6. Cost Management Flashcards
What is the process of cost management?
Plan Cost Management
Estimate Costs
Determine Budget
Control Costs
What is the output of the Plan Cost Management process?
Cost management plan
What are the key inputs to the Estimate Costs Process?
“Cost management plan
Quality management plan
Scope baseline
Lessons learned register
Project schedule
Resource requirements
Risk register
Enterprise environmental factors
Organizational process assets
Project management costs
What are the key outputs of the Estimate Costs process?
Costs estimates
Basis of estimates
Updates to project documents
What are the key outputs of the Determine Budget process?
Cost baseline
Project funding requirements
Updates to project documents
What are the key outputs of the Control Costs process?
Work performance information
Cost forecasts
Change requests
Updates to project management plan and project documents
What does life cycle costing mean?
Considering costs over the entire life of the product, not just the cost of the project to create the product
What is value analysis?
Finding a less costly way of doing essentially the same work (also known as value engineering)
What three knowledge areas use the concept of cost risk?
Cost
Procurement
Risk
What calculations can be used to determine whether the project will be paid for with the organization’s existing funds or will be funded through equity or debt?
Net present value (NPV)
Return on investment (ROI)
Payback period
Internal rate of return (IRR)
What is discounted cash flow?
A technique used in project selection to estimate the attractiveness of an investment by preceding how much money will be received in the future and discounting it to its current value
In cost management planning, it is used to evaluate the potential revenue to be earned from specific project work
What are the control thresholds? When are they determined?
The amount of variation allowed before you need to take action
Determined while creating the cost management plan
How do variable costs differ from fixed costs?
Variable costs change with the amount of production or amount of production or amount of work done on the project
Fixed costs do not change as production changes
What is a direct cost?
What is an indirect cost?
Direct cost: A cost that is directly attributable to the work on the project
Indirect cost: Overhead costs or costs incurred for the benefit of more than one project
What are the advantages of analogous estimating?
Quick
Activities do not need to be identified
Less costly to create
Project manager will have data to evaluate high-level project feasibility
Overall project costs will be capped
What are the advantages of bottom-up estimating?
More accurate
Gains buy-in from the team
Based on a detailed analysis of the project and the deliverables
Provides a basis for monitoring and controlling, performance measurement, and management
What is reserve analysis?
Reserve analysis involves identifying which activities on the project have significant risk and determining how much time and money to set aside to account for those risks in case they occur
What is the difference between a contingency reserve and a management reserve?
Contingency reserves are used for known risks, which are specifically identified risks
Management reserves are used to accommodate unknown or unidentified risks
What is cost of quality?
The cost of work added to the project to accommodate quality efforts
Name the typical range for the following:
- rough order of magnitude (ROM) estimate
- budget estimate
- definitive estimate
• ROM estimate:
-25 to +75 percent from actual
• Budget estimate:
-10 percent to +25 percent from actual
• Definitive estimate:
+/-10 percent from actual
What is the difference between a cost budget and a cost baseline?
The cost budget adds management reserves to the cost baseline
How can progress reporting help the project manager?
It can help the control the schedule and costs
It can help the project manager asses whether the project is on track through earned value analysis
What is earned value analysis, and how it is used?
It is used in performance reviews to measure project performance against the scope, schedule , and cost baselines
Using the work performance information gathered through earned value analysis, a project manager can create reports, including cost forecasts, and other communications related to the project’s progress; it may also result in change requests
What combined baselines are called the performance measurement baseline?
Scope, schedule, and cost baselines
What is the difference between planned value and earned value?
Planned value is the estimated value of the work planned, as for today
Earned value is the estimated value of the work actually accomplished, as of today
What is actual cost?
What is budget at completion?
The actual cost incurred for the work accomplished, as of today
The project’s planned budget; indicates what the end cost of the project would be if everything went according to plan
What is the formula for cost variance?
EV - AC = CV
What is the formula for schedule variance?
EV - PV = SV
What is the formula for cost performance index?
EV/AC = CPI
What is the formula for schedule performance index?
EV/PV = SPI
What are the formulas for estimate at completion?
AC + Bottom-up ETC = EAC
BAC/CPI^C = EAC
AC + (BAC - EV) = EAC
AC + (BAC - EV) / (CPI^C * SPI^C) = EAC
What is the formula for to-complete performance index?
(BAC - EV) / (BAC - AC) = TCPI
What is the formula for estimate to complete?
EAC - AC = ETC
What is the formula for variance at completion?
BAC - EAC = VAC
