Ch6 Flashcards
_____ is a resource sacrificed or fore-gone to
achieve a specific objective or something given
up in exchange
Cost
T/F: Costs are usually measured in monetary units
like dollars
T
______________________ includes the processes required to ensure that the project is completed within an approved budget.
Project Cost Management (PCM)
Fact: Project managers must make sure that their projects are well defined, have accurate time and cost estimates.
____________, which involves determining what resources (people, equipment, and materials) and what quantity of each resource should be used to perform project activities.
Resource planning
_____________ , which involves developing an approximation or estimate of the costs of the resources needed to complete a project.
Cost estimating
___________, which involves allocating the overall cost estimate to individual work items to establish a baseline for measuring performance.
Cost budgeting
___________, which involves controlling changes to the project budget. The outputs are revised cost estimates, budget updates, and corrective actions.
Cost control
PCM Processes:
Resource planning
Cost estimating
Cost budgeting
Cost control
Fact: Information technology project management professionals need to be able to present and discuss project information in financial terms as well as in technical terms.
Basic Concepts of PCM:
Profits
Profit margin
Life cycle costing
Cash flow analysis
Internal rate of return (IRR)
Tangible costs or benefits
Intangible costs or benefits
Direct costs
Indirect costs
Sunk cost
________ are revenues minus expenses. To increase profits, a company can increase revenues, decrease expenses, or try to do both.
Profits
__________ is the ratio between revenues and profits. If revenues of $100 generate $2 in profits, there is a 2 percent profit margin. If the company loses $2 for every $100 revenue, there is a -2 percent profit margin.
Profit margin
______________ allows you to take a big picture view of the cost of a project over its entire life.
Life cycle costing
Slid7,8
____________ is a method for determining the estimated annual costs and benefits for a project.
Cash flow analysis
________________is the discount rate that makes net present value equal to zero.
Internal rate of return (IRR)
_______________ are those costs or benefits that can be easily measured in monetary terms (for example in dollars).
Tangible costs or benefits
___________________ are those costs or benefits that are difficult to measure in monetary terms.
Intangible costs or benefits
__________ are costs related to a project that can be traced back in a cost-effective way.
Direct costs
example for___________,the salaries of people, and the costs of hardware and software purchased specifically for the project.
Direct costs
____________ are costs related to a project that cannot be traced back in a cost-effective way.
Indirect costs
example for ___________ ,the cost of electricity, water, paper towels, and so on in a large building housing a thousand employees who work on many projects would be indirect costs.
ndirect costs
__________ is money that has been spent in the past. Consider it gone, like a sunken ship that can never be returned.
Sunk cost
_____________states that when many items are produced repetitively, the unit cost of those items decreases in a regular pattern as more units are produced.
Learning curve theory
T/F: Sunk cost should be used to estimate costs on projects involving the production of large quantities of items.
F: Learning curve theory not sunk
Fact: (Learning curve theory )
It also applies to the amount of time it takes to complete some tasks. For example, the first time a new employee performs a specific task, it will probably take longer than the tenth time that employee performs a very similar task.
________ are money (dollars) included in a cost estimate to mitigate (to lessen the seriousness) cost risk by allowing for future situations that are difficult to predict.
Reserves
_____________: To estimate budget, and control costs, project managers and their teams must determine what physical resources (people, equipment, and materials) and what quantities of those resources are required to complete the project.
Resource Planning
A project’s WBS, scope statement, historical information, and resource information are all inputs to
Resource Planning.
The main output for _________is a list of resource requirements
Resource Planning
Fact: After developing a good resource requirements list, project managers and team must develop several estimates of the costs for these resources.
Three types of cost estimates are given below:
- Rough order of magnitude (ROM) estimate
- Budgetary estimate
- Definitive estimate
-It provides a rough idea of what a project will cost.
-The time frame for this type is three or more years prior to project completion.
R ough order of magnitude (ROM) estimate
Fact: A ROM estimate’s accuracy is -25 to 75 percent. It means the project’s actual costs could be 25 percent below the ROM estimate or 75 percent above.
-It is used to allocate money into an organization’s budget. -Budgetary estimates are made one or two years prior to project completion.
Budgetary estimate
Fact: The accuracy is -10 percent to +25 percent, meaning the actual costs could be 10 percent less or 25 percent more than the budgetary estimate.
-It provides an accurate estimate of project costs.
- Definitive estimates are made one year or less prior to project completion.
Definitive estimate
Fact: The accuracy is -5 percent to +10 percent, meaning the actual costs could be 5 percent less or 10 percent more than the definitive estimate.
There are three basic techniques for cost estimating:
-Analogous (top-down) Estimates
-Bottom-up Estimates
-Parametric Modeling
_____________, also called top-down estimates, use the actual cost of previous, similar project as the basis for estimating the cost of the current project.
Analogous estimates
This method is less costly but it is also less accurate.
Analogous estimates
____________ involves estimating individual work items and summing them to get a project total.
Bottom-up estimating
This technique is accurate but usually time-intensive and therefore expensive to develop.
Bottom-up estimating
____________ uses project parameters (characteristics) in a mathematical model to estimate project costs.
Parametric Modeling
_____________are most reliable when the historical information that was used to create the model is accurate, the parameters are readily quantifiable, and the model is flexible in terms of the size of the project.
Parametric Modeling
One popular parametric model is the
Constructive Cost Model
______________ which is used for estimating software development costs based on parameters such as the source lines of code or function points.
Constructive Cost Model (COCOMO)
_______________ involves allocating the project cost estimate to individual work items.
-These work items are based on the WBS.
Project cost budgeting
___________, is an input to the cost budgeting.
WBS
Fact: In addition to providing input for budgetary estimates, cost budgeting provides a cost baseline.
A ___________ is a time-phased budget that project managers use to measure and monitor cost performance.
cost baseline
_____________ includes monitoring cost performance, ensuring that only appropriate project changes are included in revised cost baseline, and informing stakeholders of authorized changes to the project that will affect the costs.
Project cost control
Several tools and techniques are available for cost control. The most powerful cost control tool that is unique to the field of project management is
earned value management.
___________ is a project performance measurement technique that integrates scope, time, and cost data.
Earned Value Management (EVM)
It is sometimes called earned value analysis (EVA):
Earned Value Management (EVM)
Fact: Given a cost performance baseline, project managers and their teams can determine how well the project is meeting scope, time, and cost goals by entering actual information and then comparing it to the baseline.
A ___________ is the original project plan plus approved changes.
baseline
Earned value management involves calculating three values for each activity:
- Planned Value 2. Actual Cost 3. Earned Value
The __________, called the budgeted cost of work scheduled (BCWS), also called the budget, is that portion of the approved total cost estimate planned to be spent on an activity during a given period.
planned value (PV)
The __________, called the actual cost of work performed (ACWP), is the total direct and indirect costs for work on an activity during a given period of time.
actual cost (AC)
The __________, called the budgeted cost of work performed (BCWP), is the percentage of work actually completed multiplied by the planned value.
earned value (EV)
It shows the difference between the estimated cost of an activity and the actual cost of that activity.
Cost Variance (CV)
Slid30
Measure the variance between the planned schedule and the actual progress of the project at a specific point in time. In other words, it quantifies whether the project is ahead of schedule or behind schedule compared to what was originally planned
Schedule Variance (SV)
Slid31
The _______________ is the ratio of earned value to actual cost and can be used to estimate the projected cost completing the project.
Cost Performance Index (CPI)
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