PMP Study - Part 13 - Estimating and Budgeting Project Costs

How do you calculate the Total Activity Cost?

Total Activity Cost = Cost of Activity + Contingency + Quality

What are the Outputs of the Estimate Costs process? (3 points)

1) Activity cost estimates 2) Basis of estimates 3) Project document updates

What are the Inputs to the Determine Budget process? (7 points)

1) Activity cost estimates 2) Basis of estimates 3) Scope baseline 4) Project schedule 5) Resource calendars 6) Contracts 7) Organisational process assets

What tools & techniques are used during the Estimate Cost process? (9 points)

1) Analogous estimating 2) Parametric estimating 3) Bottom-up estimating 4) Reserve analysis 5) Cost of quality 6) Project management estimating software 7) Vendor bid analysis 8) Expert judgment 9) Three-point estimates

What are the steps in the Project Cost Management processes? (4 points)

1) Break down the deliverables into work packages 2) Estimate and total the costs of all work, plus any reserves 3) As work performance information becomes available, compare actual costs against the cost performance baseline 4) Take corrective action as necessary to control cost variance

What are the types of reserve that are determined using the Reserve Analysis technique?

1) Contingency reserves - To account for unplanned changes related to risk events that occur during the project 2) Management contingency reserves - For unplanned changes to scope and cost

What tools & techniques are used during the Determine Budget process? (5 points)

1) Cost aggregation 2) Reserve analysis 3) Expert judgment 4) Historical relationships 5) Funding limit reconciliations

What are the Outputs of the Determine Budget process? (3 points)

1) Cost performance baseline 2) Project funding requirements 3) Project document updates

What is involved in a cost estimate? (2 points)

1) Determining all material and staff resources required to complete each activity and the associated costs 2) Identifying cost alternatives and basing estimates on the best choices in terms of cost and risk

What tools & techniques are used during the Control Costs process? (6 points)

1) Earned value management 2) Forecasting 3) To-complete performance index (TCPI) 4) Performance reviews 5) Variance analysis 6) Project management software

What are the two main benefits to a project manager of cost estimates?

1) Identifies funding requirements 2) Establishes a cost baseline

When is Analogous Estimating most reliable and effective? (2 points)

1) Most reliable when the projects compared are very similar 2) Most effective when used in conjunction with other estimating techniques

What is included in effective cost management? (4 points)

1) Observing costs as work proceeds and taking corrective action where necessary 2) Creating a plan at the start of a project that reflects the total costs required for completion 3) Working out what the resources required to complete activities will cost 4) Recognising how project decisions can affect costs

What are the Inputs to the Control Costs process? (4 points)

1) Project management plan 2) Project funding requirements 3) Work performance information 4) Organisational process assets

What should be included in the Cost Management plan? (7 points)

1) Required level of accuracy in activity cost estimates 2) Defined units of measurement for resource costs e.g. staff hours or days 3) Organisational procedure links, such as the use of control accounts in the WBS to track and control costs 4) Control thresholds which indicate an agreed amount of variance that can occur before action must be taken 5) Rules of performance measurement, including the use of earned value management 6) Reporting formats and frequency 7) Process descriptions for cost management

What attributes of an activity should be included during Parametric Estimating? (4 points)

1) Scope 2) Cost 3) Budget 4) Duration

What are the Inputs to the Estimate Cost process? (6 points)

1) Scope baseline 2) Project schedule 3) Human resource plan 4) Risk register 5) Enterprise environmental factors 6) Organisational process assets

What are the disadvantages of bottom-up estimates?

1) Take a lot of effort to implement 2) Too little information maybe available at the beginning of a project to allow for accurate estimates of work packages 3) Often more reliable once an initial project phase has been completed, for estimating the costs of remaining phases

What are the advantages of bottom-up estimates? (3 points)

1) Takes all costs incurred by the smallest units of work in the WBS into account 2) Enables easy reporting and tracking of costs through remaining levels in the WBS 3) Often relies on input from people who'll be performing the relevant tasks - this can increase their commitment to completing tasks within the budget developed on the estimates

What should be recorded in a basis of estimate? (2 points)

1) The factors, assumptions and / or constraints on which estimates are based to allow adjustment of cost estimates should any of the factors (e.g. resource requirements) change 2) Indicate confidence of the estimate by specifying a range of anticipated variance e.g. +/- 10%

What are the fundamental questions to ask when reviewing a bottom-up estimate? (4 points)

1) Was each task cost estimated? 2) Was each task estimate correct? 3) Were all estimates included in the subtotals? 4) Was the total for the activity costs estimate calculated correctly?

What are the key elements of the cost baseline?

1) Work package costs - aggregated estimates of activity costs 2) Subproject costs - aggregated estimates of work package costs 3) Total costs - aggregated estimates of subproject costs 4) Contingency reserves - amounts budgeted for unplanned costs 5) Due dates - planned times at which activity and work package costs will be incurred

What are the Outputs of the Control Costs process? (6 points)

1) Work performance measurements 2) Budget forecasts 3) Organisational process assets updates 4) Change requests 5) Project management plan updates 6) Project document updates

What is a cost estimate?

A projection of monetary resources that a project needs to meet it's objectives

What is an activity cost estimate?

A quantitative assessment of the probable costs that will be incurred for each project activity

How is the Cost Aggregation technique used during the Determine Budget process?

Aggregate the costs of activities in the WBS work packages, then aggregate work package costs to arrive at costs of components above them in the WBS - aggregating cost estimates all the way up the WBS allows establishment of the project cost estimate

How is the cost performance baseline commonly represented?

As a graph where the X-axis represents time and the Y-axis represents cost

What type of budget reserve is included in the cost baseline?

Contingency reserves

If someone is keeping actual costs and the planned budget in line considering all influencing factors that cause cost changes to the budget, keeping and eye on cost trends and anticipating the cost of work that still needs to be done, they are doing what?

Controlling costs

How do you calculate the Cost of Activity?

Cost of Activity = Labor + materials

What is Cost of Quality?

Describes all the costs associated with conforming to a project's quality requirements and the costs of failing to meet the requirements and having to rework a product until the requirements are met

If someone is in the process of adding up the estimated costs for each activity or work package to get an estimated budget for the entire project to provide a cost baseline against which actual costs can be monitored, they are doing what?

Determining budget

During which process in the Cost Management plan developed?

Develop Project Management Plan process

What is Reserve Analysis?

Enables the establishment of a cost or contingency reserve for the project providing a buffer for activities that my go over budget - reserves can be based on a percentage of the estimated cost, a fixed number or through quantitative analysis methods

If someone is in the process of forecasting what each project activity will cost based on the resources required to complete it, they are doing what?

Estimating costs

What is Bottom-up Estimating?

Making separate estimates of the cost for each work package in the WBS by breaking the work package down into its detailed activities, estimating costs for each activity and then rolling costs up to the work package level

What type of budget reserve is not included in the cost baseline?

Management contingency reserves

What is the other name for a Cost Performance Baseline?

Performance Measurement Baseline because it combines three baselines into one graph: the budget, schedule and scope

What are basis of estimates?

Record of how activity cost estimates were derived identifying any factors, assumptions and / or constraints

What is the biggest problem with bottom-up Estimating?

Requires a great attention to detail and can be time consuming

What are the two steps involved in bottom-up estimates?

Step 1 - Estimate costs for activities - Labor + Materials = Cost of Activity - Cost of Activity + Contingency + Quality = Total Activity Cost - Contingency & Quality costs can be determined at different points and not necessarily at the activity level - this impacts how costs are rolled up Step 2 - Roll up the estimates - Once each activity cost is analyzed they need to be added, allowing roll-up of the estimated costs to the next highest level in the WBS. Continue aggregating costs and rolling them up until a total cost for each of the project's main deliverables or phases is determined

What is the biggest risk with Parametric Estimating?

The accuracy of the parameters included determine how accurate an estimate is

What is Vendor Bid Analysis?

The comparison of various quoted costs from vendor submitted bids or quotations for work in order to arrive at a market-related cost estimate

What is identified in the cost performance baseline?

The expected costs of all work as well as the dates when the costs apply

What are the Project Funding Requirements?

The sum of the total estimated cost for a project and an established management contingency reserve. This is derived in conjunction with the organization's finance department and must be approved according to the organizational policies and expected cash flow to ensure the project can be expensed as required

What is the cost baseline used for?

To compare actual project cost performance against planned budget

What is the first step in budgeting & controlling costs?

To create an accurate cost estimate

Why must the cost baseline be time-phased?

To illustrate when costs will be incurred to ensure actual costs can be monitored as work proceeds rather then only when activities are complete and it's too late to control what was spent

What is a Three-Point Estimate?

Used to improve the accuracy of the activity cost by taking into account the amount of risk in the original estimate by calculating best case, worst case and most likely durations for an activity

What is tool is used to adjust Analogous Estimates?

Uses expert judgment to adjust past costs according to scope, duration and budget of the current project

What is Parametric Estimating?

When costs are forecast using parameters related to the scope of the project and product as well as resource cost information

What is Analogous Estimating?

When costs of a past project are used to forecast the costs of a current project