Project management standards such as the PMBOK® Guide, Sixth Edition state that contingency reserves, which are established to offset the cost or schedule impacts of realized identified risks, are considered part of the project budget and cost baseline. As the project manager is authorized to spend the budget as planned, it is assumed that they have the ability to draw upon contingency reserves directly as risks are realized.
In a recent class discussion, most of the learners indicated that while contingency reserves were considered part of the project budget, project managers in their companies were required to seek some level of approval from senior management before they could draw upon that funding. This matches my own experience from the previous two companies I worked for.
So I decided to conduct a poll in the LinkedIn PMI Project, Program and Portfolio Management discussion group to get feedback from a larger sample of practitioners. That discussion group has over 300,000 members and I received just under 2,000 responses to the poll which is a good response rate given that the vast majority of members of such large LinkedIn groups rarely contribute.
Only 17% of the responders indicated they had full authority to draw down on contingency reserves. This poll also garnered a number of comments from the group and here are some of the more interesting ones.
- “Every company I worked for the PM required approval to access contingency funds.”
- “PM needs to be given the “rights” to use their “authority” which generally is not the case in most organizations”
- “Agree, PMBOK is theory, real life business operations run differently in most cases”
- “The PMBOK is not living in the real world with respect to contingency reserves.”
- “I think it varies depending on the type of organization/industry. For example, in construction industry Project Managers have much more authority in general and a lot of funds are on their disposal. Compared to that Project Managers in IT have much less authority and funds in their control. They generally have to request approvals even for smaller sums.”
So, if in the majority of cases a PM needs to seek approval for contingency reserves, aside from artificially allocating funds to different cost “buckets”, is there any real benefit in distinguishing between contingency and management reserves?
And if there is such a disconnect between what is in written in project management standards and how it gets practiced in the real world, should we continue to call it “standard”?
(If you liked this article, why not read my book Easy in Theory, Difficult in Practice which contains 100 other lessons on project leadership? It’s available on Amazon.com and on Amazon.ca as well as a number of other online book stores)