Contingency reserve vs. management reserve

Many of my clients use contingency reserve and management reserve interchangeably. Although they both refer to money used to account for a risk that has triggered, there is a difference.

• Contingency reserve - This is your fund for “known-unknowns“. That means you’ve already identified the risk; you just don’t know how much it will impact your project. This can be estimated based on the sum of all of your risks’ expected values.
• Management reserve - This is for the “unknown-unknowns“. Basically, you didn’t even identify the risk until it has occurred. This may be derived from using percentage of the overall project budget.