Risk Reserve

In  the JPL case we get familiar with “Risk Reserve” concept. Lee, the risk manager, justifies the cost of the Tiger team by this concept. He says: “When a risk review board concludes that a particular item needs a 100% cost and time reserve, it is predicting that the component will need three or four tiger teams along the way to come in and solve some serious problems”.

“Risk reserve” is a precautionary allocation in total project budget to deal with uncertainties. We could prepare an operation budget based on the assumption that everything will continue as planned. But life and projects have always surprises. Once work breakdown structure “WBS” is prepared, appointed risk manager needs to allocate a contingency fund to cover identified and registered risks. Here comes another question: are all risks predictable?  The answer is simply no! Unregistered risks are also part of life and business.  The “management fund” could address this concern.  

Risk reserve is not only about funds. Delivery time could need a risk reserve assumption. How about staffing? Are you sure that your hired staff won’t leave the project?

Risk manager should think of risk reserves seriously.  In the JPL case risk reserve allowed Tiger team to form and intervene. It should be the same in all projects.

I summarize my point as follows:

·         A risk or project manager always should identify backup resources.

·         Risk reserves are inclusive of monetary funds, work schedule and commitments, staff and material.

·         Always learn from past for success in future. Study failed or troubled projects.