Your manufacturing project is in the planning phase, and you are developing the cost baseline. You have completed bottom-up estimating for all work packages and have aggregated these costs. The finance department requires a 10% management reserve for organizational risks, and historical data shows similar projects typically experience 15% cost variance. Your project sponsor asks what the final project budget should include. What is the MOST appropriate approach?

Question

Accepted Answer

The correct answer is C. The project budget consists of the cost baseline plus management reserves (Process Task 2.3). The cost baseline includes all authorized budgets for work packages and contingency reserves for identified risks. Management reserves are for unknown-unknown risks and are held outside the baseline but within the overall project budget, requiring sponsor approval to use. Option B is incorrect because it suggests including management reserves in the baseline, which violates standard cost management practices. Option A is incomplete as it excludes necessary reserves. Option D inappropriately applies historical variance data and omits management reserves that the finance department requires. Understanding the distinction between contingency reserves (part of baseline) and management reserves (outside baseline) is critical for proper budget management.

PMP Practice Question: Process — Predictive, Medium

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