Estimated monetary value of modifying an existing application.contingency and management reserve budget plan - Assignment Example

Contingency reserves incorporate the funds that are to handle the observed risks.On the other hand,management reserves are supposed to handle the risks that have not been identified.The contingency reserve is the amount of funds or any other financial resources that is allocated to a project above the amount that was originally designated This is used to reduce the risk of overruns. This also includes the specific amount of time which is quantified in man hours that is allocated above the first and the original version of time that was catering for all activities including overtime.

The contingency reserve is determined at the beginning f a project though it is allocated during progress of a project when it is decided that the original allocations might not be fit.In the case of the question at hand, the contingency reserve is the amount above the original allocation. This is the amount that was calculated in the first part of this paper: $13,375. Management reserve budget plan.Management reserve is basically an amount that is set aside for purposes of control of the management.

It is different from the amount set aside for the completion of a project.This amount is held for the sake of any work that may additionally sprout out unexpectedly. Such an amount may be the one that can be held due to changes in the rates in the future completion of work.This amount is not used to cater for variation in costs. Setting out of the management reserve has no preset formula and can be a percentage of the actual total budget. Considering that the project at hand includes modification of an existing project, an amount that is not far off from the total labor cost can be set as the management reserve.

I would personally set this amount to the one set it at the amount required to fix the software which is $3, 500. Assumptions for the reserves Owing to the fact that implementing and determining the reserve budgets is almost iterative, the ability of specifying the correct amount of the management reserve budget is not very clear. Additionally, implementation of budgeting that is probabilistic requires strong assumptions on costs requires very concise assumptions on the elements in the work breakdown structure.

Such elements are like correlation and distribution properties. This part of this discussion will look at the various assumptions that have been considered in the determination of the budget reserves. These assumptions will be based on various models as described by various scholars as below. According to Goldberg and Weber (1-7), “risk analysis and cost management”