Chapter 7 - Project Cost Management
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
