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By default the value of MaxAllowedPhaseOffset is 300 i.e. 5 mins. If I reduce it to 60 secs. What affect can it have ?

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Worst case: your clock will be unstable (ie slightly fast or slow until reset). That value refers to the maximum amount of 'skew' that is allowed. If your clock is different from the correct time, Windows Time will not try to reconnect to the time server to get a new time, but will record an offset. If the time difference is greater than 60 seconds, it will set the clock directly.

This means that the clock can be reset to the correct time continually. Setting it to 1 will make the time service reset the clock periodically, so it'll be wrong more often.

If you have a virtual machine running, you may want to set the value to 1 anyway as many guests prevent other guests from calculating the tiem correctly. You'd want to set it to 1 in these cases, so the clock will not be stable, but it will at least correct itself regularly.

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