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PMP Exam Prep > Ch 7 Project Cost Management > Flashcards

Ch 7 Project Cost Management Flashcards

1
Q

Variance Analysis

A

Method of determining if there is a variance between the planned work (Project Management Plan) and the actual work (work performance data)

If so, a change may need to be requested to fix the project budget

A tool used to help execute the Control Costs process (Cost/M&C)

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2
Q

Project Cost Management

A

Knowledge area regarding the processes involved in planning, estimating, budgeting, financing, funding, managing, and controlling costs so that the project can be completed within the approved budget

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3
Q

Value Engineering (or Value Analysis)

A

A method of finding a less costly way of completing the project

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4
Q

Direct Cost

A

A cost directly attributed to completing the project, such as for materials, equipment rentals, or project team wages

A cost that will be included in the cost baseline

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5
Q

Budget Estimate

A

A cost estimate that is better than ROM (-10% to +25%) and is usually done in the earlier parts of planning a phase or project

A type of estimate that can be used to execute the Estimate Costs process (Cost/Planning)

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6
Q

Cost of Quality

A

The amount of money spent to ensure quality requirements are met on a project (e.g., the cost of better machinery, more trained workers, or better materials)

If quality requirements are not met on a project, completed work may need to be discarded and/or defects may need to be fixed

An important data analysis concept used to help execute the Estimate Costs process (Cost/Planning)

A data analysis tool used to help execute the Plan Quality Management process (Quality/Planning)

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7
Q

Actual Cost (AC)

A

The amount of money that has been spent on the project

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8
Q

Indirect Cost

A

A cost that is not included in the project budget, such as the sponsor’s time spent helping the PM or printer paper

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9
Q

Earned Value (EV)

A

The value of the work actually done on the project

EV = BAC x Actual % Complete

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10
Q

Earned Value Analysis/Management (EVM)

A

A series of schedule- and cost-related formulas and calculations that provide important statistics about the performance of the project

BAC, EV, PV, AC, CV, CPI, SV, SPI, EAC, ETC

A tool used to hep execute the Control Costs process (Cost/M&C)

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11
Q

Cost Performance Index (CPI)

A

A measure of the financial effectiveness and efficiency of a project; it represents the amount of completed work for every unit of cost spent

CPI = EV / AC

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12
Q

Definitive Estimate

A

The most accurate cost estimate (-5% to +10%) that is usually done in the later parts of planning a phase or project

A type of estimate that can be used to execute the Estimate Costs process (Cost/Planning)

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13
Q

Schedule Variance (SV)

A

The difference between the work done and the amount that should be done

SV = EV - PV

Positive values are good (ahead of schedule)

Negative values are bad (behind schedule)

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14
Q

Cost Variance (CV)

A

The difference between the work done and money spent

CV = EV - AC

Positive values are good (under budget)

Negative values are bad (over budget)

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15
Q

Management Reserves

A

The amount of money that is not included in the cost baseline and is added to the project by senior management to manage “unknown unknowns”; the project will need an approved change request to access these funds

An important reserve analysis concept for the Estimate Costs process (Cost/Planning)

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16
Q

Cost Management Plan

A

The management plan that will direct how to estimate the cost of each activity, create the project budget, and monitor and control the cost of the project

It will also determine the level of estimate accuracy and how the EVM will be used to control the cost

An output of the Plan Cost Management process (Cost/Planning)

An input to the Develop Project Management Plan process (Integration/Planning)

17
Q

Estimate Costs

A

The process of developing an approximation of the monetary resources needed to complete the project work; analyzing each individual activity and assigning cost to each activity

Almost all the other knowledge areas will affect cost in one way or another; scope, schedule, quality, risk, resources, and procurement (not integration or communication) will affect the cost of the activities

Knowledge Area: Cost

Process Group: Planning

Inputs:

  • Risk Register
  • Resource Requirements

Tools:

  • Analogous Estimating
  • Parametric Estimating
  • Three-Point Estimating
  • Bottom-Up Estimating
  • Data Analysis
    • Reserve Analysis
    • Cost of Quality

Outputs:

  • Cost Estimates
18
Q

Reserve Analysis

A

A technique used to reserve either time or funds to manage project-related risks

A tool used to help execute the Estimate Costs process (Cost/Planning)

19
Q

Cost Aggregation

A
20
Q

Sunk Cost

A

The amount of money that has already been spent on the project

21
Q

Determine Budget

A

The process of aggregating the estimated costs of individual activities or work packages to establish an authorized cost baseline

Knowledge Area: Cost

Process Group: Planning

Inputs:

  • Activity Cost Estimates
  • Risk Register

Tools:

  • Cost Aggregation

Outputs:

  • Cost Baseline
22
Q

Variable Cost

A

A cost that will change as the project progresses, such as gas prices or airline tickets

23
Q

Planned Value (PV)

A

The value of the work that should have been done on the project

PV = BAC x Planned % Complete

24
Q

Cost Estimates

A

The cost of each individual activity, including labor, materials, equipment, technology, exchange rate, reserve, and inflation

An output of the Estimate Costs process (Cost/Planning)

An input of the:

  • Determine Budget process (Cost/Planning)
  • Estimate Activity Resources process (Resource/Planning)
25
Q

Contingency Reserves

A

The amount of money that is included in the cost baseline and within the project manager’s control to manage “known unknowns”

An important reserve analysis concept for the Estimate Costs process (Cost/Planning)

26
Q

Control Costs

A

The process of monitoring the status of the project to update the project costs and manage changes to the cost baseline

Knowledge Area: Cost

Process Group: Monitoring & Controlling

Inputs:

  • Work Performance Data

Tools:

  • Earned Value Analysis
  • Variance Analysis

Outputs:

  • Work Performance Information
27
Q

Plan Cost Management

A

The process of defining how the project costs will be estimated, budgeted, managed, monitored and controlled

Knowledge Area: Cost

Process Group: Planning

Inputs:

  • Project Charter

Tools:

  • None

Outputs:

  • Cost Management Plan
28
Q

Estimate to Completion

A

Forecasting the amount that will be needed to complete the project based on current performance

ETC = EAC - AC

29
Q

Project Budget

A

Cost Baseline + Management Reserves

30
Q

Fixed Cost

A

A cost that will stay the same as the project progresses, such as rentals, wages, or utilities

31
Q

Estimate at Completion (EAC)

A

Forecasting the total cost of the project at the end based on the current spending rate

EAC = BAC / CPI

32
Q

Cost Baseline

(Budget at Completion, BAC)

A

One of the three baselines in the project management plan that will include the costs of all deliverables and will be used to measure the performance of the project once it is executed

Activity Cost Estimates + Contingency Reserves

The approved version of the time-phased project budget (excluding any management reserves) that can be changed only through the formal change control process

Cost can usually be displayed as an S curve: less spending at the beginning, most in the middle, and less at the end

An output of the Determine Budget process (Cost/Planning)

33
Q

Rough Order of Magnitude (ROM)

A

The most inaccurate (-25% to +75%) cost estimate that is most likely to be used in the initiating part of a phase or project

A type of estimate that can be used to execute the Estimate Costs process (Cost/Planning)

34
Q

Schedule Performance Index (SPI)

A

A measure of how close the project is to being completed compared to the schedule

SPI = EV / PV

35
Q

Financing

A

A tool focused on acquiring money for the project generally from an external source

External sources can include getting the required funds from the public, government, or external investors

A tool used to help execute the Determine Budget process (Cost/Planning)

36
Q

Funding Limit Reconciliation

A

When the organization limits the project funding because of year-end budgets or other expenses a company might have throughout the year

This might result in the rescheduling of project work until the funds become available

A tool used to help execute the Determine Budget process (Cost/Planning)

37
Q

Basis of Estimates

A

A document that contains the supporting details for the cost estimates on the project

It describes how the estimates were developed and their ranges, and can include all assumptions, constraints, and risks associated with creating the estimate

PMP Exam Prep (12 decks)

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