Chapter 7 - Project Cost Management

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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

life cycle costing

The total cost of ownership, or development plus support costs, for a project

function points

a means of measuring software size based on what the software does for end users. comprised of inputs, outputs, inquiries, internal data, and external interface data

to-complete performance index (TCPI)

a measure of the cost performance that must be achieved with the remaining resources to meet a specific goal, such as the BAC or EAC.

earned value management (EVM)

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

cost baseline

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

management reserves / unknown unkowns

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

definitive estimate

an accurate estimate of project costs

estimate at completion (EAC)

an estimated cost of completing a project based on performance to date.

indirect costs

costs that are not directly related to the products or services of the project, but are indirectly related to performing work on the project

direct costs

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

reserves

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

project cost management

includes the processes required to ensure that a project team completes a project within an approved budget.

bottom-up estimates / activity-based costing

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

three-point estimates

involve estimating the most likely, optimistic, and pessimistic costs for items.

learning curve theory

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

overrun

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

planned value (PV)

the authorized budget assigned to scheduled work

cost variance (CV)

the earned value minus the actual cost

schedule variance (SV)

the earned value minus the planned value.

earned value (EV)

the measure of work performed expressed in terms of the budget authorized for that work

budget at completion (BAC)

the original total budget for the project

cost performance index (CPI)

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

schedule performance index (SPI)

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

profit margin

the ratio of profits to revenues

actual cost (AC)

the realized cost incurred for the work performed on an activity during a specific time period.

analogous estimates / top-down estimates

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

budgetary estimate

used to allocate money into an organization's budget

parametric estimating

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

4 Processes of Cost Management

1. Planning cost management 2. Estimating Costs 3. Determining the budget 4. Controlling costs

sunk cost

money that has been spent in the past

cash flow analysis

provides a big-picture view of the cost of a project throughout its life cycle

rough order of magnitude (ROM) estimate

provides an estimate of what a project will cost. A ROM estimate can also be referred to as a ballpark estimate, a guesstimate, a swag, or a broad gauge

profits

revenues minus expenditures


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