Cost Management Knowledge Area (10 questions)

Plan Cost Management Tools and Techniques

1. Expert Judgement 2. Data Analysis 3. Meetings are Tools and Techniques of this Cost Mgmt process.

Fixed costs (overhead) are

Costs that do not change as production changes. Ex: cost of setup, rent, utilities.

Trend Analysis technique examples

Charts Forecasting are examples of?

Variable costs are

Costs that vary with the amount of production or amount of work. ex: cost of material, supplies, wages

Life Cycle Costing

Involves looking at costs over the entire life of the product, not just the cost of the project to create the product.

Control Costs process is the process of

The process of monitoring the status of the project to update the project costs and managing changes to the cost baseline.

Determine Budget is the process of

the process of aggregating the estimated costs of individual activities or work packages to establish an authorized cost baseline.

Determine Budget Outputs

.1 Cost baseline (includes contingency reserves) .2 Project funding requirements .3 Project documents updates • Cost estimates • Project schedule • Risk register are Outputs of this Cost mgmt process?

Estimate Costs Outputs are

.1 Cost estimates .2 Basis of estimates .3 Project documents updates • Assumption log • Lessons learned register • Risk register are Outputs for this cost mgmt process.

Estimate Costs Tools and Techniques

.1 Expert judgment .2 Analogous estimating (top down estimating) .3 Parametric estimating .4 Bottom-up estimating .5 Three-point estimating .6 Data analysis Alternatives analysis Cost of Quality .7 Project management information system .8 Decision making Voting are tools and techniques for this Cost Mgmt process.

Determine Budget Tools and Techniques

.1 Expert judgment .2 Cost aggregation .3 Data analysis • Reserve analysis .4 Historical information review .5 Funding limit reconciliation .6 Financing are Tools and Techniques for this Cost Mgmt Process.

Control Cost Tools and Techniques

.1 Expert judgment .2 Data analysis Earned value analysis Variance Analysis Trend Analysis Reserve analysis .3 To-complete performance index .4 Project management information system are Tools and Techniques for this Cost mgmt process?

Plan Cost Management Inputs

.1 Project charter .2 Project management plan Schedule mgmt plan Risk Mgmt plan .3 Enterprise environmental factors .4 Organizational process assets are inputs to this Cost Mgmt Process.

Control Costs Inputs

.1 Project management plan Cost Mgmt plan Cost baseline Performance measurement baseline .2 Project documents Lessons learned register .3 Project funding requirements .4 Work performance data .5 Organizational process assets are Inputs to this Cost. Mgmt. Process

Estimate Costs - Inputs

.1 Project management plan • Cost management plan • Quality management plan • Scope baseline .2 Project documents • Lessons learned register • Project schedule • Resources requirements • Risk register .3 Enterprise environmental factors .4 Organizational process assets are inputs to this Cost Mgmt KA process.

Determine Budget Inputs (9)

.1 Project management plan • Cost management plan • Resource management plan • Scope baseline .2 Project documents • Basis of estimates • Cost estimates • Project schedule • Risk register .3 Business documents • Business case • Benefits management plan .4 Agreements .5 Enterprise environmental factors .6 Organizational process assets are Inputs to this Cost Mgmt Process.

Control Costs Outputs

.1 Work performance information (calculated CV, SV, CPI, SPI, TCPI, and VAC values for WBS components,) .2 Cost forecasts .3 Change requests .4 Project management plan updates Cost Mgmt Plan Cost baseline Performance measurement baseline .5 Project documents updates Assumption log Basis of Estimates Cost Estimates Lessons learned register Risk register are Outputs of this cost mgmt process?

What are the 4 processes for the Cost Management KA

1. Plan Cost Management (Planning) 2. Estimate Costs (Planning) 3. Determine Budget (Planning) 4. Control Costs (Monitoring and Controlling)

Resource Calendar

A calendar that identifies the working days and shifts on which each specific resource is available.

Discounted Cash Flow

A cash flow analysis based on time value for money

Risk Register

A document in which the results of risk analysis and risk response planning are recorded. (Input to Estimate Cost and Determine Budget)

Management Reserves

A lump sum used to accommodate unknown risks or unidentified risks. Cost baseline + Management Reserves = Cost Budget Amount of the project budget withheld for management control purposes and are reserved for unforeseen work that is within scope of the project. Intended to address the unknown unknowns that can affect a project. When it is used to fund unforeseen work, the amount used is added to the cost baseline, thus requiring an approved change to the cost baseline.

Schedule Performance Index (SPI)

A measure of schedule efficiency expressed as the ratio of earned value to planned value. It measures how efficiently the project team is using its time. We are only progressing at X percent of the rate originally planned >1 = Good, more work completed than planned. < 1 = Bad, less work completed than planned.

Schedule variance (SV)

A measure of schedule performance expressed as the difference between the EV and the PV. The amount by which the project is ahead or behind the planned delivery date, at a given point in time. As of today , how far behind or ahead of schedule are we?

Cost Performance Index (CPI) defined

A measure of the cost efficiency of budgeted resources expressed as the ratio of earned value to actual cost. Most critical EVA metric, it measures the cost efficiency for the work completed. We are getting $X worth of work out of every $1 spent. Funds are or are not being used efficiently. >1 = Good, cost underrun for work completed < 1 = Bad, cost overrun for work completed.

To-complete performance index (TCPI)

A measure of the cost performance that is required to be achieved with the remaining resources in order to meet a specified management goal, expressed as the ratio of the cost to finish the outstanding work to the remaining budget.

Earned Value (EV) (Replaced by Earned Schedule)

A measure of work performed expressed in terms of the budget authorized for that work. It is the budget associated with the authorized work that has been completed. It cannot be greater than the authorized PV budget. Often used to calculate the percent complete of a project. Hint: As of today, what is the estimated value of the work actually accomplished.

Cost of Quality

A method of determining the costs incurred to ensure quality. (T&T Estimate Cost & Plan Quality Mgmt)

Bottom-up estimating

A method of estimating project duration or cost by aggregating the estimates of the lower-level components of the work breakdown structure (WBS). A method of estimating a component of work. The cost of individual work packages or activities is estimated to the greatest level of specified detail. The detailed cost is then summarized or "rolled up" to higher levels for subsequent reporting and tracking purposes.

Earned value management

A methodology that integrates the scope baseline with the schedule, and cost baseline to form the performance measurement baseline. EVM develops and monitors 3 key dimensions for each work package and control account 1. Planned Value 2. Earned Value 3. Actual costs. Measurements resulting from earned value analysis indicate whether there are any potential deviations from the performance measurement baseline. expanded to include concept of Earned Schedule (ES)

Variance at Completion

A projection of the amount of budget deficit or surplus, expressed as the difference between the budget at completion and the estimate at completion. As of today, how much over or under budget do we expect to be at the end of the project?

Variance Analysis

A technique for determining the cause and degree of difference between the baseline and actual performance. As used in EVM, it is the explanation (cause impact, and corrective actions) for : cost (CV=EV - AC) schedule (SV = EV - PV) and Variance @ completion: (VAC = BAC - EAC) variances.

Analogous Estimating or Top-Down Estimating

A technique for estimating the duration or cost of an activity or a project using historical data from a similar activity or project. T/T : Estimate Cost and Estimate Activity Duration

Control thresholds

Amount of variation in cost allowed before you need to take action. Typically expressed as percentage deviations from the baseline plan.

Value Analysis (value engineering)

An approach used to optimize project life cycle costs, save time, increase profits, improve quality, expand market share, solve problems, and/or use resources more effectively. Technique to find a less costly way to do the same work. Systematically identify required project functions, assign values to those functions, and provide functions at the lowest cost without loss of performance

Performance Measurement baseline (PMB)

An approved plan for the project work to which the project execution is compared, and deviations are measured for management control. It typically integrates scope, schedule, and cost parameters of a project, but may also include technical and quality parameters. An approved, integrated scope-schedule-cost plan for the project work against which project execution is compared to measure and manage performance. The PMB includes contingency reserve, but excludes management reserve. Used with Earned value analysis.

Parametric estimating

An estimating technique in which an algorithm is used to calculate cost or duration based on historical data and project parameters. It uses a statistical relationship between relevant historical data and other variables (e.g., square footage in construction) to calculate a cost estimate for project work.

Project Schedule

An output of a schedule model that presents linked activities with planned dates, durations,milestones, and resources. The project schedule includes planned start and finish dates for the project's activities, milestones, work packages, and control accounts.

Vendor Bid Analysis

Analysis of what the project should cost, based on the responsive bids from qualified vendors. (T&T Estimate Cost)

Analytical Techniques

Analytical Techniques that can be used in the context of Plan Cost Management include: Payback period: How long it will take to recover amount invested in a project. Discount rate is NOT taken into account in calculations for payback period. Return on Investment (ROI) Internal Rate of Return (IRR): the discount rate that makes the net present value equal 0. Discounted Cash Flow: a cash flow analysis based on time value for money. Technique is uses in project selection to estimate attractiveness of an investment by predicting how much money will be received in future and then discounting it to its current value. Net Present Value: Calculated by discounting all future income amounts based on the discount rate and adding the discounted income stream. Net Present Value calculation = (Cash flow amount) / ((1 + Discount Rate) to the power of number of years)

Payback/Project Cost

Benefit Cost Ratio Formula

Three-Point Estimating - Schedule

Concept that originated with the program evaluation and review technique (PERT). PERT uses three estimates to define an approximate range for an activity's duration: • Most likely (tM). This estimate is based on the duration of the activity, given the resources likely to be assigned, their productivity, realistic expectations of availability for the activity, dependencies on other participants, and interruptions. • Optimistic (tO). The activity duration based on analysis of the best-case scenario for the activity. • Pessimistic (tP). The activity duration based on analysis of the worst-case scenario for the activity.

Plan Cost Management Outputs

Cost Management Plan is an output of? It is a component of the Project Mgmt plan.

CPI = EV/AC

Cost Performance Index (CPI) formula We are getting $_________ worth of work out of every $1 spent. Funds are or are not being used efficiently. >1 = good <1 = bad

CV = EV - AC

Cost Variance (CV) Formula (-) = Over budget (+) = under budget

Cost Budget

Cost baseline + Management Reserves

What is Cost Risk?

Cost-Related Risk ex. Who has the cost risk in a fixed price contract ? buyer or seller? Seller

Indirect Costs

Costs such as overhead items or costs incurred for the benefit of more than one project. ex: taxes, fringe benefits, janitorial services

Direct Costs

Costs that are directly attributable to the work of the project.

Direct Costs

Costs that are directly attributable to the work on the project.

Earned Value Analysis (EVA)

Data analysis technique that compares the performance measurement baseline to the actual schedule and cost performance. It integrates the scope baseline with the cost baseline and schedule baseline to form the performance measurement baseline. It develops and monitors three key dimensions for each work package and control account: Planned value (PV), Earned value (EV) & Actual Cost (AC)

Historical Information

Documents and data on prior projects including project files, records, correspondence, closed contracts, and closed projects. (T/T for Determine Budget)

EAC = AC + (BAC - EV)

EAC forecast for ETC work performed at the budgeted rate formula. Estimate at completion As of now, how much do we expect the total project to cost? $_____ This formula calculates actual costs to date plus remaining budget. It is used when current variances are thought to be a typical of the future. It is essentially AC plus the remaining value of work to perform.

EAC = BAC / CPI

EAC forecast for ETC work performed at the present CPI formula

Units of Measure

Each unit used in measurements (such as staff hours, staff days, or weeks for time measures; meters, liters, tons, kilometers, or cubic yards for quantity measures; or lump sum in currency form) is defined for each of the resources. May be included in Cost Mgmt plan.

ETC = EAC - AC

Estimate to Complete Formula Assuming work is proceeding on plan, the cost of completing the remaining authorized work can be calculated using this formula. How much more will the project cost? you can also get ETC by re estimating work from the bottom up.

Trend Analysis

Examines project performance over time to determine if performance is improving or deteriorating.

Basis of Estimates

Explanation of how the activity cost estimates were derived, including any associated assumptions. May include: Documentation of the basis of the estimate (i.e., how it was developed), Documentation of all assumptions made, Documentation of any known constraints, Documentation of identified risks included when estimating costs, Indication of the range of possible estimates (e.g., US$10,000 (±10%) to indicate that the item is expected to cost between a range of values), and Indication of the confidence level of the final estimate.

Project Funding Requirements

Forecast project costs to be paid that are derived from the cost baseline for total or periodic requirements, including projected expenditures plus anticipated liabilities. (Determine Budget Output) Planning when the funds will be required so that they can be made available in a timely manner. Cash flow planning.

Project budget

Includes all the funds authorized to execute the project.

Project Cost Management KA summary

Includes the processes involved in planning, estimating, budgeting, financing, funding, managing, and controlling costs so that the project can be completed within the approved budget. First you must plan cost management, next you estimate the costs. The costs are estimated for each activity. The costs are then compiled into a budget to which the project will be managed(controlled).

Three-Point Estimating - Cost

Most likely (cM). The cost of the activity, based on realistic effort assessment for the required work and any predicted expenses. Optimistic (cO). The cost based on analysis of the best-case scenario for the activity. Pessimistic (cP). The cost based on analysis of the worst-case scenario for the activity.

(Cash flow amount) / ((1 + Discount Rate) to the power of number of years)

Net Present Value calculation =

Indirect costs

Overhead items or costs incurred for the benefit of more than one project. ex. taxes, janitorial services, fringe benefits. Those costs that canNOTbe directly traced to a specific project and therefore will be accumulated and allocated equitably over multiple projects by some approved and documented accounting procedure.

SPI = EV/PV

Schedule Performance Index (SPI) formula We are (only) progressing at ________ percent of the rate originally planned. >1 = good <1 = bad

Estimate Cost process(Planning) is the process of

Process of coming up with cost estimates for each activity. The process of developing an approximation of the monetary resources needed to complete project work.

Contingency Reserves (Contingency Allowances)

Reserves added to the cost baseline to accommodate Known risks. Funds allocated for identified risks that are accepted and for which contingent or mitigating responses are developed

Cost forecasts

Results of estimate to complete or bottom up EAC calculations . An Output of Control costs

ES/AT

Schedule Performance Index

SV = EV - PV (Replaced by ES - AT)

Schedule Variance (SV) formula (-) = behind schedule (+) = Ahead of schedule 0 @ completion because all PV will be earned.

ES - AT

Schedule Variance formula > 0 project is ahead of schedule

Cost Aggregation defined

Summing the lower-level cost estimates associated with the various work packages for a given level within the project's WBS or for a given cost control account. It is a T/T for Determine Budget Activity costs estimates are rolled up to work package cost estimates. Work package estimates are rolled up to control account costs and control accounts are rolled up for final project costs.

Reserve Analysis

Technique that involves identifying which activities on project have significant risks and determining how much time or money to set aside to account for the risks if they occur. In control costs, it is used to monitor the status of contingency & management reserves for the project to determine if these reserves are still needed or if additional reserves need to be requested. (T&T for Estimate Cost, Determine Budget, & Control Cost)

Level of accuracy

The acceptable range (e.g., ±10%) used in determining realistic activity cost estimates Rough Order of Magnitude Estimate: Initiating, typical range -25 to +75 % from actual. Budget Estimate: Planning, Range of -10 to +25 % from actual. Definitive Estimate : As project progresses, more refined Range of +/- 10 % from actual or -5 to +10%] May be documented in Cost Mgmt Plan

Cost variance (CV)

The amount of budget deficit or surplus at a given point in time, expressed as the difference between earned value and the actual cost. Indicates the relationship of physical performance to costs spent. As of today: How far over or under budget are we?

Payback Period

The amount of time that it will take an organization to recoup the initial investment in a project is known as? How long it will take to recover amount invested in a project.

Cost Baseline

The approved version of the time-phased project budget, excluding any management reserves, which can be changed only through formal change control procedures and is used as a basis for comparison to actual results. It includes all project costs including contingency reserves. Often depicted as an S curve. (Determine Budget Output)

Planned Value (PV) (Replaced by Actual time)

The authorized budget assigned to scheduled work. It is the authorized budget PLANNED for the work to be accomplished for an activity or work breakdown structure component, not including management reserve. Allocated by phase during life of project. It defines the physical work that should have been accomplished. Hint: As of today, what is the estimated value of the work planned to be done?

Level of precision is

The degree to which activity cost estimates will be rounded up or down. May be documented in Cost Mgmt Plan

Net Present Value

The difference between the present value of the future cash flows from an investment and the amount of investment. "difference amount" between the sums of discounted: cash inflows and cash outflows. It compares the present value of money today to the present value of money in the future, taking inflation and returns into account

Internal Rate of Return (IRR)

The discount rate that makes the net present value equal 0.

Estimate to Complete (ETC)

The expected cost to finish all the REMAINING project work. From this point on, how much MORE do we expect it to cost to finish the project (a forecast)?

Estimate At Completion (EAC)

The expected total cost of completing ALL work expressed as the sum of the actual cost to date and the estimate to complete. As of now, what do we currently expect the TOTAL project to cost?

Funding Limit Reconciliation

The process of comparing the planned expenditure of project funds against any limits on the commitment of funds for the project to identify any variances between the funding limits and the planned expenditures. T/T for Determine Budget.

Control Costs Process

The process of monitoring the status of the project to update the project budget and managing changes to the cost baseline.

Plan Cost Management process (Planning)involves

The process that establishes the policies, procedures, and documentation for planning, managing, expending, and controlling project costs. Involves identifying how you will plan, manage and control project costs. The process of defining how the project costs will be estimated, budgeted, managed, monitored, and controlled.

Cost Estimates (Estimate Cost Output)

The projected cost of the schedule activity that includes the cost for all resources required to perform and complete the activity, including all cost types and cost components. Quantitative assessments of the probable costs required to complete project work. Output of: Estimate cost

Actual cost (AC) (total cost)

The realized cost incurred for the work performed on an activity during a specific time period. It is the total cost incurred in accomplishing the work that the EV measured. There is no upper limit, whatever is spent to achieve the EV will be measured. Hint: As of today what is the actual cost incurred for the work accomplished.

Budget at Completion (BAC)

The sum of all budgets established for the work to be performed. The value of total planned work, (total planned value) the project cost baseline. Hint: How much did we BUDGET for the TOTAL project effort?

Cost Management Plan defined

This is a component of the project management plan and describes how the project costs will be planned, structured, and controlled; also know as budget management plan, budget plan. Output of Plan Cost Management

EAC forecast for ETC work performed at the budgeted rate formula.

This method accepts the actual project performance to date (favorable/unfavorable) as represented by the actual costs and predicts that all future ETC work will be accomplished at the budgeted rate. If future work will be accomplished at the planned rate

EAC forecast for ETC work performed at the present CPI formula

This method assumes that what the project has experienced to date can be expected to continue in the future.

Forecasting

To form an estimate of how the project will perform based on current project performance.

TCPI = (BAC-EV)/ (BAC-AC) Work Remaining (BAC-EV)/ Funds Remaining (BAC-AC) or (EAC-AC)

To-Complete Performance Index formula To stay within budget what rate do we need to meet for the remaining work? >1 = bad <1 = good

Three-Point Estimating Expected cost formula

Triangular distribution. cE = (cO + cM + cP) / 3 Beta distribution. cE = (cO + 4cM + cP) / 6

VAC = BAC - EAC

Variance at Completion (VAC) formula How much over or under budget will we be at the end of the project.

-10 to +25 % from actual.

What is the typical range for a Budget Estimate. (Planning) Level of Accuracy

-5 to +10% from actual or +/- 10 %

What is the typical range for a Definitive Estimate:as project progresses, more refined Range. Level of Accuracy

-25 to +75 % from actual.

What is the typical range for a Rough Order of Magnitude Estimate: (Initiating) Level of Accuracy

Financing

acquiring funds for projects. T/T for this cost mgmt process.