7. Project cost management

Question 1

List the cost management processes and their corresponding process groups!

Answer 1

1. Plan cost management (planning)
2. Estimate costs (planning)
3. Determine budget (planning)
4. Control costs (monitoring & controlling)

Question 2

What is value analysis?

Answer 2

Developoing functinalities of the product at the lowest overall cost (without loss to performance)

Question 3

What is the difference between contingency and management reservces? Think in terms of risks and baselines!

Answer 3

Contingency reserves are for known risks and are part of the cost baseline

Management reserves are for unknown risks and are part of the cost budget not the cost baseline!

Question 4

Name the definitions for rough order of magnitude (ROM), budget and definitive estimate!

Answer 4

ROM: Made during project initiating, -25 to +75% deviation possible

Budget: Made during project planning, -10 to +25% deviation possible

Definitive: Made as the project progress, -5 to +10% deviation possible

Question 5

What is included in the cost budget?

Answer 5

Cost baseline (= activity estimates + contigency reserves) + management reserves = cost budget

Question 6

Define and explain what is…

• Planned value (PV)
• Earned value (EV)
• Actual costs (AC)
• Budget at completion (BAC)
• Estimate at completion (EAC)
• Estimate to completion (ETC)
• Variance at completion (VAC)

Answer 6

• PV: estimated value of work planned
• EV: Estimated value of work actually accomplished
• AC Actual cost incurred
• BAC: How much was budgeted for the entire project?
• EAC: How much do we currently estimate for the entire project?
• ETC: From this point on, how much do costs do we expect to incur to finish the project?
• VAC: How much under or over budget do we expect to be at project completion?

Question 7

Name the formulas for cost variance (CV), schedule variance (VC), cost performance index (CPI) and schedule performance idex (SPI)

Answer 7

CV = EV - AC (<0 is over budget, > 0 is under budget)

SV = EV - PV (<0 is behind schedule, >0 is ahead of schedule)

CPI = EV/AC (>1 good, <1 bad)

SPI = EV/PV (>1 good, <1 bad)

Question 8

Name the definition for estimate at completion (EAC), to-complete performance index (TCPI), estimate to complete (ETC) and variance at completion (VAC)!

Answer 8

EAC (if curent variance will remain in the future) = AC + (BAC-EV)/(CPI * SPI)

TCPI = (BAC - EV) / (BAC - AC)

ETC = EAC - AC

VAC = BAC - EAC

Question 9

List 5 things to know about earned value measurement for the exam

Answer 9

• EV comes first in each of the formulas
• If variance then EV - something
• If index then EV / something
• If formula relates to costs then use AC
• If formula relates to schedule then PV