Chapter 7 - Cost Management Flashcards
Life cycle costing
Looking at the cost of the whole life of the product, not just the cost of the project
Value analysis
Finding ways to provide required features at the lowest overall cost without loss of performance
Plan Cost Management process
Identifying how you’re going to plan, manage, and monitor and controll project costs
Why are NPV, ROI, payback period, and IRR used in cost management?
Used to evaluate whether the project is still feasible within the charter and whether the measurable project objectives can be achieved
Discounted cash flow
- Used in project selection to estimate the attractiveness of an investment by predicting how much money will be received in the future, and then discounting it to its current value
- Used to evaluate the potential revenue to be earned from specific project work
What is the output of the Plan Cost Management process?
Cost management plan, i.e., budget management plan or budget plan
What costs should you estimate?
- Quality efforts
- Risk efforts
- PM’s time
- Project management activities
- Expenses for physical office spaces
- Overhead costs (management salaries, general office expenses, etc.)
What are the 4 types of costs?
- Variable
- Fixed
- Direct
- Indirect
Variable costs
Costs that DO change with the amount of production or work
Fixed costs
Costs that DO NOT change as production changes
Direct costs
Costs that are directily attributable to the work on the project
Indirect costs
Overhead items or costs incurred for the benefit of more than one project
Why is having a project schedule needed before you can come up with a budget?
- The timing of when you buy something may affect its cost
- You need to develop a time phased spending plan to monitor and control project expenditures so you know how much money will be spent during specific periods of time
When to use top down (analogous) estimating?
- Strapped for time and money
- When you have proper experience
- Predictable projects
When to use bottom up estimating?
- Not srapped for time and money
- When you have detailed project activities
- When you have proper info needed to manage and monitor and control costs
Types of estimate ranges
- Rough Order of Magnitude (ROM)
- Budget
- Definitive estimate
