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reserve, the amount of a management reserve is typically based on a percentage of the

total project cost.

What makes the management reserve different from the contingency reserve is the
spending authority and the fact that it covers unforeseen costs. The contingency fund is
usually under the discretion of the project manager, who controls how these funds are
spent. The management fund is usually controlled by upper management, and the
project manager can’t spend money out of this fund without approval from upper
management. Management reserves are not included as part of the project budget or

cost baseline.

The terms contingency reserve and management reserve may be
considered interchangeable in some organizations.

The project budget is used to create the cost baseline, which is a tool used during
project execution and during the Monitoring and Controlling phase to monitor project
expenditures.

Cost Baseline

The key members of the project team should review the draft budget. It may be
appropriate to have a representative from the accounting department or the PMO
review the draft as well. The project team needs to understand the critical link between
the schedule and the budget. Any questions about budget categories or how the dollars
are spread across the project timeline should be addressed at this time.

Once the budget review with the project team is complete, it is time to get the project

sponsor’s approval and then create a cost baseline. The cost baseline is the total
approved expected cost for the project. This should be approved before any work
begins. All future expenditures and variances will be measured against this baseline.

The cost baseline is used throughout the remainder of the project to track the actual
cost of the project against the estimated or planned costs. It is also used to predict
future costs based on what’s been spent to date and to calculate the projected cost of
the remaining work.

The project manager should communicate the cost baseline to the project stakeholders.
Some stakeholders may want a copy of the total project budget, while others may be
interested in the budget only for specific phases of the project. You should note each
stakeholder’s needs regarding budget information in the communication plan.

Expenditure Tracking and Reporting

Now that the budget is established and the cost baseline is approved, you will need to
track the project expenditures and report the state of the budget to your stakeholders

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