Ch. 7: Managing Project Cost 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 top-down 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 time-consuming 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
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.
Contingency reserve
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.
Cost aggregation
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.
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. Cost budgeting applies the cost estimates over time.
Cost budgeting
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.
Cost change control system
The cost management plan 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.
Cost of poor quality
The monies spent to ascertain 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 CPI = EV/AC.
Cost performance index (CPI)
The difference of the earned value amount and the cumulative actual costs of the project. The
formula is CV = 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 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.
Definitive estimate
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).
Direct costs
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.
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. There are three variations of this formula, 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
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).
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 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.
Parametric estimating
Uses a mathematical model based on known parameters to predict the cost of a project.
Parametric estimating
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.
Planned value (PV)
The final variance, which is discovered only at the project’s completion. The formula is VAR = BAC-AC.
Project variance
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.
Regression analysis
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.
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 SPI =
EV/PV.
Schedule performance index (SPI)
The difference between the earned value and the planned value. The formulas is SV = 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
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).
Variable costs
A variance is 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 VAC = BAC-EAC.
Variance at completion (VAC)
