How do contingency reserve and management reserve differ?

• A. Contingency reserve covers known risks within the project scope; management reserve covers unforeseen risks outside the project scope; both provide buffers.
• B. Contingency reserve funds the project budget for staff salaries.
• C. Management reserve covers known risks within scope.
• D. Contingency reserve covers risks outside scope.

Answer: (A)

Reserves in cost management are buffers for uncertain events, but they come in two kinds with different scopes and availability. Contingency reserve is set aside for known risks that could affect the project within its defined scope. It becomes part of the cost baseline, meaning it’s funded and planned for as part of the project’s approved budget. Management reserve, on the other hand, is for unforeseen work outside the project’s current scope. It sits outside the baseline and is controlled by higher-level management; it’s released only through formal change control when new work or shifts in scope occur.

This distinction is why the statement that contingency reserve covers known risks within the project scope and management reserve covers unforeseen risks outside the scope—and that both act as buffers—is the best description. It’s not about salaries or about known risks being assigned to management reserve, and contingency reserves do not cover risks outside the defined scope. For example, use contingency reserve to absorb cost increases from a known supplier risk within scope; use management reserve to fund a new requirement that emerges from outside the original plan, after a formal change is approved.