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CAPM Exam Prep > Chapter 7: Project Cost Management > Flashcards

Chapter 7: Project Cost Management Flashcards

1
Q

BAC

A

Budget at Completion

Abbreviations: BAC

Definition: The sum of all budgets established
for the work to be performed.

Usage: The value of total planned work, the
project cost baseline.

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2
Q

Earned Value

A

Abbreviation: EV

Definition: The measure of work performed
expressed in terms of the budget authorized for that work.

Use: The planned value of all the work completed (earned) to a point in time, usually the data date, without reference to actual costs.

Equation:
EV = Sum of the planned value of completed work

EV = Percentage completed * BAC

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3
Q

Present Value

A

PV = Percentage Planned * BAC

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4
Q

Cost Variance

A

Abbreviations: CV

Definition: The amount of budget deficit or surplus at a given point in time, expressed as the difference between the earned value and the actual cost.

Usage: The difference between the value of
work completed to a point in time, usually the data date, and the actual costs to the same point in time.

Equation: CV = EV – AC

Interpretation:
Positive = Under planned cost
Neutral = On planned cost
Negative = Over planned cost

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5
Q

Schedule Variance

A

Abbreviations: SV

Definition: The amount by which the project is
ahead or behind the planned
delivery date, at a given point in
time, expressed as the difference
between the earned value and the
planned value.
Usage: The difference between the work
completed to a point in time, usually
the data date, and the work planned
to be completed to the same point
in time.

Equation: SV = EV – PV

Interpretation:

Positive = Ahead of Schedule
Neutral = On schedule
Negative = Behind Schedule
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6
Q

Cost Performance Index

A

Abbreviations: CPI

Definition: A measure of the cost efficiency of
budgeted resources expressed as the ratio of earned value to actual cost.

Usage: A CPI of 1.0 means the project is exactly on budget, that the work actually done so far is exactly the same as the cost so far. Other values show the percentage of how much
costs are over or under the budgeted amount for work accomplished.

Equation: CPI = EV/AC

Interpretation:
Greater than 1.0 = Under planned cost
Exactly 1.0 = On planned cost
Less than 1.0 = Over planned cost

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7
Q

Schedule Performance Index

A

Abbreviations: SPI

Definition: A measure of schedule efficiency expressed as the ratio of earned value to planned value.

Usage:  An SPI of 1.0 means that the project
is exactly on schedule, that the work
actually done so far is exactly the
same as the work planned to be
done so far. Other values show the
percentage of how much costs are
over or under the budgeted amount
for work planned.

Equation: SPI = EV/PV

Interpretation:
Greater than 1.0 = Ahead of schedule
Exactly 1.0 = On schedule
Less than 1.0 = Behind schedule

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8
Q

Estimate to Complete

A

Abbreviations: ETC

Definition: The expected cost to finish all the
remaining project work.

Usage: Assuming work is proceeding on
plan, the cost of completing the remaining authorized work can be calculated using:

Equation: ETC = EAC – AC

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9
Q

To-Complete Performance Index (BAC)

A

Abbreviations: TCPI

Definition: A measure of the cost performance
that must be achieved with the
remaining resources in order to meet
a specified management goal,
expressed as the ratio of the cost to
finish the outstanding work to the
budget available.

Usage: The efficiency that must be maintained in order to complete on
plan.

Equation: TCPI = (BAC – EV)/(BAC – AC)

Interpretation:
Greater than 1.0 = Harder to complete
Exactly 1.0 = Same to complete
Less than 1.0 = Easier to complete

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10
Q

Plan Cost Management

A

It is the process of defining how the project costs will be estimated, budgeted, managed, monitored and controlled

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11
Q

Cost Management Plan

A

It is a component of the project management plan and describes how the poject costs will be planned, structured and controlled
The cost management plan dictates how cost variances will be managed.

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12
Q

Level of precision

A

The degree to which cost estimates will be rounded up or down

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13
Q

Estimate Costs

A

It is the process of developing an approximation of the cost of resource needed to complete project work

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14
Q

Determine Budget

A

It is the process of aggregating the estimated costs of individual activities or work packages to establish an authorized cost baseline.

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15
Q

Control Costs

A

It is the process of monitoring the status of the project to update the project costs and managing changes to the cost baseline

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16
Q

Earned Value Anaylsis

A 
It compares the performance measurement baseline to the actual schedule and cost performance.
It monitors
1. Planned Value
2. Earned Value
3. Actual Cost
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17
Q

Variance at Completion

A

Abbreviations: VAC

Definition: A projection of the amount of budget
deficit or surplus, expressed as the difference between the budget at completion and the estimate at completion.

Usage: The estimated difference in cost at the completion of the project

Equation: VAC = BAC – EAC

Interpretation:
Positive = Under planned cost
Neutral = On planned cost
Negative = Over planned cost

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18
Q

Estimate at Completion

A

Abbreviations: EAC

Definition: The expected total cost of completing all work expressed as the
sum of the actual cost to date and the estimate to complete.

Usage: If the CPI is expected to be the same for the remainder of the project, EAC
can be calculated using:

Equation: EAC = BAC/CPI

Interpretation:

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19
Q

Planned Value

A

Abbreviation: PV

Definition: The authorized budget assigned to scheduled work.

Use: The value of the work planned to be completed to a point in time, usually the data date, or project completion.

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20
Q

Actual Cost

A

Abbreviations: AC

Definition: The realized cost incurred for the
work performed on an activity during
a specific time period.

Usage: The actual cost of all the work
completed to a point in time, usually
the data date.

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21
Q

EAC forecast for ETC work performed at the budgeted rate.

A

Usage: If future work will be accomplished
at the planned rate, use:

Equation: EAC = AC + BAC – EV

22
Q

EAC forecast for ETC work performed when initial plan is invalid

A

Usage: If the initial plan is no longer valid,
use:

Equation: EAC = AC + Bottom-up ETC

23
Q

EAC forecast for ETC work considering both SPI and CPI factors

A

Usage: If both the CPI and SPI influence the
remaining work, use:

Equation: EAC = AC + [(BAC – EV)/(CPI x SPI)]

24
Q

To-Complete Performance Index (EAC)

A

Usage: The efficiency that must be maintained in order to complete the
current EAC.

Equation: TCPI = (BAC – EV)/(EAC – AC)

Interpretation: Greater than 1.0 = Harder to
complete
Exactly 1.0 = Same to complete
Less than 1.0 = Easier to complete

25
Q

Budget estimate

A

This estimate is also somewhat broad and is used early in the planning processes and also in top-down estimates. The range of variance for the estimate can be from –10 percent to +25 percent.

26
Q

Commercial database

A

A cost-estimating approach that uses a database, typically software-driven, to create the cost estimate for a project

27
Q

Cost aggregation

A

Costs are parallel to each WBS work package. The costs of each work package are aggregated to their corresponding control accounts. Each control account then is aggregated to the sum of the project costs.

28
Q

Cost baseline

A

A time-lapse exposure of when the project monies are to be spent in relation to cumulative values of the work completed in the project.

29
Q

Cost budgeting

A

The cost aggregation achieved by assigning specific dollar amounts for each of the scheduled activities or, more likely, for each of the work packages in the WBS. Cost budgeting applies the cost estimates over time.

30
Q

Cost change control system

A

A system that examines any changes associated with scope changes, the cost of materials, and the cost of any other resources, and the associated impact on the overall project cost.

31
Q

Cost of poor quality

A

The monies spent to recover from not adhering to the expected level of quality. Examples may include rework, defect repair, loss of life or limb because safety precautions were not taken, loss of sales, and loss of customers. This is also known as the cost of nonconformance to quality.

32
Q

Cost of quality

A

The monies spent to attain the expected level of quality within a project. Examples include training, testing, and safety precautions.

33
Q

Definitive estimate

A

This estimate type is one of the most accurate. It’s used late in the planning processes and is associated with bottom-up estimating. You need the WBS in order to create the definitive estimate. The range of variance for the estimate can be from –5 percent to +10 percent

34
Q

Direct costs

A

Costs are attributed directly to the project work and cannot be shared among projects

35
Q

Fixed costs

A

Costs that remain constant throughout the life of the project

36
Q

Funding limit reconciliation

A

An organization’s approach to managing cash flow against the project deliverables based on a schedule, milestone accomplishment, or data constraints.

37
Q

Indirect costs

A

Costs that are representative of more than one project

38
Q

Known unknown

A

An event that will likely happen within the project, but when it will happen and to what degree is unknown. These events, such as delays, are usually risk-related.

39
Q

Learning curve

A

An approach that assumes the cost per unit decreases the more units workers complete, because workers learn as they complete the required work

40
Q

Oligopoly

A

A market condition where the market is so tight that the actions of one vendor affect the actions of all the others

41
Q

Opportunity cost

A

The total cost of the opportunity that is refused to realize an opposing opportunity.

42
Q

Parametric estimating

A

An approach using a parametric model to extrapolate what costs will be needed for a project (for example, cost per hour and cost per unit). It can include variables and points based on conditions.

43
Q

Project variance

A

The final variance, which is discovered only at the project’s completion. The formula is VAR = BAC – AC.

44
Q

Regression analysis

A

This is a statistical approach to predicting what future values may be, based on historical values. Regression analysis creates quantitative predictions based on variables within one value to predict variables in another. This form of estimating relies solely on pure statistical math to reveal relationships between variables and to predict future values.

45
Q

Rough order of magnitude

A

This rough estimate is used during the initiating processes and in top-down estimates. The range of variance for the estimate can be from –25 percent to +75 percent.

46
Q

Single source

A

Many vendors can provide what your project needs to purchase, but you prefer to work with a specific vendor.

47
Q

Sole source

A

Only one vendor can provide what your project needs to purchase. Examples include a specific consultant, specialized service, or unique type of material.

48
Q

Sunk costs

A

Monies that have already been invested in a project.

49
Q

Variable costs

A

Costs that change based on the conditions applied in the project

50
Q

Variance

A

The difference between what was expected and what was experienced.

51
Q

Project Cost Management Processes

A

Planning:

  1. Plan Cost Management
  2. Estimate Costs
  3. Determine Budget

Controlling
4. Control Costs

CAPM Exam Prep (13 decks)

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