The Connection Between Reserve Analysis and Risk Management

There are always risks in project management. For example, there might be additional costs or time needs during the course of the project, even if a risk management strategy is applied beforehand.

 

Reserve analysis helps you analyze the reserves of a specific project, but how does reserve analysis actually help you reach your project goals? During this guide, we will delve into the relationship between reserve analysis and risk management.

 

How estimating is connected to risk management

 

Even though the project manager seeks to reduce and eliminate project risks by mitigating or transferring them, some of those risks might still exist. These risks need to be managed correctly in order to reach the goals and objectives of your project. That being said, the additional costs and time needed to overcome the risk if it happens need to be planned during the project estimation stage. These additional costs and time are called reserves so they are studied during the reserve analysis phase.

 

Estimating is important in a project, because it helps to figure out your risks and to complete the risk management process, which helps decrease the potential range of cost and time estimates. During estimation, potential risks that could cause an activity to take longer than expected are studied. When estimators offer activity duration estimates, they consider the potential risks that cause delays in activity completion.

 

Why risk management is important

 

Risk management is crucial, since it helps you save time and money. With risk management, you evaluate and look at any unexpected factors that could occur during the course of the project. If the risk does end up happening, you are better prepared and have a risk response plan set up. The risk will end up affecting your project less, since you are prepared for the possibility of it.

 

What is reserve analysis?

 

Project management needs to have a reserve to address any risks after the completion of risk management activities. It’s not possible to transfer or mitigate all of the risks of a project, so you need to have reserves to accommodate any risks that happen and reduce the impacts of these risks.

 

Reserve analysis is a technique performed by the project team and project manager. Reserve analysis is meant to better maintain and manage the projects, and it helps the project manager accommodate these risks to decrease their effects.

 

Two types of reserves in reserve analysis

 

There are two kinds of reserves that should be considered during reserve analysis:

 

  • The contingency reserve is the first kind of reserve in reserve analysis. Contingency reserves are buffers or time reserves. For example, if a project is meant to take about five days but could take up to eight days because of risks, the additional three days is a contingency reserve. The risks often cause activity completion delays, so this type of reserve is important in reserve analysis.
  • The management reserve is the second kind of reserve in reserve analysis. Management reserves refer to additional funds for unseen risks. These reserve funds accommodate any additional expenses that you might not have expected.

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