Chapter 7. Cost Management

Question 1

What are the four processes of Cost Management?

Answer 1

Plan Cost Management
Estimate Costs
Determine Budget
Control Costs

Question 2

What are the outputs for the four processes of Cost Management?

Answer 2

Plan Cost Management - Cost Management Plan

Estimate Costs - Cost Estimates

Determine Budget - Cost Baseline and Project Funding Requirements

Control Costs - Work Performance Information and Cost Forecasts

Question 3

What is Life-Cycle Costing?

Answer 3

It looks at the total cost of ownership from purchase or creation, through operations, and finally to disposal. Encompasses the bigger picture of ownership costs.

Question 4

What is Value Engineering?

Answer 4

The practice of trying to get more out of the project in every possible way, to increase the bottom line, decrease costs, improve quality, shorten the schedule, and generally squeeze more benefit and value out of each aspect of the project.

Question 5

What is the key to Value Engineering?

Answer 5

Reducing costs without reducing the scope of work.

Question 6

When is the process of Plan Cost Management performed?

Answer 6

After scope and schedule activities have been performed.

Some exceptions apply: Overall budgets and/or budgetary constraints may be determined before the project is initiated.

Question 7

What are the inputs to Plan Cost Management?

Answer 7

Project Charter
Project Management Plan
Enterprise Environmental Factors
Organizational Process Assets

Question 8

What are the tools used in the process Plan Cost Management?

Answer 8

Expert Judgement, Data Analysis, and Meetings

Question 9

What are the outputs of Plan Cost Management?

Answer 9

Cost Management Plan

Question 10

What is a Cost Management Plan?

Answer 10

Document that describes how processes of Estimate Costs, Determine Budget, and Control Costs will be carried out. Becomes part of the project management plan. Specifies units of measure (USD, pesos, yen, etc), and levels of accuracy. Also specifies approval thresholds, how those approvals are carried out, and will define how cost performance is measured.

Question 11

When is the process of Estimate Costs performed?

Answer 11

After Develop Schedule. This is because costs are estimates against schedule activities, so the project’s schedule has to be created first.

See graphic at bottom of p. 295.

Question 12

What is the leeway for a Rough Order of Magnitude?

Answer 12

-25% to +75%

Question 13

What is the leeway for a Preliminary Estimate?

Answer 13

-20% to +30%

Question 14

What is the leeway for a Definitive Estimate?

Answer 14

-5% to +10%

Question 15

What are the three estimate types?

Answer 15

Rough Order of Magnitude Estimates, Preliminary Estimate, Definitive Estimate

Question 16

When is a Rough Order of Magnitude used?

Answer 16

During the initation of a project, where very little has been defined.

Question 17

What is the inputs for the process Estimate Costs?

Answer 17

Project Management Plan
Project Documents
 - Lessons Learned Register
 - Project Schedule
 - Resource Requirements
 - Risk Register
Enterprise Environmental Factors
Organizational Process Assets

Question 18

What are the tools used for the process Estimate Costs?

Answer 18

Expert Judgement
Analogous Estimating
Parametric Estimating
Bottom-Up Estimating
Three-Point Estimating
Data Analysis
 - Alternative Analysis
 - Reserve Analysis
 - Cost of Quality
Project Management Information System
Decision Making

Question 19

What is Analogous Estimating?

Answer 19

Uses the actual results of projects that have been performed by your organization as the estimates for your activities.

Question 20

What is Parametric Estimating?

Answer 20

Used on projects that have good historical information, and it works best for linear, scalable projects.

Question 21

What is Bottom-Up Estimating?

Answer 21

Produces a separate estimate for each schedule activity. Estimates are then aggregated up to summary nodes on the WBS.

Considered highly accurated, but time-consuming and labor-intensive.

Question 22

What is a continengency or reserve?

Answer 22

A buffer against cost slippage on the project.

Question 23

What is Cost of Quality, or COQ?

Answer 23

Looks at all costs that will be realized in order to achieve quality.

Question 24

What are the costs of items that are not conformant to quality standards known as?

Answer 24

Cost of Poor Quality (CoPQ)

Question 25

What are the outputs of the process Estimate Costs?

Answer 25

Cost Estimates Basis of Estimates - supporting documentation/detail Project Document Updates

Question 26

When is the process Determine Budget performed?

Answer 26

After Estimate Costs. See graphic pg. 301

Question 27

What are the inputs for the process Determine Budget?

Answer 27

``` Cost Management Plan Resource Management Plan Scope Baseline Project Documents - Basis of Estimates - Cost Estimates - Project Schedule - Risk Register Business Documents - Business Case - Benefits Management Plan Agreements Enterprise Environmental Factors Organizational Process Assets ```

Question 28

What tools are used in the process Determine Budget?

Answer 28

``` Expert Judgement Cost Aggregation Data Analysis Historical Information Review Funding Limit Reconciliation Financing ```

Question 29

What is Cost Aggregation?

Answer 29

Taking individual cost of activities and rolling them up to the work package level where they will be measured, managed and controlled during the project.

Question 30

What does Data Analysis primarily look at in the process Determine Budget?

Answer 30

Management Reserve, to protect against cost overrun.

Question 31

What is the difference between a Contingency Reserve and a Management Reserve?

Answer 31

Contingency reseres are risk amounts for activity overrun, while management reserve is an amount controlled by the project manager for complete unknowns or similar risks.

Question 32

What is Funding Limit Reconciliation?

Answer 32

The reconciliation of plannined spending with funding limits. The project's cost baseline needs to be compatible with the limitations.

Question 33

What are the outputs of the process Determine Budget?

Answer 33

Cost Baseline *includes cost estimates with contingency reserves Project Funding Requirements Project Documents Updates

Question 34

***What makes up the project's budget?***

Answer 34

The Cost Baseline + Management Reserve

Question 35

Project funding requirements consist of ?

Answer 35

Cost Baseline + Management Reserves

Question 36

What are two key aspects of controlling processes?

Answer 36

They are proactive. They do not wait for changes to occur. They try to influence the factors that lead to change. Controlling processes measure what was executed against what was planned. If there are variances, then appropriate steps are taken to bring the two back in alignment.

Question 37

What are two key aspects of controlling processes?

Answer 37

They are proactive. They do not wait for changes to occur. They try to influence the factors that lead to change. Controlling processes measure what was executed against what was planned. If there are variances, then appropriate steps are taken to bring the two back in alignment.

Question 38

When is the process Control Costs performed?

Answer 38

Regularly throughout the life of the project, beginning as soon as the project first incurs cost.

Question 39

What are the inputs to Control Costs?

Answer 39

``` Project Management Plan - includes cost baseline and cost management plan. Project Documents Project Funding Requirements Work Performance Data Organizational Process Assets ```

Question 40

What are the tools used in Control Costs?

Answer 40

``` Expert Judgement Data Analysis - Earned Value Analysis - Variance Analysis - Trend Analysis - Reserve Analysis TCPI Project Management Information System (PMIS) ```

Question 41

What is Earned Value Analysis?

Answer 41

Earned Value is a method of measuring actual performance against the original plan. Analysis of Earned Value is used to help identify areas where the project is performing differently than the plan, such as Cost Variance or trends (Cost Performance Index) that directly influence the Control Costs process.

Question 42

What is Reserve Analysis?

Answer 42

Analyzing the the reserve (pools of money) set aside to keep the project running smothing in case a risk event occurs, to determine the project still has the right amount set aside.

Question 43

What is TCPI?

Answer 43

To-Complete Performance Index - an earned value technique that focuses on the performance needed in order to achieve your earned value targets.

Question 44

How does Project Management iInformation System (PMIS) benefit Control Costs?

Answer 44

it can be used to calculate actual values and assist with what if analysis

Question 45

What are the outputs of Control Costs?

Answer 45

``` Work Performance Information Cost Forecasts Change Requests Project Management Plan Updates Project Document Updates ```

Question 46

How does the Agile Method incorporate cost management?

Answer 46

Agile project may estimate costs for the next iteration in detail but would not try to create an accurate, long-term plan. Some budge estimates could be extrapolated by calculating the team "burn rate" (cost of a team per period), but this would not be highly detailed or highly precise. Costs are managed at an iteration level. While formal budgets are not usually apart of Agile, transparency and forecasting are.

Question 47

What is EVM?

Answer 47

Earned Value Management, not usually compatible with Agile projects