CHAPTER 7: MANAGING PROJECT COSTS

Question 1

ACTUAL COST (AC)

Answer 1

Actual amount of money spent to date

Question 2

Analogous Estimating

Answer 2

Based on historical information cost of project is predicted. Least reliable, top down estimating.

Question 3

BUTTOM UP ESTIMATING

Answer 3

• Starts from Zero
• accounts for each component of the WBS and sums them up
• most time consuming and reliable

Question 4

BUDGET ESTIMATE

Answer 4

• broad, often top down
• -10 to +25 percent range

Question 5

COMMERCIAL DATABASE

Answer 5

• uses a data base to estimate cost

Question 6

CONTINGENCY RESERVE

Answer 6

• allowance to account for overruns in costs
• used at pms discretion and with management’s approval to counteract overruns

Question 7

COST AGGREGATION

Answer 7

• 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

Question 8

Cost Baseline

Answer 8

• time lapse of when money is to be spend in relation to cumulative value of the work completed in the project

Question 9

COST BUDGETING

Answer 9

• applies cost estimates over time
• cost aggregation assigning dollar amounts for each scheduled activity or each WP in the WBS

Question 10

COST CHANGE CONTROL SYSTEM

Answer 10

• system examines any changes associated with scope change, cost of materials or other resources
• impact on overall project costs

Question 11

COST MANAGEMENT PLAN

Answer 11

• plan that dictates how cost variances will be managed

Question 12

COST OF POOR QUALITY

Answer 12

• Cost of non conformance to quality
• e.g. rework, defect repair, loss of life

Question 13

COST OF QUALITY

Answer 13

• money spend to attain expected level of quality
• e.g. training, testing, safety precautions

Question 14

COST PERFORMANCE INDEX (CPI)

Answer 14

• Measures financial performance
• CPI = EV/AC

Question 15

COST VARIANCE (CV)

Answer 15

CV = EV - AC

Question 16

DEFINITIVE ESTIMATE

Answer 16

• accurate, late in planning phase
• buttom up
• based on WBS
• Variance -5 +10 percent

Question 17

Direct costs

Answer 17

• costs attributed directly to project work
• not shared with other projects
• e.g. hotels, phone calls etc

Question 18

EARNED VALUE

Answer 18

• physical work done and authorized budget for it
• percent if BAC that represents actual work completed

Question 19

ESTIMATE AT COMPLETION (EAC)

Answer 19

• forecasting formulas to predict the costs of the project at the time of completion

Question 20

ESTIMATE TO COMPLETE

Answer 20

• predicts how much funding the project will require to be completed
• 3 variations of formula based on project conditions

Question 21

FIXED COSTS

Answer 21

• remain constant throughout the life of the project
• e.g rental fee, consultant fee etc

Question 22

FUNDING LIMIT RECONCILIATION

Answer 22

• approach of managing cash flow against project deliverables based on schedule, milestone accomplishment or data constrains

Question 23

INDIRECT COSTS

Answer 23

• costs representative for more than one project
• PM software license, utilities for company etc

Question 24

KNOWN UNKOWNS

Answer 24

• Event that will likely happen
• but when and to what degree is unknown

Question 25

LEARNING CURVE

Answer 25

• assumption that the cost per unit decreases the more units are produced

Question 26

OLIGOPOLY

Answer 26

• tight market
• action of one vendor affects action of others

Question 27

OPPORTUNITY COST

Answer 27

• cost of opportunity that is refused to realize an opposing opportunity

Question 28

PARAMETRIC ESTIMATING

Answer 28

• using parametric model to extrapolate costs needed for a project
• e.g. cost per hour, cost per unit

Question 29

PLANNED VALUE (PV)

Answer 29

• work scheduled and budget authorized to accomplish that work
• percentage of BAC reflecting where project should be at a given point of time

Question 30

PROJECT VARIANCE

Answer 30

• discovered at project completion
• VAR = BAC - AC

Question 31

REGRESSION ANALYSIS

Answer 31

• statistical approach predicting future values
• based on historical values

Question 32

RESERVE ANALYSIS

Answer 32

• included in budget but not as cost baseline
• revmserve for unknown unkowns

Question 33

ROUGH ORDER MAGNITUDE

Answer 33

• rough estimate used during initiating processes and top down estimates
• -25 to +75 percent of range

Question 34

SCHEDULE PERFORMANCE INDEX (SPI)

Answer 34

• SPI = EV/PV

Question 35

SCHEDULE VARIANCE

Answer 35

Difference between earned and planned value
- SV = EV - PV

Question 36

SINGLE SOURCE

Answer 36

• many vendors existing
• prefer to work with selected vendor

Question 37

Sole source

Answer 37

• only one vendor existing for what I need
• e.g. ASML

Question 38

Sunk costs

Answer 38

• money already invested into project

Question 39

TO COMPLETE PERFORMANCE INDEX (TCPI)

Answer 39

• 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)

Question 40

VARIABLE COSTS

Answer 40

• costs that change based on conditions applied in the project

Question 41

VARIANCE

Answer 41

• difference between what was expected and what was experienced

Question 42

VARIANCE AT COMPLETION (VAC)

Answer 42

• predict variance project will likely have based on current condition
• VAC = BAC - EAC