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One of the tools and technique as part of "Develop team" process is to give reward and recognition to the people/team for showcasing desirable behavior during project execution. This is done because People are motivated when they feel their work or contribution is valued by organization.

As per PMBOK Guide, Generally, Money is viewed as the tangible aspect of any reward system, although Money is not the ONLY motivating factor.

In Risk Management planning, for known risks which are threats, typically PMs need to keep aside "contingency reserve" so that if such risks do occur, it can be taken care by the funds kept aside for it.

My Question is:

do the PMs "reserve" or keep aside a specific amount to make sure reward and recognition are done as a way for people's motivation during project execution and if yes, does this amount become part of "cost baseline" for that project?

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Yes, the costs of various types of financial incentives are built into your costs; however, you would not likely display 'reward' as a line item in your baseline. No customer would want to pay for that. So it typically becomes part of your burden that you use on a labor rate. So every hour you charge you earn a penny or two towards these incentives.

Then when it comes time to pay the reward, it comes out of the profit of the project and the customer will not see an invoice for 'party.'

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  • ok, understood. However, PMBOK also talks about the ethics and moral responsibility of Project management profession, in general and also about being more transparent to your stakeholders. In that regard, Don't you think above point is like we are "hiding" a "real cost expenditure" from the customer/finance team? While I understand the advice and kind of agree to why we need to do it, it does not "felt" right when i read it 1st. Anyway thanks for the answer!
    – Ashutosh Deshmukh
    Commented Nov 25, 2018 at 13:44
  • You're not hiding anything. Every client who hires labor knows or should know that the labor rate they pay consists of the rate to cover the employee plus a host of adders to cover the company's costs, which include a host of indirect costs and overhead items that includes bonuses and various incentives. No client would care to see that list itemized but if they requested it you could easily disclose whatever you want.
    – David Espina
    Commented Nov 25, 2018 at 14:03
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Do you consider you should only pay bonuses for successful* projects or for every project?

Successful projects: when value is delivered to the client and net profits are generated for your company.

If only for successful projects, then I'd suggest you to consider a % of the net profits for bonuses and compensations. You won't disclose profits to your client anyway.

If you'll pay it for all projects, even the ones generating no profit, then you can allocate part of the project costs as retribution. It'll be up to you how much cost detail you share with your client.

There isn't likely to have a canonical answer for this question, you need to assess what's better / acceptable for your reality.

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