Question

You are leading a high-rise tower construction project in nyc. it is a modern design with glass exteriors to enhance the view. the mayor has just imposed a new tax on all new construction with glass exteriors and a tax reduction for buildings made of 80% concrete. after a risk analysis, your team and the project sponsor decide the glass exteriors should be replaced with 90% concrete. this will greatly increase the cost of the project. where will the funds come from?"

O contingency reserves
O risk budget
O cash flow of the project when it is completed
O management reserves

Answer 1

The additional funds for the increased costs of the high-rise tower project in NYC due to the design change to 90% concrete will likely come from contingency reserves or management reserves, which are set aside for unforeseen circumstances and unknown risks in the project budget.

Step-by-step explanation:

In the scenario where a high-rise tower construction in NYC is faced with a new tax imposition for glass exteriors and a tax reduction for concrete structures, switching to a 90% concrete exterior after a risk analysis involves identifying a source for the additional funds required due to increased costs. The appropriate source of funds in this situation would typically be the contingency reserves or the management reserves. Contingency reserves are budgeted for unforeseen work that is within the scope of the project, while management reserves are funds set aside for unknown risks that are not within the scope of the project and are used at the discretion of the project sponsor or management.

The risk budget is generally not a separate pool of funds but is instead a part of the overall project budget allotted to managing risks. Lastly, relying on the cash flow of the project when it is completed is not a feasible option for funding immediate construction costs, as this cash flow is speculative and occurs post-completion. Therefore, in this case, the project team would likely utilize the reserves allocated for such eventualities, which should have been a part of the initial financial planning of the project.