12 - Project Cost Management Terminology

Question 1

Activity Cost Estimate

Answer 1

The projected cost of completing an activity.

Question 2

Actual Cost (AC)

Answer 2

The total cost accrued for an activity over a designated time period; also known as the actual cost of work performed (ACWP).

Question 3

Basis of Estimates

Answer 3

Supporting details associated with an estimate, typically schedule or cost, that may include assumptions, constraints, level of detail, ranges, and confidence levels.

Question 4

Budget

Answer 4

The total estimate for the project, or any activity, that has been approved.

Question 5

Budget at Completion (BAC)

Question 6

Budgetary Estimate

Answer 6

An estimate used to put money into a company’s (or project’s) budget.

Question 7

Chart of Accounts

Answer 7

A structure used to monitor project cost that usually aligns with a company’s accounting system and WBS of the project or program.

Question 8

Code of Accounts

Answer 8

The numbering system used to distinguish constituents of the WBS.

Question 9

Control Account

Answer 9

A specific point in the work breakdown structure (WBS) where the project scope, budget, actual cost, and schedule are combined and then compared to earned value in order to establish performance metrics.

Question 10

Control Costs

Answer 10

The process of observing project status in order to revise project costs and administer cost baseline revisions.

Question 11

Cost Aggregation

Answer 11

Adding together the work package cost estimates for high-level WBS components, including control accounts, for the purpose of establishing the value of the total project or the control account work.

Question 12

Cost Baseline

Answer 12

The authorized project budget version, exclusive of management reserves, that requires a formal control process to effect changes and is used as the basis of comparison to actual costs.

Question 13

Cost Management Plan

Answer 13

The document, part of the project or program management plan, used to describe the framing, forming, observation, and control of project costs.

Question 14

Cost of Quality

Answer 14

The total cost of achieving or failing to achieve desired quality: specifically the costs of achievement are those associated with planning, controlling, and assuring quality and the costs of failure are those associated with reworking, warranty, waste, and negative reputation.

Question 15

Cost Performance Index (CPI)

Answer 15

The ratio indicating the cost efficiency of resources, calculated by dividing earned value (EV) by actual cost (AC): a CPI of 1.0 indicates the project is proceeding as planned financially; a CPI greater than 1.0 more indicates the project is proceeding better than planned financially; and a CPI less than 1.0 indicates the project is not proceeding as well as planned financially.

Question 16

Cost Variance (CV)

Answer 16

The deficit or surplus of the budget at any specific point in time, calculated by subtracting the actual cost (AC) from the earned value (EV): a value of 0 indicates the project is on budget, a value greater than 0 indicates the project is under budget, and a value less than 0 indicates the project is over budget.

Question 17

Cost-benefit Analysis

Answer 17

A financial analysis method that compares the potential revenue derived from an opportunity to the cost of that opportunity.

Question 18

Definitive Estimate

Answer 18

A cost estimate that provides an accurate estimate of the project cost; the final cost estimate used before implementation; typically the estimate has a tolerance range of -5% to +10%.

Question 19

Determine Budget

Answer 19

The process of totaling the evaluations of individual activities to arrive at an authorized cost baseline.

Question 20

Direct Cost

Answer 20

Cost that is directly applicable to the project; examples include the cost of a test computer for software being created by the project, the cost of IC chips, or the costs of project labor.

Question 21

Earned Value (EV)

Answer 21

The value of the work that has been completed as of a specific point in time calculated by multiplying the completion percent of activity by its planned value, then adding the results; also known as the budgeted cost of work performed (BCWP).

Question 22

Earned Value Management

Answer 22

A technique, effected by considering actual cost (AC), schedule (PV), and what has been accomplished (EV), that is used to determine project progress and performance.

Question 23

Earned Value Technique (EVT)

Answer 23

The technique associated with measuring the amount of completion of a work breakdown structure component, control account or project.

Question 24

Estimate at Completion (EAC)

Answer 24

The expected cost of performing all of the work in the project calculated by adding the actual cost (AC) to the estimate to complete (ETC).

Question 25

Estimate Costs

Answer 25

The process of approximating the monetary resources required to complete the work of the project.

Question 26

Estimate to Complete (ETC)

Answer 26

The expected monetary resources required to complete the remaining work of the project; calculated by subtracting actual cost (AC) from the estimate at completion (EAC).

Question 27

Fixed Formula Method

Answer 27

A progress reporting approach, typically applied when an activity is two reporting periods or less in duration, that assigns a percentage to an activity at its start and the remaining percentage at its completion so that the percentage at completion equals 100%; for example, if an activity is assigned 30% at its start, 70% will be added at its completion resulting in a completion percentage of 100%.

Question 28

Funding Limit Reconciliation

Answer 28

The process of comparing planned project expenses to any limitations or constraints in project funding.

Question 29

Indirect Cost

Answer 29

Cost that is not directly accrued on the project (for example, electricity, taxes, rent).

Question 30

Internal Rate of Return (IRR)

Answer 30

A project comparison value; represents the discounted rate that zeros out the net present value (NPV).

Question 31

Learning Curve Theory

Answer 31

A theory which states that the more of something that is produced, the lower the unit cost of it becomes due to an improvement in efficiency.

Question 32

Life Cycle Costing

Answer 32

Consideration of not just project cost, but total ownership (operations and support) cost of the item created by the project.

Question 33

Net Present Value (NPV)

Answer 33

A value used in capital budgeting, in which the present value of cash inflow is subtracted from the present value of cash outflows; compares the value of a dollar today versus the value of that same dollar in the future, after taking inflation and return into account.

Question 34

Opportunity Cost

Answer 34

The amount associated with bypassing one opportunity in favor of another; as an example, if the pursuit of project B with a value of $75K is elected over the pursuit of project A with a value of $50K, $50k value of project A will not be realized.

Question 35

Parametric Modeling

Answer 35

Application of a mathematical model used to estimate project components (schedule, cost, scope) by having other variables entered into the application.

Question 36

Performance Measurement Baseline (PMB)

Answer 36

The comparison of project execution to the approved and integrated scope, schedule, and budget (exclusive of management reserves, but inclusive of contingency reserves) for the purpose of gauging and administering performance.

Question 37

Plan Cost Management

Answer 37

The process of establishing policies, procedures, and documentation for the planning, execution, and monitoring and controlling of cost-related project items.

Question 38

Planned Value (PV)

Answer 38

The total value of the work scheduled as of a certain point in time; also known as the budgeted cost of work scheduled (BCWS).

Question 39

Profit

Answer 39

Money made after expenses have been subtracted from revenue.

Question 40

Profit Margin

Answer 40

Ratio between revenues and profit on a project, product, or initiative.

Question 41

Project Cost Management

Answer 41

The processes required to estimate, budget, disburse, administer, and regulate costs in order to complete the project within the approved budget.

Question 42

Project Funding Requirements

Answer 42

The forecast of project costs based on the cost baseline for the total project plus any anticipated liabilities; the forecast can be applied to specific time periods rather than to the project as a whole.

Question 43

Rough Order of Magnitude (ROM) Estimate

Answer 43

A cost estimate, performed early in the project, of the completion cost of the project; the tolerance range is -25% to +75%.

Question 44

S Curve

Answer 44

Graphic representation of costs, work, and other quantities over time so that the planned value, earned value, and actual cost of the work can be seen.

Question 45

Schedule Performance Index (SPI)

Answer 45

A measure of project schedule efficiency calculated by dividing the earned value (EV) by the planned value (PV): a value of 1.0 indicates the work is being performed as expected, a value greater than 1.0 means the work is being performed ahead of schedule, and a value of less than 1.0 means the work is being performed behind schedule.

Question 46

Schedule Variance (SV)

Answer 46

A determination of schedule performance calculated by subtracting the planned value (PV) from the earned value (EV): if the result is zero, the project is performing as expected; if the result is positive, the project is ahead of schedule; if the result is negative, the project is behind schedule.

Question 47

Sunk Cost

Answer 47

Money that has already been spent on a project; should not be considered when selecting or evaluating a project.

Question 48

Tangible Cost/ Benefit

Answer 48

Easily measurable cost or benefit of a project; measured in dollars.

Question 49

To-complete Performance Index (TCPI)

Answer 49

The ratio that represents the cost performance required to complete the work of the project given the remaining resources; calculated by dividing the remaining project work by the remaining budget (BAC - EV / BAC - AC).

Question 50

Variance At Completion (VAC)

Answer 50

The projected amount the project will be over or under budget based on the difference between the budget at completion (BAC) and the estimate at completion (EAC).

Question 51

Weighted Milestone Method

Answer 51

An approach to the earned value method in which an activity with a duration exceeding two reporting periods is broken down into smaller activities with durations limited to two reporting periods or less.