7 - Project Cost Management Terms

Question 1

Actual cost (AC)

Answer 1

The actual amount of monies the project has spent to date.

Question 2

Analogous estimating

Answer 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.

Question 3

Bottom-up estimating

Answer 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 an most reliable methods to predict project costs.

Question 4

Budget estimate

Answer 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% to +25%

Question 5

Commercial database

Answer 5

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

Question 6

Contingency reserve

Answer 6

A contingency allowance to account for overruns in costs. Contingency allowances are used at the project manager’s discretion and with management’s approval to counteract cost overruns for scheduled activities and risk events.

Question 7

Cost aggregation

Answer 7

Cost are paralled to each WBS work package. The costs of each work package are aggregated to their corresponding control accounts. Each control account then is aggregated to the sum of the project costs.

Question 8

Cost baseline

Answer 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.

Question 9

Cost budgeting

Answer 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. Cost budgeting applies the cost estimates over time.

Question 10

Cost change control system

Answer 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.

Question 11

Cost management plan

Answer 11

The cost management plan dictated how cost variances will be managed.

Question 12

Cost of poor quality

Answer 12

The expenses incurred to recover from failing to adhere to the expected level of quality. (e.g. rework, defect repair, loss of sales/customers). AKA cost of non conformance to quality.

Question 13

Cost of quality

Answer 13

The expense spent to attain the expected level of quality within a project. (Eg. training, testing, safety precautions)

Question 14

Cost performance index (CPI)

Answer 14

Measure the project based on its financial performance. The formula is
CPI = EV / AC

Question 15

Cost variance (CV)

Answer 15

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

Question 16

Definitive estimate

Answer 16

Most accurate type of estimate. Used late in the planning processes and is associated with bottom-up estimating. WBS is needed to create the definitive estimate. The range of variance can be from -5% to +10%.

Question 17

Direct Costs

Answer 17

Attributed directly to the project work and cannot be shared among projects (e.g. travel, hotels, phone charges etc.)

Question 18

Earned Value (EV)

Answer 18

EV is the physical work completed to date and the authorized budget for that work. It is the % of the BAC (budget at completion) that represents the actual work completed in the project.

Question 19

Estimate at completion (EAC)

Answer 19

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

Question 20

Estimate to complete (ETC)

Answer 20

An earned value mgmt 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.

Question 21

Fixed costs

Answer 21

Costs that remain constant throughout the life of the project.

Question 22

Funding limit reconciliation

Answer 22

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

Question 23

Indirect costs

Answer 23

Costs that are representative of more than one project (e.g. utilities, PM software etc…)

Question 24

Known unknown

Answer 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.

Question 25

Learning curve

Answer 25

An approach that assumes the cost per unit decreases the more units the workers completes. Since workers learn and gain experience.

Question 26

Oligopoly

Answer 26

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

Question 27

Opportunity costs

Answer 27

The total cost of the opportunity that is refused

Question 28

Parametric estimating

Answer 28

A parametric model that extrapolates what costs will be needed for a project (e.g. cost/unit; cost/hour). It can include variables and points based on conditions.

Question 29

Planned value (PV)

Answer 29

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

Question 30

Project variance

Answer 30

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

Question 31

Regression analysis

Answer 31

Statistical approach to predict what future values may be, based on historical values. Regression analysis 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.

Question 32

Reserve analysis

Answer 32

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

Question 33

Rough order of magnitude

Answer 33

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

Question 34

Schedule performance index (SPI)

Answer 34

Measure the project based on its schedule performance.

SPI = EV / PV

Question 35

Schedule variance (SV)

Answer 35

The difference between earned value (EV) and the planned value (PV).
SV = EV - PV

Question 36

Single source

Answer 36

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

Question 37

Sole source

Answer 37

Only one vendor can provide what your project needs to purchase. (e.g. specific consultant, unique material).

Question 38

Sunk costs

Answer 38

Expenses that have already been invested in a project.

Question 39

To-Complete Performance Index (TCPI)

Answer 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 2 different flavors for the TCPI, depending on what you want to accomplish.
To see if the project can meet the budget at completion: TCPI = (BAC - EV) / (BAC - AC)
To see if the project can meet the newly created estimate at completion: TCPI = (BAC - EV) / (EAC - AC)

Question 40

Variable costs

Answer 40

Costs that change based on the conditions applied in the project (the number of meeting participants, supply/demand of materials etc…)

Question 41

Variance

Answer 41

The difference between what was expected and what was experienced.

Question 42

Variance at completion (VAC)

Answer 42

A forecasting formula that predicts how much variance the project will likely have based on current conditions within the project.
VAC = BAC - EAC