Risks are controlled in one of two ways—contingency plans and workaround actions. Contingency plans are plans for implementing risk response strategies. These are plans that can be developed when a potential risk event is identified. Most project risks fall into the category of identifiable risks and are controllable through contingency planning.
Contingency planning usually involves setting aside some level of reserve, usually money but occasionally time as well, to ensure the project is kept on schedule. For example, if a risk is that some critical resources might not be available when needed, the contingency might be to hire a vendor or technical consultants to fill the resource void. Contingencies nearly always require additional funding—hence the need for a contingency reserve.
Workaround actions are activities implemented when the risk could not be foreseen or planned for. These events almost always cost more than the project budget allowed, so the funding is taken from a management reserve. Both contingency and management reserves are established specifically to ensure the project is kept on schedule if a risk event occurs. The basic difference between the two types of reserve is that contingencies are planned into the project budget and are usually controlled by the project manager, whereas the management reserve is not a part of the project budget and is controlled by senior management.