7 Project Cost Management Flashcards
The actual amount of monies the project
has spent to date.
Actual cost (AC)
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.
Analogous estimating
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.
Bottom-up estimating
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.
Budget estimate
A cost-estimating approach that uses a
database, typically software-driven, to
create the cost estimate for a project.
Commercial database
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.
Contingency reserve
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.
Cost aggregation
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.
Cost baseline
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.
Cost budgeting
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.
Cost change control system
It dictates how cost variances will be managed.
Cost management plan
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.
Cost of poor quality
The monies spent to attain the expected
level of quality within a project. Examples
include training, testing, and safety
precautions.
Cost of quality
Measures the project based on its
financial performance. The formula is EV/AC.
Cost performance index (CPI)
The difference of the earned value
amount and the cumulative actual costs
of the project. The formula is EV – AC.
Cost variance (CV)
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.
Definitive estimate
Costs are attributed to the project
work and cannot be shared among
projects (for example, airfare, hotels,
long-distance phone charges, and so on).
Direct costs
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.
Earned value (EV)
These forecasting formulas predict the
likely completed costs of the project
based on current scenarios within the
project.
Estimate at completion (EAC)
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.
Estimate to complete (ETC)
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).
Fixed costs
An organization’s approach to managing
cash flow against the project deliverables
based on a schedule, milestone
accomplishment, or data constraints.
Funding limit reconciliation
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).
Indirect costs
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.
Known unknown
An approach that assumes the cost per
unit decreases the more units workers
complete, because workers learn as they
complete the required work.
Learning curve
A market condition where the market is
so tight that the actions of one vendor
affect the actions of all the others.
Oligopoly
The total cost of the opportunity that is
refused to realize an opposing
opportunity.
Opportunity cost
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.
Parametric estimating
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.
Planned value (PV)
The final variance, which is discovered
only at the project’s completion. The
formula is BAC – AC.
Project variance
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.
Regression analysis
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.
Reserve analysis
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.
Rough order of magnitude
Measures the project based on its
schedule performance. The formula is
EV/PV.
Schedule performance index (SPI)
The difference between the earned value
and the planned value. The formulas is
EV – PV.
Schedule variance (SV)
Many vendors can provide what your
project needs to purchase, but you prefer
to work with a specific vendor.
Single source
Only one vendor can provide what your
project needs to purchase. Examples
include a specific consultant, specialized
service, or unique type of material.
Sole source
Monies that have already been invested
in a project.
Sunk costs
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).
To-Complete Performance Index TCPI
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).
Variable costs
The difference between what was
expected and what was experienced.
Variance
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.
Variance at completion (VAC)
