Project Management Chapter 7
Processes for Cost management
1. planning cost management 2. estimating the cost -includes project document updates 3. determining budget 4. controlling costs
rough order of magnitude (ROM) estimate
A cost estimate prepared very early in the life of a project to provide a rough idea of what a project will cost
definitive estimate
A cost estimate that provides an accurate estimate of project costs
budgetary estimate
A cost estimate used to allocate money into an organization's budget
bottom-up estimates
A cost-estimating technique based on estimating individual work items and summing them to get a project total
parametric estimating
A cost-estimating technique that uses project characteristics (parameters) in a mathematical model to estimate project costs
top-down estimates
A cost-estimating technique that uses the actual cost of a previous, similar project as the basis for estimating the cost of the current project; also called analogous estimates
analogous estimates
A cost-estimating technique that uses the actual cost of a previous, similar project as the basis for estimating the cost of the current project; also called top-down estimates
cash flow analysis
A method for determining the estimated annual costs and benefits for a project
earned value management (EVM)
A project performance measurement technique that integrates scope, time, and cost data
learning curve theory
A theory that when many items are produced repetitively, the unit cost of those items normally decreases in a regular pattern as more units are produced
cost baseline
A time-phased budget that project managers use to measure and monitor cost performance
earned value (EV)
An estimate of the value of the physical work actually completed
estimate at completion (EAC)
An estimate of what it will cost to complete the project based on performance to date
intangible costs or benefits
Costs or benefits that are difficult to measure in monetary terms
tangible costs or benefits
Costs or benefits that can be easily measured in dollars
indirect costs
Costs that are not directly related to the products or services of the project, but are indirectly related to performing the project
direct costs
Costs that can be directly related to creating the products and services of the project
Which of the following is true of analogous estimates? A. They use project characteristics in a mathematical model to estimate project costs. B. They are the only technique which do not require expert judgement. C. Their main disadvantage is that they cost more than other techniques. D. They are most reliable when previous projects are similar in fact with current projects.
D. They are most reliable when previous projects are similar in fact with current projects.
unknown unknowns
Dollar amounts included in a cost estimate to allow for future situations that are unpredictable (sometimes called management reserves)
management reserves
Dollar amounts included in a cost estimate to allow for future situations that are unpredictable (sometimes called unknown unknowns)
known unknowns
Dollar amounts included in a cost estimate to allow for future situations that may be partially planned for (sometimes called contingency reserves) and that are included in the project cost baseline
contingency reserves
Dollar amounts included in a cost estimate to allow for future situations that may be partially planned for (sometimes called known unknowns) and that are included in the project cost baseline
reserves
Dollar amounts included in a cost estimate to mitigate cost risk by allowing for future situations that are difficult to predict
_____ is a project performance measurement technique that integrates scope, time, and cost data.
Earned Value Management
A budgetary estimate is the most accurate of the three types of estimates. (T/F)
False
sunk cost
Money that has been spent in the past
_____ uses project characteristics in a mathematical model to estimate project costs.
Parametric estimating
____________ are revenues minus expenditures
Profits
profits
Revenues minus expenses
overrun
The additional percentage or dollar amount by which actual costs exceed estimates
cost variance (CV)
The earned value minus the actual cost
schedule variance (SV)
The earned value minus the planned value
baseline
The original project plan plus approved changes
budget at completion (BAC)
The original total budget for a project
planned value (PV)
The portion of the approved total cost estimate planned to be spent on an activity during a given period
project cost management
The processes required to ensure that the project is completed within the approved budget
profit margin
The ratio between revenues and profits (losses are negative percentages)
rate of performance (RP)
The ratio of actual work completed to the percentage of work planned to have been completed at any given time during the life of the project or activity
cost performance index (CPI)
The ratio of earned value to actual cost; can be used to estimate the projected cost to complete the project
schedule performance index (SPI)
The ratio of earned value to planned value; can be used to estimate the projected time to complete a project
life cycle costing
The total cost of ownership, or development plus support costs, for a project
actual cost (AC)
The total of direct and indirect costs incurred in accomplishing work on an activity during a given period
If an important supplier goes out of business, management reserves can be set aside to cover the resulting costs. (T/F)
True
In a bottom-up estimate, the size of the individual work items is one of the factors that drives the accuracy of the estimates. (T/F)
True
If a project is halfway completed, it's schedule performance index is 110 percent, and its cost performance index is 95 percent, how is it progressing?"
ahead of schedule and over budget
The main goal of the _____ process is to produce a cost baseline for measuring project performance and project funding requirements
cost budgeting