Reserve Analysis

In any project, it’s vital to have plans in place to account for unexpected occurrences. Reserve analysis ensures you have the resources necessary to tackle problems as they arise, rather than having to stop work and scramble when something goes wrong or delay the project if your planning was inadequate. Reserve analysis also ensures that you have enough money set aside at any time to get the job done, no matter what obstacles you encounter on the way. 

What is Reserve Analysis?

In project management, reserve analysis is the process of estimating the amount of money that should be set aside to cover unexpected costs. This can be done by looking at past projects and estimating how much money was spent on unforeseen expenses. Additionally, you can use risk management techniques to help identify potential problems and estimate their cost. By doing this, you can ensure that your project has enough funds to cover any unexpected costs. You may also want to consider incorporating a contingency plan into your project timeline as well.  

The reason to do reserve analysis in project management is to determine how much is reasonable for a reserve of time and money in order to establish cost and schedule baselines of the project. In this way, the project is aimed at reducing the effects of the risks that could occur in terms of cost and timeline. An estimate of time and cost might not always be accurate, so it's best to have a backup analysis. This may happen before, during, or after the establishment of time and cost baselines, but most commonly it is used during these baselines to evaluate if the allocated reserves are appropriate for the project and reflect reality.

Reserve analysis can be performed on both management reserves and contingency reserves. When planning reserve analysis, it is best to figure out what type of reserve analysis will be conducted at the beginning and then to devise a strategy according to that.

Reserve analysis is generally used as a tool and technique in project management in estimating activity durations, estimating costs, determining the project budget, controlling costs and monitoring risks.

Contingency Reserve

A project contingency reserve is the amount of funds that a project may require in addition to what was originally budgeted, and is used to cover additional costs or risks foreseen in the project. The amount of the contingency reserve should be based on a risk assessment of the project.  The contingency reserve should be included in the project budget and cost baseline.

Management Reserve

Unidentified risks can be managed with the project's management reserve. This is part of the budget but not the baseline. It is not a presumed reserve. Rather, it is a sum based on the organization's policies. Project management requires an emergency reserve, and the management reserve provides it. In the absence of it, the project manager will have to explain the situation to the sponsor and ask for more funds, which will make it more difficult to secure the necessary resources. 

See also: Regression Analysis