A Contingency Reserve is time or money allocated in the schedule or cost baseline to address known risks with active response strategies. It is used when an identified risk occurs, ensuring the project remains on track without requiring additional approvals.
Key Aspects of a Contingency Reserve
- Accounts for Known Risks – Allocated based on identified risks in the Risk Management Plan.
- Part of the Cost or Schedule Baseline – Included in project planning to handle anticipated uncertainties.
- Requires Active Response Strategies – Used only if a predefined risk materializes.
- Distinct from Management Reserve – Unlike management reserves, contingency reserves are planned for specific risks.
Types of Contingency Reserves
- Cost Contingency Reserve – Extra funds allocated for potential financial overruns.
Example: A project includes a 10% cost buffer to cover unexpected material price increases. - Schedule Contingency Reserve – Extra time added to absorb delays.
Example: A construction project adds two weeks to account for potential weather disruptions.
Example Scenarios
Software Development
A development project sets aside $50,000 in contingency reserve for unexpected infrastructure upgrades.
Construction Project
A road construction project includes a contingency reserve of 10 additional workdays in case of supply chain delays.
Marketing Campaign
A global product launch allocates 5% of the total budget for contingency to address unexpected regulatory compliance costs in different regions.
Why Contingency Reserves Matter
- Minimizes Financial & Schedule Risks – Provides a safety net without derailing the project.
- Improves Planning Accuracy – Ensures that project estimates are realistic.
- Supports Effective Risk Management – Aligns with active risk response strategies.
- Prevents Unnecessary Escalations – Reduces the need for last-minute budget or timeline approvals.
See also: Management Reserve, Project Budget, Risk Management Plan, Schedule Buffer.