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PMP Practice Questions #30

As the project manager overseeing a new software implementation, you are estimating contingency reserve for the project. How should you determine the correct contingency reserve?

A) Allocate an additional 10% as a general contingency practice.
B) Negotiate the reserve amount with stakeholders, securing as much as possible.
C) Assess based on factors such as cost estimation uncertainties and the current risk profile of the project.
D) Forego any contingency reserve and rely strictly on the estimate.

Analysis

In this scenario, the project manager is in charge of a new software implementation and needs to estimate the contingency reserve for the project. Estimating the appropriate contingency reserve is critical for addressing uncertainties and ensuring that the project has a safety net in case unforeseen challenges arise. The question aims to discover the best method to determine this reserve.

Analysis of Options:

Option A: Allocate an additional 10% as a general contingency practice: This method involves adding a fixed percentage to the project cost as a contingency. While this is a practice followed in some organizations, it is not necessarily the best approach. Simply adding a fixed percentage does not consider the unique risks and uncertainties specific to the project. Therefore, while it might be a straightforward approach, it may not always be the most accurate or tailored to the project’s needs.

Option B: Negotiate the reserve amount with stakeholders, securing as much as possible: This option highlights the practice of negotiating the contingency amount with stakeholders, trying to secure the highest possible reserve. Although this may happen in many organizations, it isn’t a methodological approach. The contingency should not be determined by negotiation alone but should be rooted in a thorough risk assessment. Securing funds just for the sake of it can lead to inefficiencies and waste of resources.

Option C: Assess based on factors such as cost estimation uncertainties and the current risk profile of the project: This seems a structured and methodical approach. It involves a process known as Reserve Analysis. The project manager would evaluate uncertainties related to requirements, review the risk register, assess potential impacts of identified risks, and then determine the required contingency. This approach ensures that the contingency reserve is rooted in actual data and the specific risk profile of the project, making it the most appropriate and precise method.

Option D: Forego any contingency reserve and rely strictly on the estimate: This approach dismisses the importance of having a contingency reserve altogether. It is a risky method as no project is without uncertainties. Relying strictly on the estimate without any buffer can lead to project overruns and potential failures, especially when unforeseen challenges arise. Therefore, while it might seem like a confident approach, it isn’t advisable in practical project management.

Conclusion: Option C emerges as the best approach. Rather than relying on generic percentages, negotiation tactics, or forgoing contingency altogether, the project manager should engage in a thorough Reserve Analysis. By doing so, the manager ensures that the project’s contingency reserve is based on actual risk data and tailored to the project’s unique needs. Among the presented choices, Option C emerges as the optimal solution.

PMP Exam Content Outline Mapping

DomainTask
Process Task 3: Assess and manage risks
ProcessTask 5: Plan and manage budget and resources

Topics Covered

  • Reserve Analysis
  • Contingency Planning
  • Estimation
  • Risk Review

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