Final answer:
Contingency reserves are allocated funds or time for unforeseen issues in a project, a key element of risk management. They are included in the cost baseline, but not typically in the schedule baseline. These reserves are utilized only when necessary, often determined by a risk analysis.
Step-by-step explanation:
Contingency reserves are funds or time allocated in project management for unforeseen changes or issues that may arise during the course of a project. These reserves are a part of risk management practices and are intended to address the uncertainties that come with any project. They are commonly used to cover cost overruns or to compensate for time delays.
Contingency reserves are typically included in the cost baseline of a project but not in the scheduled baseline. The cost baseline incorporates all budgeted costs, including contingency reserves, that are necessary to complete the project. However, the schedule baseline only reflects the agreed-upon timeline and does not account for the additional time that might be set aside in contingency reserves. These reserves are only tapped into when necessary, and therefore, they are not a scheduled part of the project's timeline unless specifically needed due to emerging risks.
When creating a project plan, project managers will estimate the contingency reserves based on a risk analysis. Once the reserves are allocated, they are part of the project budget to be used if required. It's important to monitor and control the use of these reserves to ensure the project remains within its planned budget and schedule.