Project Management Chapter 7

Rough order of magnitude (ROM) estimate

A cost estimate prepared very early in the life of a project to provide a rough idea of what a project will cost

Definitive Estimate

A cost estimate that provides an accurate estimate of project costs

Budgetary estimate

A cost estimate used to allocate money into an organization's budget

Parametric Estimating

A cost estimating technique that uses project characteristics (parameters) in a mathematical model to estimate project costs

Bottom-up estimate

A cost-estimating technique based on estimating individual work items and summing them to get a project total

Analogous Estimates

A cost-estimating technique that uses the actual cost of a previous similar project as the basis for estimating the cost of the current project; also called top-down estimates

Top-down estimates

A cost-estimating technique that uses the actual cost of a previous, similar project as the basis for estimating the cost of the current project; also called analogous estimates

Cash flow analysis

A method for determining the estimated annual costs and benefits for a project

Earned value management (EVM)

A project performance measurement technique that integrates scope, time and cost date

Learning curve theory

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

Cost baseline

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

Earned Value (EV)

An estimate of the value of the physical work actually completed

Estimate at completion (EAC)

An estimate of what it will cost to complete the project based on performance to date

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

Indirect costs

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

Direct costs

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

Management Reserves

Dollar amounts included in a cost estimate to allow for future situations that are unpredictable (sometimes called unknown unknowns)

Unknown unknowns

Dollar amounts included in a cost estimate to allow for future situations that are upredictable (sometimes called management reserves)

Contingency Reserves

Dollar amounts included in a cost estimate to allow for future situations that may be partially planed for (sometimes called know unknowns) and that are included in the project cost baseline

Known unknowns

Dollar amounts included in a cost estimate to allow for future situations that may be partially planned for (sometimes called contingency reserves) and that are included in the project cost baseline

Reserves

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

Sunk cost

Money that has been spent in the past

Profits

Revenues minus expenses

Overrun

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

Cost variance (CV)

The earned value minus the actual cost

Schedule Variance (SV)

The earned value minus the planned value

Baseline

The original project plan plus approved changes

Budget at completion (BAC)

The original total budget for a project

Planned Value (PV)

The portion of the approved total cost estimate planned to be spent on an activity during a given period

Project Cost management

The processes required to ensure that the project is completed within the approved budget

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; can be used to estimate the projected cost to complete the project

Schedule performance index (SPI)

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

Profit margin

The ration between revenues and profits

Life cycle costing

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

Actual (AC)

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

6. 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

7. _________________ 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

a. parametric

4. If a company loses $5 for every $100 in revenue for a certain product, what is the profit margin for that product? a. ~5 percent b. 5 percent c. ~$5 d. $5

a. ~5 percent

10. 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.

3. 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

2. 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

5. _________________ reserves allow for future situations that are unpredictable. a. Contingency b. Financial c. Management d. Baseline

c. Management

8. __________________ 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

9. 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.

1. Accountants usually define _________________ as a resource sacrificed or foregone to achieve a specific objective or something given up in exchange. a. money b. liability c. trade d. cost

d. cost