CAPM (Certified Associate in Project Management) Practice Exam

What is the difference between contingency reserve and management reserve?

1. Size of reserve

2. Inclusion in the cost baseline

3. Purpose of reserve

4. Method of calculation

The correct answer is: Inclusion in the cost baseline

Contingency reserve and management reserve are both types of reserves used in project management to address and mitigate potential risks and uncertainties in a project. The main difference between the two is their purpose. Contingency reserve is specifically allocated for known risks that have been identified through risk management processes. This reserve is included in the project cost baseline and is typically calculated as a percentage of the project budget. It serves as a buffer to cover unexpected costs that may arise due to identified risks during the project. On the other hand, management reserve is a more general reserve that is not included in the cost baseline. It is used to address unknown risks or unforeseen events that may impact the project. This reserve is typically held by the project manager and is not disclosed to stakeholders unless it is needed. Unlike contingency reserve, management reserve is not calculated based on a percentage of the budget, but rather determined by the project manager based on their judgement and experience. Therefore, option B is the correct answer as the primary difference between contingency reserve and management reserve is their inclusion in the cost baseline. The other options are incorrect as they do not accurately capture the main difference between the two.