CHAPTER 7: MANAGING PROJECT COSTS Flashcards
ACTUAL COST (AC)
Actual amount of money spent to date
Analogous Estimating
Based on historical information cost of project is predicted. Least reliable, top down estimating.
BUTTOM UP ESTIMATING
- Starts from Zero
- accounts for each component of the WBS and sums them up
- most time consuming and reliable
BUDGET ESTIMATE
- broad, often top down
- -10 to +25 percent range
COMMERCIAL DATABASE
- uses a data base to estimate cost
CONTINGENCY RESERVE
- allowance to account for overruns in costs
- used at pms discretion and with management’s approval to counteract overruns
COST AGGREGATION
- Cost parallel to WBS WP
- Each WBS WP is aggregated to their control acc
- each controll acc is aggregated to the sum of project costs
Cost Baseline
- time lapse of when money is to be spend in relation to cumulative value of the work completed in the project
COST BUDGETING
- applies cost estimates over time
- cost aggregation assigning dollar amounts for each scheduled activity or each WP in the WBS
COST CHANGE CONTROL SYSTEM
- system examines any changes associated with scope change, cost of materials or other resources
- impact on overall project costs
COST MANAGEMENT PLAN
- plan that dictates how cost variances will be managed
COST OF POOR QUALITY
- Cost of non conformance to quality
- e.g. rework, defect repair, loss of life
COST OF QUALITY
- money spend to attain expected level of quality
- e.g. training, testing, safety precautions
COST PERFORMANCE INDEX (CPI)
- Measures financial performance
- CPI = EV/AC
COST VARIANCE (CV)
CV = EV - AC
DEFINITIVE ESTIMATE
- accurate, late in planning phase
- buttom up
- based on WBS
- Variance -5 +10 percent
Direct costs
- costs attributed directly to project work
- not shared with other projects
- e.g. hotels, phone calls etc
EARNED VALUE
- physical work done and authorized budget for it
- percent if BAC that represents actual work completed
ESTIMATE AT COMPLETION (EAC)
- forecasting formulas to predict the costs of the project at the time of completion
ESTIMATE TO COMPLETE
- predicts how much funding the project will require to be completed
- 3 variations of formula based on project conditions
FIXED COSTS
- remain constant throughout the life of the project
- e.g rental fee, consultant fee etc
FUNDING LIMIT RECONCILIATION
- approach of managing cash flow against project deliverables based on schedule, milestone accomplishment or data constrains
INDIRECT COSTS
- costs representative for more than one project
- PM software license, utilities for company etc
KNOWN UNKOWNS
- Event that will likely happen
- but when and to what degree is unknown
LEARNING CURVE
- assumption that the cost per unit decreases the more units are produced
OLIGOPOLY
- tight market
- action of one vendor affects action of others
OPPORTUNITY COST
- cost of opportunity that is refused to realize an opposing opportunity
PARAMETRIC ESTIMATING
- using parametric model to extrapolate costs needed for a project
- e.g. cost per hour, cost per unit
PLANNED VALUE (PV)
- work scheduled and budget authorized to accomplish that work
- percentage of BAC reflecting where project should be at a given point of time
PROJECT VARIANCE
- discovered at project completion
- VAR = BAC - AC
REGRESSION ANALYSIS
- statistical approach predicting future values
- based on historical values
RESERVE ANALYSIS
- included in budget but not as cost baseline
- revmserve for unknown unkowns
ROUGH ORDER MAGNITUDE
- rough estimate used during initiating processes and top down estimates
- -25 to +75 percent of range
SCHEDULE PERFORMANCE INDEX (SPI)
- SPI = EV/PV
SCHEDULE VARIANCE
Difference between earned and planned value
- SV = EV - PV
SINGLE SOURCE
- many vendors existing
- prefer to work with selected vendor
Sole source
- only one vendor existing for what I need
- e.g. ASML
Sunk costs
- money already invested into project
TO COMPLETE PERFORMANCE INDEX (TCPI)
- formula to forecast likely hood of project achieving its goals based on what is happening
- meet BAC? TCPI = (BAC - EV)/(BAC-AC)
- Meet newly created estimate? TCPI = (BAC-EV)/(EAC-AC)
VARIABLE COSTS
- costs that change based on conditions applied in the project
VARIANCE
- difference between what was expected and what was experienced
VARIANCE AT COMPLETION (VAC)
- predict variance project will likely have based on current condition
- VAC = BAC - EAC
