INF 151 Chapter 7 Study Guide

Project cost management

-Includes the processes required to ensure that a project team completes a project within an approved budget. o Planning cost management o Estimating costs o Determining the budget o Controlling costs

Cash flow analysis

A method for determining the estimated annual costs and benefits for a project and the resulting annual cash flow.

Earned value (EV)

A technique for estimating how a project is doing in terms of its budget and schedule. Is an estimate of the value of the physical work actually completed. It is based on the original planned costs for the project or activity and the rate at which the team is completing work on the project or activity to date.

Life cycle costing

Allows you to see a big-picture view of the cost of a project throughout its life cycle.

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.

Estimate at completion (EAC)

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

Profits

Are revenues minus expenditures.

Earned Value Management

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

Sunk costs

Is money that has been spent in the past.

Cost variance (CV)

Is the earned value minus the actual cost. If cost variance is a negative number, it means that performing the work cost more than planned. If costs variance is a positive number, performing the work cost less than planned.

Schedule variance (SV)

Is the earned value minus the planned value. An indicator of whether a project schedule is ahead or behind. A negative schedule variance means that it took longer than planned to perform the work, and a positive schedule variance means that the work took less time than planned to perform.

Rate of performance (RP)

Is 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)

Is the ratio of earned value to actual cost; it can be used to estimate the projected cost of completing the project. If the CPI is equal to one, or 100 percent, then the planned and actual costs are equal - the costs are exactly as budgeted. If the CPI is less than one or less than 100 percent, the project is over budget. If the CPI is greater than one or more than 100 percent, the project is under budget.

Schedule performance index (SPI)

Is the ratio of earned value to planned value; it can be used to estimate the projected time to complete the project. An SPI of one, or 100 percent, means the project is on schedule. If the SPI is greater than one or 100 percent, then the project is ahead of schedule. If the SPI is less than one or 100 percent, the project is behind schedule.

Profit margin

Is the ratio of revenues to profits.

Cost

Something given up in exchange -Often measured in monetary amounts, such as dollars, that must be paid to acquire goods and services.

Overrun

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

Actual cost (AC)

The total direct and indirect cost incurred in accomplishing work on an activity during a given period.

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.

Intangible costs

are difficult to measure in monetary terms. Intangible costs often include items like goodwill, prestige, and general statements of improved productivity that an organization cannot easily translate into dollar amounts. Because intangible costs are difficult to quantify, they are often harder to justify.

Reserves

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

Indirect costs

are not directly related to the products or services of the project, but are indirectly related to performing the project. For example, indirect costs would include the cost of electricity, paper towels, and other necessities in a large building that houses 1,000 employees who work on many projects.

Direct costs

can be directly related to creating the products and sevices of the project.

Tangible costs

can be easily measured in dollars. For example, suppose that the SurveyorPro project described in the chapter's opening case included a preliminary feasibility study. If a company completed this study for $100,000, its tangible cost is $100,000. If a government agency estimated that it could have done the study itself for $150,00, the tangible benefits of the study would be $50,000 to the government.

Learning curve theory

tates that when many items are produced repetitively, the unit cost of those items decreases in a regular pattern as more units are produced. Learning curve theory also applies to the amount of time required to complete some tasks.