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 top-down 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 time-consuming 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. 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 summed up to their corresponding control accounts. Each control account then is summed to the project costs.

Answer 7

Cost Aggregation

Question 8

The approved version of the time-phased project budget, excluding any management reserves, which can be changed only through formal change control procedures and is used as a basis for comparison to actual results.

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.

Answer 9

Cost Budgeting

Question 10

A component of a project or program management plan that describes how costs will be planned, structured, and controlled.

Answer 10

Cost Management Plan

Question 11

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 11

Cost of Poor Quality

Question 12

All costs incurred over the life of the product by investment in preventing nonconformance to requirements, appraisal of the product or service for conformance to requirements, and failure to meet requirements.

Answer 12

Cost of Quality

Question 13

MA measure of the cost efficiency of budgeted resources expressed as the ratio of earned value to actual cost.

The formula is EV/AC

Answer 13

Cost Performance Index (CPI)

Question 14

The amount of budget deficit or surplus at a given point in time, expressed as the difference between the earned value and the actual cost.

The formula is EV – AC.

Answer 14

Cost Variance (CV)

Question 15

This estimate type is one of the most accurate. It’s used late in the planning processes and is associated with bottom-up 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 15

Definitive Estimate

Question 16

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

Answer 16

Direct Costs

Question 17

The measure of work performed expressed in terms of the budget authorized for that work

Answer 17

Earned Value (EV)

Question 18

The expected total cost of completing all work expressed as the sum of the actual cost to date and the estimate to complete.

Answer 18

Estimate At Completion (EAC)

Question 19

The expected cost to finish all the remaining project work.

Answer 19

Estimate To Complete (ETC)

Question 20

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 20

Fixed Costs

Question 21

The process of comparing the planned expenditure of project funds against any limits on the commitment of funds for the project to identify any variances between the funding limits and the planned expenditures.

Answer 21

Funding Limit Reconciliation

Question 22

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 22

Indirect Costs

Question 23

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 23

Known Unknown

Question 24

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

Answer 24

Learning Curve

Question 25

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

Answer 25

Oligopoly

Question 26

The loss of potential gain from other alternatives when one alternative is chosen.

Or

The loss of potential future return from the second-best unselected project.

Answer 26

Opportunity Cost

Question 27

An estimating technique in which an algorithm is used to calculate cost or duration based on historical data and project parameters.

Answer 27

Parametric Estimating

Question 28

The authorized budget assigned to scheduled work. It is the monetary representation of where the project should be at this point in time.

Answer 28

Planned Value (PV)

Question 29

The final variance, which is discovered only at the project’s completion.

Answer 29

Project Variance

Question 30

This is a statistical approach to predicting what future values may be, based on historical values. This 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 30

Regression Analysis

Question 31

An analytical technique to determine the essential features and relationships of components in the project management plan to establish a reserve for the schedule duration, budget, estimated cost, or funds for a project.

Answer 31

Reserve Analysis

Question 32

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 32

Order of Magnitude

Question 33

A measure of schedule efficiency expressed as the ratio of earned value to planned value.

The formula is EV/PV.

Answer 33

Schedule Performance Index (SPI)

Question 34

A measure of schedule performance expressed as the difference between the earned value and the planned value.

The formulas is EV – PV.

Answer 34

Schedule Variance (SV)

Question 35

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

Answer 35

Single Source

Question 36

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

Answer 36

Sole Source

Question 37

Money that has already been invested in a project.

Answer 37

Sunk Costs

Question 38

A measure of the cost performance that is required to be achieved with the remaining resources in order to meet a specified management goal, expressed as the ratio of the cost to finish the outstanding work to the remaining budget.

If you want to see if your project can meet the budget at completion, you’ll use this formula: TCPI = (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: TCPI = (BAC – EV)/(EAC – AC).

Answer 38

To-Complete Performance Index

Question 39

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 39

Variable Costs

Question 40

The difference between what was expected and what was experienced.

Answer 40

Variance

Question 41

A projection of the amount of budget deficit or surplus, expressed as the difference between the budget at completion and the estimate at completion.

The formula is BAC – EAC.

Answer 41

Variance at Completion (VAC)