OMIS 352 Ch 7

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 producing the products and services of the project

cash flow analysis

determines the estimated annual costs and benefits for a project and the resulting annual cash flow

planning cost management

determining the policies, procedures, and documentation that will be used for planning, executing, and controlling project cost

estimating costs

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

reserves

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

estimate at completion (EAC)

estimate of what it will cost to complete the project based on performance to date

a. -5%

if a company loses $5 for every $100 in revenue for a certain product, what is the profit margin for that product? a. -5 percent b. 5 percent c. -$5 d $5

b. It is ahead of schedule and over budget.

if a project is halfway completed, its schedule performance index is 110% and its cost performance index is 95%, how is it progressing? a. it is ahead of schedule and under budget b. it is ahead of schedule and over budger c. it is behind schedule and under budget d. it is behind schedule and over budget

d. the cost variance is 500 which is under budget

if the actual cost for a WBS item is 1500 and its earned value is 2000, what is the cost variance, and is it under or over budget? a. the cost variance is -500 which is over budget b. the cost variance is -500 which is under budget c. the cost variance is 500 which is over budget d. the cost variance is 500 which is under budget

project cost management

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

bottom up estimates

involve estimating the individual work items or activities and summing them to get a project total

sunk cost

money that has been spent in the past

budget at completion (BAC)

original total budget for the project

planned value (PV)

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

-estimates are done too quickly -people lack estimating experience -human beings are biased toward underestimation -management desires accuracy

problems with IT cost estimates (4)

Earned value management (EVM)

project performance measurement technique that integrates scope, time, and cost data

rate of performance (RP)

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

profit margin

ratio of revenues to profits

profits

revenues minus expenses

learning curve theory

states that when many items are produced repetitively, the unit cost of those decreases in a regular pattern as more units are produced

tangible costs or benefits

those costs or benefits that an organization can easily measure in dollars

cost baseline

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

actual cost (AC)

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

false

true/false Analogous estimates are the most accurate technique to estimate costs.

true

true/false Estimates should become more accurate as time progresses.

true

true/false If an important supplier goes out of business, management reserves can be set aside to cover the resulting costs.

true

true/false It is important for project managers to understand that every cost estimate is unique.

analogous or top down estimates

use the actual cost of a previous, similar project as the basis for estimating the cost of the current project

parametric modeling

uses project characteristics (parameters) in a mathematical model to estimate project costs

b. To complete a project within an approved budget.

what is the main goal of project cost management? a. to complete a project for as little cost as possible b. to complete a project within an approved budget c. to provide truthful and accurate cost information on projects d. to ensure that an organization's money is used wisely

b. cost baseline

which of the following is not an output of the project cost management process called estimating costs, according to the PMBOK guide? a. activity cost estimates b. cost baseline c. basis of estimates d. project documents updates

a. parametic

you are preparing a cost estimate for a building based on its location, purpose, number of square feet, and other characteristics. what cost estimating technique are you using? a. parametric b. analogous c. bottom up d. top down

definitive estimate

-later in the project, less than a year out -provides an accurate estimate of project costs

planning cost management

-level of accuracy and units of measure -organizational procedure links -control thresholds -rules of performance measurement -reporting formats -process descriptions

rough order of magnitude (ROM) estimate

-provides an estimate of what a project will cost -done very early in the project life cycle

budgetary estimate

-used to allocate money into an organization's budget -early in the process, 1-2 years left in project

a. bottom-up

A cost estimation tool which involves estimating individual work items or activities and summing them to get a project total is known as a(n) _____ estimate. a. bottom-up b. analogous c. budgetary d. parametric

b. the earned value minus the actual cost

Cost variance is: a. the planned value minus the rate of performance. b. the earned value minus the actual cost. c. the planned value plus actual costs. d. the rate of performance minus earned value.

b. the earned value minus the actual cost

Cost variance is: a. the planned value plus actual costs. b.the earned value minus the actual cost. c.the rate of performance minus earned value. d.the planned value minus the rate of performance.

a. direct

Newtech Inc. hires John for the position of a software programmer to work on their new project. Salary paid to John by Newtech Inc. would be an example of _____ costs. a.direct b.indirect c.intangible d.sunk

d. electricity used to run its factories

Soles is a footwear company which has recently set up its store in Ambrosia. To manufacture its products, Soles incurs a range of different costs. Which of the following would be an example of an indirect cost? a. Cost of machines to produce shoes b. Cost of leather used to manufacture shoes c. Salary paid to factory workers d. Electricity used to run its factories

overrun

The additional percentage or dollar amount by which actual costs exceed estimates

c. planned value

The budget is one of the three values of earned value management and is also known as _____. a. indirect cost b. actual cost c. planned value d. earned value

d. cost budgeting

The main goal of the _____ process is to produce a cost baseline for measuring project performance and project funding requirements. a. cost estimating b. cost controlling c. cost planning d. cost budgeting

true

True/False A cost management plan can include organizational procedures links, control thresholds, and process descriptions.

true

True/False Definitive estimates are made one year or less prior to project completion.

false

True/False If the cost performance index (CPI) is less than 100 percent, the project is under budget.

True

True/False Parametric models are reliable when the models are flexible in terms of the project's size.

False

True/False The primary output of the planning cost management process is a change request.

True

True/False The project management plan and project funding requirements are inputs of the process of controlling costs.

c. they can be easily measured

Which of the following is true of tangible costs? a. They cannot be calculated in monetary terms. b. Their examples include goodwill and prestige. c. They can be easily measured. d. They are difficult to quantify

a. determining the budget

_____ involves allocating the overall cost estimate to individual work items to establish a baseline for measuring performance. a. Determining the budget b. Estimating costs c. Controlling costs d. Finalising policies for project costs

d. parametric estimating

_____ uses project characteristics in a mathematical model to estimate project costs. a. Rough order of magnitude estimating b. Bottom-up estimating c. Analogous estimating d.Parametric estimating

c. management

__________ reserves allow for future situations that are unpredictable a. contingency b. financial c. management d. baseline

c. project cost budgeting

___________ involves allocating the project cost estimate to individual material resources or work items over time a. reserve analysis b. life cycle costing c. project cost budgeting d. earned value analysis

d. earned value management

___________ is a project performance measurement technique that integrates scope, time, and cost data a. reserve analysis b. life cycle costing c. project cost budgeting d. earned value management

cost

a resource scarified or foregone to achieve a specific objective or something given up in exchange

d. cost

accountants usually define _____ as a resource sacrificed or foregone to achieve a specific objective a. money b. liability c. trade d. cost

determining the budget

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

management reserves (unknown unknowns)

allow for future situations that are unpredictable

contingency reserves (known unknowns)

allow for future situations that may be partially planned for and are included in the project cost baseline

earned value (EV)

an estimate of the value of the physical work actually completed

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