AN ANALYSIS OF MANAGEMENT RE SERVE BUDGET

Management Reserve (MR) budget is an amount of the total allocated budget withheld by contractors for management control purposes. More specifically, its purpose is to provide an adequate budget for in-scope but unanticipated work on the contract. As a contract proceeds to completion, and unanticipated, in-scope work is identified, MR budget is allocated to that work. Once allocated, MR budget becomes part of the performance measurement baseline (PMB) used to measure and control cost and schedule performance on the contract. Accordingly, MR budget is an important part of effective planning and control on defense contracts. Presumably, contracts with greater risk (uncertainty) will h ve a need for greater MR budget. Using data from the Defense Acquisition Executive Summary (DAES) database, we test this assumption. In addition, this paper provides quarterly descriptive statistics and related graphics on the amount and use of MR budget on hundreds of defense acquisition contracts from 1975 to 1998. Results indicate statistically significant differences in the median MR budget percentage across contract types (cost-reimbursable and price) and the military services managing the contracts (Army, Air Force, Navy), and no significant differences across contract phases (development and production). In addition to providing benchmarks fo