7-Project Cost Management

rough order or 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.

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.

top-down estimates

a cost estimating the 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.

parametric modeling

a cost-estimating technique that uses project characteristics (parameters) in a mathematical model to estimate project costs.

cost management plan

a document that describes how cost variances will be managed on the project.

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 states that when many items are produced repetitively, the unite cost of those items normally decreases in a regular pattern as more unties are produced.

cost baseline

a time-phased budget that project managers use to measure and monitor cost performance.

determining the budget

allocating the overall cost estimate to individual work items to establish a baseline for measuring 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.

life cycle costing

considers the total cost of ownership, or development plus support costs, for a project.

controlling costs

controlling changes to the project budget.

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 projects or services of the project, but are indirectly related to performing the project.

direct costs

costs that can be directly related to producing the products and services of the project.

estimating costs

developing an approximation or estimate of the costs of the resources needed to complete the project.

unknown unknowns

dollars included in a cost estimate to allow for future situation that are unpredictable (sometimes called management reserves).

management reserves

dollars included in a cost estimate to allow for future situations that are unpredictable (sometimes called unknown unknowns)

known unknowns

dollars included in a cost estimate to allow for future situations that may be partially planned for (sometimes called contingency reserves) and are included in the project cost baseline.

contingency reserves

dollars included in a cost estimate to allow for future situations that may be partially planned for (sometimes called known unknowns) and are included in the project cost baseline.

reserves

dollars included in a cost estimate to mitigate cost risk by allowing for future situations that are difficult to predict.

sunk cost

money that has been spent in the pats.

projects

revenues minus expenses.

planned value (PV)

that portion of the approved total cost estimate planned to be spent on an activity during a given period.

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.

project cost management

the processes required to ensure that the project is completed within the approved budget.

cost performance index (CPI)

the ratio of earned value to actual cost; can be used to estimate the projected cost to complete the project.

profit margin

the ration between revenues and profits.

rate of performance (R)

the ration 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.

schedule performances index (SPI)

the ration of earned value to planned value; can be used to estimate the projected time to complete a project.

actual cost (AC)

the total of direct and indirect costs incurred in accomplishing work on an activity during a given period.