Your project team has been working on the budget for the Cascada PREP project. You've asked the team to create a roll-up of the budget that provides a high-level view of the project costs. Based on your discussions with other project leaders and on your own reading, you realize that you are not the only one who has been challenged by estimating projects of this size.
Read: Accounting for Megaproject Dollars
Read: Managing Project Finance - The Project Manager's Role
Budget reserves represent rolled-up contingencies of cost growth
at different levels of design,
during construction or software development,
for overall management,
to account for third-party and other unanticipated changes, and
for other areas that may show a high potential for risk, such as environmental mitigation, utilities, or highly specialized designs and unfamiliarity with new technologies.
Schedule Reserves represent rolled-up contingencies leading to an extended schedule.
fine1.pngYou remain concerned that the project schedule is pretty tight. In order to qualify for 100% of the economic development zone funding the budget depends on, the project must be completed within three weeks of the original delivery date, including the planning time you've already spent. After three weeks, the amount of economic development zone funding will decrease by 10% for every week the project is delayed. You have scheduled a meeting with Lindsey Fine, one of the state Commerce Departments EDZ Office budget officials. You want to review the draft budget with her and confirm that everything looks good.
When you arrive at the conference room, Fine has her laptop open and is reviewing the spreadsheet with the high-level budget that you sent to her in advance of the meeting.
She nods to you and turns to the spreadsheet. "At first glance, this high-level budget looks reasonable," she says. "However, I don't see line items included for contingency reserves. As I'm sure that you know, large, innovative and complex projects never completely go as planned. There are always unforeseen budget and schedule issues that arise. One approach is to create reserves that will cover responses for risks you've chosen to accept. Could I take a look at your project risk register?"
You start your laptop and open up an electronic version of the risk register.
Fine scans the risk register for a moment. "This looks pretty comprehensive," she says. "I need to step out for a minute for a quick conference call. With this information, can you update the budget with schedule and budget reserves? I'll be right back."
Download: Cascada High-Level Draft Project Budget
You calculate the contingency reserve amounts budget reserves and schedule reserves. To do this you decide to include the sum of responses for accepted risks, and when Fine returns from her conference call, she looks over your budget and schedule reserve numbers.
"It all looks reasonable," she says. "Are you ready to sign off on this?"
You hesitate for a moment, and then mention to Fine your concern about including a schedule reserve, given the fact that 100% of the EDZ funding relies on meeting the schedule date. Also, you are concerned about going public with a large budget reserve and wonder if you should multiply the costs of each risk response by the probability of occurrence of that risk instead of including the entire cost for each accepted risk response.
"Well, you can do what you like," Fine says. "In my experience, unforeseen problems inevitably arise with these projectsI don't care how good a project manager you are. Having a budget overrun and a limited reserve to cover it is going to cause as much bad publicity as planning for it upfront. The same goes for the schedule. Why don't you talk to Maria Jones and Marco Padulathe CEO and state representativethey may be able to convince the state to make an exception for the EDZ funds reimbursement. The state wants successful projects as much as we do. Just shoot me an e-mail about how you want to deal with the reserves in the budget."
Make and Support Your Choice
After considering whether to include contingency reserves for schedule and cost in your budget, you decide to:
Include schedule and budget reserves for risks that have contingency plans in the project budget.(Use totals at the bottom of the "Risk Response Plan and Impact to Schedule & Budget" column from the Risk Register.)
Include only budget reserves because the schedule must be completed by the originally estimated date to qualify for full state funding. (Use only the budget total in the "Risk Response Plan and Impact to Schedule & Budget" column from the Risk Register.)
Include a schedule reserve but reduce the budget reserve by multiplying the cost of the risk response by the probability that the risk will occur. (Use totals at the bottom of the "Risk Response Plan and Impact to Schedule & Budget" column, but multiply the budget values by the "Probability" column from the Risk Register.)
After deciding your approach, write an email to Lindsey Fine supporting your approach for incorporating contingency reserves into the budget and addressing the options that she recommended, but you decided not to pursue.
Next, complete the High-Level Cascada Draft Project Budget worksheet by completing the cells in yellow at the bottom of the spreadsheet. The values you enter for cost reserves and schedule reserves should reflect your decision above. All values needed to complete this task are available on the Risk Register, the High-Level Budget sheet or are calculated from those values. It should be clear where the values for each cell came from (for example, make a note in the cell to the right in the row.
the spreadsheet should use formulas whenever possible.
Once you completes the High-Level Budget Draft and the email to Lindsey Fine.
Cascada Community Medical Center Cascada Community Medical Center PREP Project Draft Project Budget (5 in 1,000) Month 1 Month 3 Month 3 Mon M Mad Men Meth o Perre Face Design Development 203 $100 EHR, Portal & Admin Design 13 O 106 Environmental Migation Relocation 210 Project Management Design & Management Total W 3788544128 128 129 1 33.7 20:45 Grading & site Work Foundation & Concrete Ron & Woodwork $300 522 5814 S $116 $116 11 5340 SANS S $313 3713501 $54 512226 Exterior HVAC & Factory Floor Landscaping & Parsing Bridge and Signage Robotics & Control ins o n P ination Testing and OSHEPA Review CHR Development Database Patient Portal Development Wegration Testing Bystem & Pen Testing JUser Training iw User ystem Culover Data Development & implementation $150 5905 SE3431 393599 5312 $315 529 18 $211 $107 $166 $107 $100 $100 $136 5340 0 5195 315 316 1738 308 $0 $0 $75 $185 $US 186 $120 23 390 $15 1015 $100 5120 3241 3467 $575 5415 1300 7 90 0 00 1510 Overal Project Totals 109 58985848 9615960 51,001 51,260 732 Cents Schedule months - 2 months design & mort e m Project Budget Calculation Total Project Costs activity cost estimates from above Activity contingency Mands and amigation con Work package cost emates Project contingency reserves Car Acc P ost What budou illou the Cascada CEO & CFO weside for the entire projet Based on your risk prioritization, place letters identifying each risk in the appropriate Qualitative Risk Analysis Matrix Impact Insignificant Minor Moderate Major Severe Likelih ood Almost certain Likely Possible Unlikely Rare Risk Register Risk Matrix Cascada Community Medical Center Udscaud community Medical Center Risk Register Qualitative Rating Quantitative Rating Likelihoo Impac Risk Risk d Score Ranking Probability Consequences The d Risk Response Plan and impact to Schedule A Budget Avoid Use a different technology that has been used more frequest but we were and test Budget impact at plan: $190K Schedule impact of place wees nequires interface des he 5500,000.00 we in de poup may be completes have been mad Public Publie put process may unit y overlook certain contences, leading to Pues coday Cost to recover 2 weeks response plan developed due to low Passively Accept pro the vendors to coordinate and Two-pronged porch ) Migate probably by establishing to communication protocol for vendors Conte charged to communion training and establishing system SK 21 Accept actively by Vender erdinate c delays and could be added to the budget causing budget and schedule A 30% nerescudean anda send The event managed wh proper Schedule Not sure what to do... (it's this week's Ezt weater current projectes of the funding will be lost for decision!) causing us to farby schedule the race bridge or construction 1) Avoid Change the ato divert the interchange evront rup ble further construction Budget moct of per $850K Schedule Roster 5 we 2) Residurik dverted entrance way stil encounters vonmental challenges wered and the public sector could be party w holder et New concept for entrance bridge design be considered to be unacceptable due to deshwor version byly Avoid Use a different technology that has been used more frequery but sorger to build Budget imot of 95 Schedule petit plan & weats Avo Use a different technology at has been used more Pri Thered How t production in stages the o Per the bone packsong 3900.000 and 3 weeks delay Budget 2018 Schedule impact of part 2 wees Mitigate the act Arrange backup vender for external face materias Impact of pow e w bache vendorpus camente, external song meals are not provided s expected the project would experience nificant l y point on the More 30 more for gratis 3400K - $120K Severe were not be found laten testng Penetration testing can be d e systemeters expense correction for any vinentes Cost 112. She wees 1) M ate part wave Bardware and want to water is prop o sto per testing these capables one SOK side for these resources 21 M ate probability to developers in safe and secure methodologies Budetect of 1120,000 for grogram the prefer the Passively accept respond ed due to See Aqu The cost of o d may be on 10% r adcy pending PROTECT CONTACTE ku r sed on a contency w cost. Thatves 11.04M and we cortegne ever re c ondary ACIMIY CONTENTS ACTIVITIES medi UTTRATION t ve 2.4 Reg retexposure residu & 15 unidentified threats 3.M wesistor 21 we wisi Cascada Community Medical Center Cascada Community Medical Center PREP Project Draft Project Budget (5 in 1,000) Month 1 Month 3 Month 3 Mon M Mad Men Meth o Perre Face Design Development 203 $100 EHR, Portal & Admin Design 13 O 106 Environmental Migation Relocation 210 Project Management Design & Management Total W 3788544128 128 129 1 33.7 20:45 Grading & site Work Foundation & Concrete Ron & Woodwork $300 522 5814 S $116 $116 11 5340 SANS S $313 3713501 $54 512226 Exterior HVAC & Factory Floor Landscaping & Parsing Bridge and Signage Robotics & Control ins o n P ination Testing and OSHEPA Review CHR Development Database Patient Portal Development Wegration Testing Bystem & Pen Testing JUser Training iw User ystem Culover Data Development & implementation $150 5905 SE3431 393599 5312 $315 529 18 $211 $107 $166 $107 $100 $100 $136 5340 0 5195 315 316 1738 308 $0 $0 $75 $185 $US 186 $120 23 390 $15 1015 $100 5120 3241 3467 $575 5415 1300 7 90 0 00 1510 Overal Project Totals 109 58985848 9615960 51,001 51,260 732 Cents Schedule months - 2 months design & mort e m Project Budget Calculation Total Project Costs activity cost estimates from above Activity contingency Mands and amigation con Work package cost emates Project contingency reserves Car Acc P ost What budou illou the Cascada CEO & CFO weside for the entire projet Based on your risk prioritization, place letters identifying each risk in the appropriate Qualitative Risk Analysis Matrix Impact Insignificant Minor Moderate Major Severe Likelih ood Almost certain Likely Possible Unlikely Rare Risk Register Risk Matrix Cascada Community Medical Center Udscaud community Medical Center Risk Register Qualitative Rating Quantitative Rating Likelihoo Impac Risk Risk d Score Ranking Probability Consequences The d Risk Response Plan and impact to Schedule A Budget Avoid Use a different technology that has been used more frequest but we were and test Budget impact at plan: $190K Schedule impact of place wees nequires interface des he 5500,000.00 we in de poup may be completes have been mad Public Publie put process may unit y overlook certain contences, leading to Pues coday Cost to recover 2 weeks response plan developed due to low Passively Accept pro the vendors to coordinate and Two-pronged porch ) Migate probably by establishing to communication protocol for vendors Conte charged to communion training and establishing system SK 21 Accept actively by Vender erdinate c delays and could be added to the budget causing budget and schedule A 30% nerescudean anda send The event managed wh proper Schedule Not sure what to do... (it's this week's Ezt weater current projectes of the funding will be lost for decision!) causing us to farby schedule the race bridge or construction 1) Avoid Change the ato divert the interchange evront rup ble further construction Budget moct of per $850K Schedule Roster 5 we 2) Residurik dverted entrance way stil encounters vonmental challenges wered and the public sector could be party w holder et New concept for entrance bridge design be considered to be unacceptable due to deshwor version byly Avoid Use a different technology that has been used more frequery but sorger to build Budget imot of 95 Schedule petit plan & weats Avo Use a different technology at has been used more Pri Thered How t production in stages the o Per the bone packsong 3900.000 and 3 weeks delay Budget 2018 Schedule impact of part 2 wees Mitigate the act Arrange backup vender for external face materias Impact of pow e w bache vendorpus camente, external song meals are not provided s expected the project would experience nificant l y point on the More 30 more for gratis 3400K - $120K Severe were not be found laten testng Penetration testing can be d e systemeters expense correction for any vinentes Cost 112. She wees 1) M ate part wave Bardware and want to water is prop o sto per testing these capables one SOK side for these resources 21 M ate probability to developers in safe and secure methodologies Budetect of 1120,000 for grogram the prefer the Passively accept respond ed due to See Aqu The cost of o d may be on 10% r adcy pending PROTECT CONTACTE ku r sed on a contency w cost. Thatves 11.04M and we cortegne ever re c ondary ACIMIY CONTENTS ACTIVITIES medi UTTRATION t ve 2.4 Reg retexposure residu & 15 unidentified threats 3.M wesistor 21 we wisi
