Ch. 7: Managing Project Cost

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

This is a contingency allowance to account for overruns in costs. The contingency allowances are
used at the project manager’s discretion and with management’s approval to counteract cost overruns for schedule
activities.

Answer 6

Contingency reserve

Question 7

Costs are parallel 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.

Answer 7

Cost aggregation

Question 8

A time-lapse exposure of when the project’s 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. Cost budgeting applies the cost estimates over time.

Answer 9

Cost budgeting

Question 10

A system that examines any changes associated with scope changes, the costs 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

The cost management plan 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.

Answer 12

Cost of poor quality

Question 13

The monies spent to ascertain 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 CPI = 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 CV = 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 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 16

Definitive estimate

Question 17

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 17

Direct costs

Question 18

Earned value is 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. There are three variations of this formula, 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

These are 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 parametric model to extrapolate what costs will be 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

Uses a mathematical model based on known parameters to predict the cost of a project.

Answer 29

Parametric estimating

Question 30

Planned value is 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 30

Planned value (PV)

Question 31

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

Answer 31

Project variance

Question 32

This is a statistical approach to predicting 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.

Answer 32

Regression analysis

Question 33

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

Answer 33

Reserve analysis

Question 34

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 34

Rough order of magnitude

Question 35

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

Answer 35

Schedule performance index (SPI)

Question 36

The difference between the earned value and the planned value. The formulas is SV = EV-PV.

Answer 36

Schedule variance (SV)

Question 37

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

Answer 37

Single source

Question 38

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

Answer 38

Sole source

Question 39

Monies that have already been invested in a project.

Answer 39

Sunk costs

Question 40

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

Answer 40

Variable costs

Question 41

A variance is 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 VAC = BAC-EAC.

Answer 42

Variance at completion (VAC)