows proper risk management principles by evaluating actual impacts - It considers the current project situation - It allows for dynamic adjustment based on real data - It maintains focus on remaining risks that could still impact the project The other options are incorrect because: Maintaining original contingency allocation is rigid and fails to adapt to actual project conditions and emerging risks. Redistributing contingency equally among all activities is not risk-based and fails to account for varying risk levels in different activities. Applying contingency to each risk event as it occurs is reactive rather than proactive, and does not properly manage remaining risk exposure.

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