TOPIC: Free CAPM® Exam Sample Question

Which of the following is true about management reserves?

A. Management reserves are associated with the "known-unknowns."
B. Management reserves are not included in the cost or schedule baseline.
C. Management reserves are estimated for identified risks.
D. Management reserves are estimated at the activity level.

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HINT: Distinguish between management reserves and contingency reserves

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Answer and Explanation:
The correct answer is B.

Management reserves are established for management control purposes to deal with unforeseen work. Although it is part of the project duration or budget, it is not included in the baselines. Another way to look at it is that budget is the cost baseline plus management cost reserves and project direction is schedule baseline plus management duration reserve. Contingency reserves are reserves held to respond to identified risks and can be estimated at the project activity level.

Details for each option:

A. Management reserves are associated with the "known-unknowns."
Incorrect. Management reserves are reserves for unforeseen work, which is also known as the "unknown-unknowns."

B. Management reserves are not included in the cost or schedule baseline.
Correct. Management reserves are an amount of project duration reserved for management control purposes. Management reserves are included in the overall project duration estimates and the project budget. They are not included in the schedule or cost baseline.

C. Management reserves are estimated for identified risks.
Incorrect. Contingency reserves are allocated for identified risks that are accepted and for which response plans are developed while management reserves are associated with the unforeseen work.

D. Management reserves are estimated at the activity level.
Incorrect. Management reserves are estimated for a project or phase and are used to deal with unforeseen work. Since it is unforeseen, it does not make sense to be estimated for each project activity.

Reference: A Guide to the Project Management Body of Knowledge, (PMBOK^® Guide) – Sixth Edition, Project Management Institute Inc., 2017, Page(s) 202 and 245