Management Reserve (MR) is the amount of the Total Allocated Budget (TAB) withheld for management control purposes, rather than designated for the accomplishment of a specific task or set of tasks. It is held and applied through a disciplined process to any additional work that is to be accomplished within the authorized work scope of the contract or applied to accommodate rate changes for future work. MR focuses on work that wasn’t expected, sometimes called “Unknown-Unknowns”. 
MR is usually derived from a percentage of the overall project budget. The typical DoD program MR is between 5%-15%. The MR will change depending the type of program; higher for research and development and lower for straight procurement with a known product. A Program Manager (PM) should look at past performance of similar programs in determining an appropriate MR.
MR should be established once the full scope of work and budget are in place and a risk analysis of the program relative to the budget and planning can be done. It’s also included in the project’s Budget at Completion (BAC).
MR should not be used: 
- To offset or minimize existing cost variances
- To offset accumulated overruns or underruns
- For a contingency budget than can be used for new work
- It’s not eliminated from the contract price during negotiations
- It’s not included as part of the performance measurement baseline
- Don’t confuse Management Reserve with Contingency Funds. Contingency funds are for risks that have been identified in the program.
AcqLinks and References: