Which kind of costs typically includes expense factors that cover risks and volatility?

Contingency reserves are specifically set aside to address potential risks and uncertainties that may arise during a project. These reserves are a financial buffer that is intentionally included in the project budget to account for unforeseen events or challenges. They provide the project manager with the necessary funds to respond to risks that could impact project performance, schedule, or budget.

By incorporating contingency reserves, project managers can better prepare for variability in project execution, ensuring that they have a financial safety net to draw from when unexpected costs arise. This practice reflects a proactive approach to risk management, allowing for more flexible and adaptive responses to changes in project scope or conditions.

In contrast, fixed costs are expenses that remain constant regardless of project activity levels, while variable costs fluctuate with changes in project output. Management reserves are broader funds that may be used for overall project management strategies but are not specifically allocated for risk or volatility like contingency reserves are.