CAPM Practice Question: Project Management Fundamentals and Core Concepts
A project manager is assigned to a project that is in the planning phase. The sponsor asks the project manager to include a 10% contingency reserve in the budget. The project manager knows that the project has a high degree of uncertainty. What should the project manager do?
⚠ Common exam trap
A common mix-up: candidates assume the sponsor's request is always correct or that a fixed percentage is standard practice, but the CAPM exam tests the principle that contingency reserves must be justified by risk analysis, not arbitrary figures.
Answer choices
Why each option matters
Answer the question above first, then reveal the full breakdown to understand why each option is right or wrong.
Correct answer & explanation
✓
Perform a quantitative risk analysis to determine appropriate contingency reserves.
The project manager should perform a quantitative risk analysis to determine the appropriate contingency reserve based on the project's specific risk exposure, rather than relying on an arbitrary 10% figure. This aligns with the PMBOK Guide's guidance that contingency reserves should be derived from risk analysis, not sponsor preference, especially given the high degree of uncertainty.
Answer analysis
Option-by-option breakdown
For each option: why learners choose it and why it is or isn't the right answer here.
- ✗
Explain that contingency reserves are not allowed in the project budget.
Why it's wrong here
Contingency reserves are explicitly permitted in the project budget to cover identified risks, so stating otherwise misrepresents PMI guidance. It is tempting because reserves must be distinguished from management reserves, but the correct action is to apply a documented reserve analysis rather than deny their use.
- ✗
Refuse the request because it is unethical.
Why it's wrong here
Including a contingency reserve is standard, ethical project management practise, so refusing on ethical grounds is unfounded. It is tempting because reserves can be confused with padding, but the correct approach is to derive the reserve from risk analysis and document it transparently.
- ✓
Perform a quantitative risk analysis to determine appropriate contingency reserves.
Why this is correct
Quantitative risk analysis models uncertainty numerically, typically via Monte Carlo simulation, producing a defensible contingency figure rather than an arbitrary 10%. This satisfies the stem's high-uncertainty constraint by deriving the reserve from the project's actual risk exposure and confidence level.
- ✗
Add the 10% contingency reserve as requested.
Why it's wrong here
Adding a flat 10% without performing quantitative risk analysis or reserve analysis bypasses the documented process for determining contingency. It is tempting because the sponsor requested it, but the project manager should calculate the reserve from risk exposure rather than accept an arbitrary percentage.
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This CAPM practice question is part of Courseiva's free PMI certification practice question bank. Courseiva provides original exam-style practice questions with explanations, topic-based practice, mock exams, readiness tracking, and study analytics to help learners prepare for the CAPM exam.