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(OWN-3236) Optimizing Your Management Reserve

Level: Advanced
Venue: 2019 AACE International Conference & Expo, June 16-19, 2019, New Orleans, LA, USA

Abstract: Management reserve and contingency definitions are critical issues in any mid or large project. Any time that contingency is not sufficient to cover critical events, the project leader and the company’s management team may need to make use of the management reserve, which is a last resort source of funding that projects can only access in extreme situations, with appropriate justifications.

Different companies approach the use of management reserves in different ways, with a few common methods analyzed in this document. Depending on the degree of centralized / devolved control, either the company could let projects manage their own reserves almost independently, or a central bucket of money will be setup where all projects consolidate and draw down from where needed. One ramification is analyzed as well, which considers an intermediate financing layer.

This work supports the reserve allocation process supported in a simulation model that attempts to replicate different scenarios from a fictitious program within a company. An optimization will be run in order to recommend the best scenario for the company, based on sensitivity analyses of the number and magnitude of the projects.