PMI Risk Management Professional Practice Exam

The difference between the cost estimate and the cost performance baseline is referred to as what?

1. Cost variance

2. Contingency reserve

3. Scope reserve

4. Management reserve

The correct answer is: Contingency reserve

The correct answer to the question is that the difference between the cost estimate and the cost performance baseline is referred to as the contingency reserve. In project management, the cost estimate represents the anticipated costs to complete project activities, while the cost performance baseline is a time-phased budget used to measure project performance. The contingency reserve is an amount added to the cost estimate to account for potential risks and uncertainties that might lead to cost overruns. Essentially, it serves as a buffer to address unforeseen issues that could impact the project financially. By including the contingency reserve, project managers can ensure that they have the necessary funds to deal with risks without compromising the project's planned budget. This helps in maintaining financial stability throughout the project lifecycle and ensures that funding is available to address identified project risks. Therefore, recognizing the difference between the overall cost estimate and the established cost performance baseline is crucial for effective project cost management and risk mitigation.