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
