7 Project Cost Management

Question 1

The actual amount of monies the project

has spent to date.

Answer 1

Actual cost (AC)

Question 2

An approach that relies on historical
information to predict the cost of the
current project. It is also known as topdown estimating and is the least reliable
of all the cost-estimating approaches.

Answer 2

Analogous estimating

Question 3

An estimating approach that starts from
zero, accounts for each component of the
WBS, and arrives at a sum for the
project. It is completed with the project
team and can be one of the most timeconsuming and most reliable methods to
predict project costs.

Answer 3

Bottom-up estimating

Question 4

This estimate is also somewhat broad
and is used early in the planning
processes and also in top-down
estimates. The range of variance for the
estimate can be from –10 percent to +25
percent.

Answer 4

Budget estimate

Question 5

A cost-estimating approach that uses a
database, typically software-driven, to
create the cost estimate for a project.

Answer 5

Commercial database

Question 6

An allowance to account for
overruns in costs. They’re used at the project
manager’s discretion and with
management’s approval to counteract
cost overruns for scheduled activities and
risk events.

Answer 6

Contingency reserve

Question 7

Costs are parallel to each WBS work
package. The costs of each work
package are added to their
corresponding control accounts. Each
control account then is added to the
sum of the project costs.

Answer 7

Cost aggregation

Question 8

A time-lapse exposure of when the
project monies are to be spent in relation
to cumulative values of the work
completed in the project.

Answer 8

Cost baseline

Question 9

The cost aggregation achieved by
assigning specific dollar amounts for
each of the scheduled activities or, more
likely, for each of the work packages in
the WBS. It applies the cost
estimates over time.

Answer 9

Cost budgeting

Question 10

A system that examines any changes
associated with scope changes, the cost
of materials, and the cost of any other
resources, and the associated impact on
the overall project cost.

Answer 10

Cost change control system

Question 11

It dictates how cost variances will be managed.

Answer 11

Cost management plan

Question 12

The monies spent to recover from not
adhering to the expected level of quality.
Examples may include rework, defect
repair, loss of life or limb because safety
precautions were not taken, loss of sales,
and loss of customers. This is also known
as the cost of nonconformance to quality.

Answer 12

Cost of poor quality

Question 13

The monies spent to attain the expected
level of quality within a project. Examples
include training, testing, and safety
precautions.

Answer 13

Cost of quality

Question 14

Measures the project based on its

financial performance. The formula is EV/AC.

Answer 14

Cost performance index (CPI)

Question 15

The difference of the earned value
amount and the cumulative actual costs
of the project. The formula is EV – AC.

Answer 15

Cost variance (CV)

Question 16

This estimate type is one of the most
accurate. It’s used late in the planning
processes and is associated with bottomup estimating. You need the WBS in
order to create the definitive estimate.
The range of variance for the estimate
can be from –5 percent to +10 percent.

Answer 16

Definitive estimate

Question 17

Costs are attributed to the project
work and cannot be shared among
projects (for example, airfare, hotels,
long-distance phone charges, and so on).

Answer 17

Direct costs

Question 18

It´s the physical work
completed to date and the authorized
budget for that work. It is the percentage
of the BAC that represents the actual
work completed in the project.

Answer 18

Earned value (EV)

Question 19

These forecasting formulas predict the
likely completed costs of the project
based on current scenarios within the
project.

Answer 19

Estimate at completion (EAC)

Question 20

An earned value management formula
that predicts how much funding the
project will require to be completed.
Three variations of this formula are based
on conditions the project may be
experiencing.

Answer 20

Estimate to complete (ETC)

Question 21

Costs that remain constant throughout
the life of the project (the cost of a piece
of rented equipment for the project, the
cost of a consultant brought on to the
project, and so on).

Answer 21

Fixed costs

Question 22

An organization’s approach to managing
cash flow against the project deliverables
based on a schedule, milestone
accomplishment, or data constraints.

Answer 22

Funding limit reconciliation

Question 23

Costs that are representative of more
than one project (for example, utilities for
the performing organization, access to a
training room, project management
software license, and so on).

Answer 23

Indirect costs

Question 24

An event that will likely happen within the
project, but when it will happen and to
what degree is unknown. These events,
such as delays, are usually risk-related.

Answer 24

Known unknown

Question 25

An approach that assumes the cost per
unit decreases the more units workers
complete, because workers learn as they
complete the required work.

Answer 25

Learning curve

Question 26

A market condition where the market is
so tight that the actions of one vendor
affect the actions of all the others.

Answer 26

Oligopoly

Question 27

The total cost of the opportunity that is
refused to realize an opposing
opportunity.

Answer 27

Opportunity cost

Question 28

An approach using a model to
extrapolate what costs will be needed for
a project (for example, cost per hour and
cost per unit). It can include variables and
points based on conditions.

Answer 28

Parametric estimating

Question 29

It's the work scheduled and
the budget authorized to accomplish that
work. It is the percentage of the BAC that
reflects where the project should be at
this point in time.

Answer 29

Planned value (PV)

Question 30

The final variance, which is discovered
only at the project’s completion. The
formula is BAC – AC.

Answer 30

Project variance

Question 31

This is a statistical approach to predicting
what future values may be, based on
historical values. It creates 
quantitative predictions based on
variables within one value to predict
variables in another. This form of
estimating relies solely on pure statistical
math to reveal relationships between
variables and to predict future values.

Answer 31

Regression analysis

Question 32

Cost reserves are for unknown unknowns
within a project. The management
reserve is not part of the project cost
baseline, but is included as part of the
project budget.

Answer 32

Reserve analysis

Question 33

This rough estimate is used during the
initiating processes and in top-down
estimates. The range of variance for the
estimate can be from –25 percent to +75
percent.

Answer 33

Rough order of magnitude

Question 34

Measures the project based on its
schedule performance. The formula is
EV/PV.

Answer 34

Schedule performance index (SPI)

Question 35

The difference between the earned value
and the planned value. The formulas is
EV – PV.

Answer 35

Schedule variance (SV)

Question 36

Many vendors can provide what your
project needs to purchase, but you prefer
to work with a specific vendor.

Answer 36

Single source

Question 37

Only one vendor can provide what your
project needs to purchase. Examples
include a specific consultant, specialized
service, or unique type of material.

Answer 37

Sole source

Question 38

Monies that have already been invested

in a project.

Answer 38

Sunk costs

Question 39

A formula to forecast the likelihood of a
project to achieve its goals based on
what’s happening in the project right now.
There are two different depending on what you want to
accomplish. If you want to see if your
project can meet the budget at
completion, you’ll use this formula: (BAC – EV)/(BAC – AC). If you want to
see if your project can meet the newly
created estimate at completion, you’ll use
this version of the formula: (BAC
– EV)/(EAC – AC).

Answer 39

To-Complete Performance Index TCPI

Question 40

Costs that change based on the
conditions applied in the project (the
number of meeting participants, the
supply of and demand for materials, and
so on).

Answer 40

Variable costs

Question 41

The difference between what was

expected and what was experienced.

Answer 41

Variance

Question 42

A forecasting formula that predicts how
much of a variance the project will likely
have based on current conditions within
the project. The formula is BAC – EAC.

Answer 42

Variance at completion (VAC)