TOPIC: Free PMP Exam Sample Question of the Week

Question:
You are setting aside 15% of your baseline hardware cost to counteract the risk of hardware cost increases and technological advances. What is this called?

A. Reserve Analysis
B. Residual Risk
C. Contingency Reserve
D. Budgeted Cost of Work Scheduled

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Hint: You are setting aside a budget for an unplanned event.

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Answer and Explanation:

The Correct Answer is C.

The amount that you are setting aside to account for cost uncertainty is called a "contingency reserve". The contingency reserve may be a percentage of the estimated cost, a fixed number, or may be developed by using quantitative analysis methods.

Please note that the question was intentionally a bit vague by asking "What is this called?" and not clearly specifying what "this" is referring to. "This" could refer to the action of setting the amount aside or "this" could refer to the amount that was set aside. In order to determine the correct answer you had to analyze the available answers, and compare the definitions of the four available options against the scenario. In this way, it became clear that the action that you performed was not a "reserve analysis" and that the amount you put aside was also neither a "residual risk" nor the "budgeted cost of work scheduled".

By eliminating these other choices, it becomes clear that "this" must relate to the amount of money you are putting away because "Contingency reserve" is the only definition that works in the circumstances described.