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Reserve analysis and burndown charts
What do we mean by reserve analysis? It is used to determine the amount of contingency and management reserves needed for the project or remaining for the project.
As you know, contingency reserves are within the cost baseline and each work package. So we’ve got all of our work packages and activities, the cost is added up to to give us that cost baseline and then in those activities we have any contingency reserves for any risks that we know about or have analyzed.
Management Reserves
Now on top of that we put the management reserves, and that might be a certain percentage or just a little bit extra depending on the organization that you’re working in. And that is for any unknown things that we might come across in our project, so we have not planned for these. It’s a little bit of a management reserve just in case those things happen. We need to know with those those reserves – do we have enough to complete our project?
Reserve analysis compares the amount of contingency reserves remaining to the amount of risk remaining at any time in the project, in order to determine if the remaining reserve is adequate. Now a contingency reserve for the project might include amounts of time, money or resources to be used, or people or systems or things that we need to get a project complete.
Communicating Our Remaining Risk
This might be communicated using various graphical representations, including a burn down chart. Here’s an example of a burn down chart, and the reason we’re showing this is we can clearly see the difference for the reserves that we need. The first one on the bottom here is what we had planned, and we would plan to get it in ten days time. But as you can see we’re tracking over here on the top a little bit later, so it’s quite likely if we keep going at this speed that we will be finished in 11 to 12 days instead. Now we know that there’s a bit of a gap there, and we might actually need to use some of our contingency reserve to get the project complete, and that’s the benefit of using a graphical representation, so that everyone can see what’s going on.
And that’s also the benefit of doing reserve analysis in your project.
– David McLachlan