Chapter 7 Project Cost management
Direct Costs
Can be directly related to creating the products and services of the project
Cost management plan includes
Level of accuracy; Units of measure; Organizational procedures links; control thresholds; Rules of performance measurement; Reporting formats; process descriptions
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
baseline
a budget figure in the original project plan plus approved changes
Cash flow analysis
a method for determining the estimated annual costs and benefits for a project and the resulting annual cash flow
cost
a resource sacrificed or foregone to achieve a specific objective//something given up in exchange
cost baseline
a time-phased budget that project managers use to measure and monitor cost performance
If a company loses $5 for every $100 in revenue for a certain product, what is the profit margin for that product? a. -5% b. 5% c. -$5 d. $5
a. -5%
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
a. parametric
management reserves
allow for future situations that are unpredictable (unknown unknowns)
Contingency reserves
allow for future situations that may be partially planned for and are included in the project cost baseline (known unknowns)
planned value (PV)
also called the budget, is the portion of the approved total cost estimate planned to be spent on an activity during a given period
earned value (EV)
an estimate of the value of the physical work actually completed
Rough order of magnitude (ROM) estimate
an estimate of what a project will cost, ballpark, guesstimate, swag, broad gauge
estimate at completion (EAC)
an estimated cost of completing a project based on performance to date
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. a cost baseline c. basis of estimates d. project documents updates
b. a cost baseline
If a project is halfway completed, its schedule performance index is 110 percent, and its cost performance index is 95 percent, how is it progressing? a. It is ahead of schedule and under budget b. It is ahead of schedule and over budget c. It is behind schedule and under budget d. It is behind schedule and over budget
b. it is ahead of schedule and over 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. to complete a project within an approved budget
______reserves allow for future situations that are unpredictable. a. Contingency b. Financial c. Management d. Baseline
c. management
_______ 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
c. project cost budgeting
_______ 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
d. Earned value management
If the actual cost for a WBS item is $1,500 and its earned value is $2,000, what is its 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
d. The cost variance is $500, which is under budget
Accountants usually define___________as a resource sacrificed or foregone to achieve a specific objective a. money b. liability c. trade d.cost
d. cost
intangible costs or benefits
difficult to measure in dollars
reserves
dollar amounts included in a cost estimate to mitigate cost risk by allowing for future situations that are difficult to predict
Tangible costs or benefits
easy to measure in dollars
Typical problems with IT cost estimates
estimates are done too quickly; people lack estimating experience; human beings are biased toward underestimation; management desires accuracy
Bottom-up estimates
estimating the cost of individual work items or activities and summing them to get a project total. (activity-based costing)
Cost variance (CV)
is the earned value minus the actual cost
schedule variance (SV)
is the earned value minus the planned value (- took longer than planned +work took less time)
actual cost (AC)
is the total direct and indirect costs incurred in accomplishing work on an activity during a given period
Function points
means of measuring software size based on what the software does for end users
Sunk cost
money that has been spent in the past
Indirect costs
not directly related to the products or services of the project, but indirectly related to performing work on the project (electricity, paper towels, etc.)
What are the four processes for project cost management
planning cost management; Estimating costs; Determining the budget; Controlling costs
Earned value management (EVM)
project performance measurement technique that integrates scope, time, and cost data
Life cycle costing
provides a big-picture view of the cost of a project throughout its life cycle
definitive estimate
provides an accurate estimate of project costs (most accurate)
Profit margin
ratio of profits to revenues
Profits
revenues minus expenditures
What are the three types of cost estimates?
rough order of magnitude (ROM) estimate; budgetary estimate; definitive estimate
overrun
the additional percentage or dollar amount by which actual costs exceed estimates
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; used to estimate the projected cost of completing the project
schedule performance index (SPI)
the ratio of earned value to planned value; used to estimate the projected time to complete the project
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 (-10 to +25 accuracy , two years in the future)
Parametric estimating
uses project characteristics (parameters) in a mathematical model to estimate project costs
Learning curve theory
when many items are produced repetitively, the unit cost of those items decreases in a regular pattern as more units are produced