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Cost baseline+Management reserve

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Viswanathan Raju
Posts: 16
Joined: Sat Nov 02, 2019 6:17 am

Cost baseline+Management reserve

Thu Jul 02, 2020 2:26 am

Mark is an execution phase of the road construction project in a town. Halfway through the execution phase, Mark realizes that there is a change in the local law which demands sound proof fencing of the road passing near the hospitals and school. This task was not foreseen and not included in cost baseline of USD Mn 19.5. Mark submits a Change Request to CCB. CCB approves of using USD 1 Mn for additional work from Management Reserves. How will this impact project?

Project cost baseline remains the same and project budget is reduced by USD Mn 1

Project cost baseline is revised to USD Mn 20.5 and project Budget remains the same

Project cost baseline and project budget are increased by USD Mn 1

Project cost baseline remains same, and project budget is increased by USD Mn 1
Solution
The question is about “Determine Budget” process. PMBOK 7.3


Page 252, 7.3.2.3, Whenever Management reserve is used for unknown unknowns, the amount of Management Reserves used is added to Project cost baseline. However, the project budget remains the same unless there is a Change Request to change project budget which is not explicitly mentioned in question

My Answer here is - C ;But Izenbridge answer is - B.
I just want to know more details.
manishpn
Expert
Expert
Posts: 2887
Joined: Sat Jan 04, 2014 3:55 pm

Re: Cost baseline+Management reserve

Thu Jul 02, 2020 7:35 pm

Viswanathan Raju wrote:
Thu Jul 02, 2020 2:26 am
Mark is an execution phase of the road construction project in a town. Halfway through the execution phase, Mark realizes that there is a change in the local law which demands sound proof fencing of the road passing near the hospitals and school. This task was not foreseen and not included in cost baseline of USD Mn 19.5. Mark submits a Change Request to CCB. CCB approves of using USD 1 Mn for additional work from Management Reserves. How will this impact project?

Project cost baseline remains the same and project budget is reduced by USD Mn 1

Project cost baseline is revised to USD Mn 20.5 and project Budget remains the same

Project cost baseline and project budget are increased by USD Mn 1

Project cost baseline remains same, and project budget is increased by USD Mn 1
Solution
The question is about “Determine Budget” process. PMBOK 7.3


Page 252, 7.3.2.3, Whenever Management reserve is used for unknown unknowns, the amount of Management Reserves used is added to Project cost baseline. However, the project budget remains the same unless there is a Change Request to change project budget which is not explicitly mentioned in question

My Answer here is - C ;But Izenbridge answer is - B.
I just want to know more details.

Your own reference of 7.3.2.3 is correct, so if your rationale, however you made mistake in choosing C

USD 1Mn is approved from management reserve and that is now added to project cost baseline , so baseline is increased to USD M20.5, however since there is no change requested in project budget it will remain the same
Br,
Manish P
PMP, PMI - ACP, SAFe Agilist
http://www.izenbridge.com/blog/7-effect ... ification/
Viswanathan Raju
Posts: 16
Joined: Sat Nov 02, 2019 6:17 am

Re: Cost baseline+Management reserve

Fri Jul 03, 2020 8:02 pm

Thank you Mr.Manish,question mentioned
"Mark submits a Change Request to CCB. CCB approves of using USD 1 Mn for additional work from Management Reserves"
what it means...my understanding is change has been carried out as per integrated change control procedure only.
Hence cost baseline also changed here.

Thanks,
Viswanathan Raju
manishpn
Expert
Expert
Posts: 2887
Joined: Sat Jan 04, 2014 3:55 pm

Re: Cost baseline+Management reserve

Sun Jul 05, 2020 8:38 pm

Yes project cost baseline is same but the project budget is not changed, please read the PMBOK section again and possibly watch sakets video!
Br,
Manish P
PMP, PMI - ACP, SAFe Agilist
http://www.izenbridge.com/blog/7-effect ... ification/
Viswanathan Raju
Posts: 16
Joined: Sat Nov 02, 2019 6:17 am

Re: Cost baseline+Management reserve

Fri Jul 10, 2020 7:02 pm

Thank you again Mr.Manish.bit confused..and I got it now. :D

Management reserve+cost baseline=Project Budget.

Cost Baseline. The approved version of the time-phased project budget, excluding any management reserves, which
can be changed only through formal change control procedures and is used as a basis for comparison to actual results.

Estimates may also be produced for the amount of management reserve of schedule for the project. Management
reserves are a specified amount of the project budget withheld for management control purposes and are
reserved for unforeseen work that is within scope of the project. Management reserves are intended to address
the unknown-unknowns that can affect a project. Management reserve is not included in the cost baseline,
but it is part of the overall project budget requirements. Depending on contract terms, use of management
reserves may require a change to the cost baseline.

Kind regards,
Viswanathan Raju

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