Chapter 7- Project Cost Management Flashcards
Plan Cost Management
Process that establishes the policies, procedures, and documentation for planning, managing, expending, and controlling project costs. The Key Benefit of this process is that it provides guidance and direction on how the project costs will be managed throughout the project.
What part of PMP is used for cost estimating
Scope Baseline, Schedule baseline, cost related scheduling, risks and communication decisions.
Cost Management Plan includes
Units of measure Level of precision ( rounding up the sums) Level of accuracy ( e.g.+/- 10%) Organisational procedures links Control thresholds Rules of performance measurement -( Earned Value management rules of measurements are set. Reporting formats Process descriptions Additional details
Control Account
The WBS component used for the project cost estimating. Each control account is assigned a unique code or account numbers that link directly to the performing organisation’s accounting system.
Estimate Costs
Process of developing an approximation of the monetary resources needed to complete project activities. Key benefit is that it determines the amount of cost required to complete project work.
Plan Cost Management ITTO
Inputs: PMP Charter Organisational process assets Enterprise environmental factors
T&T
Analytical techniques
Expert judgements
Meetings
Outputs
Cost Management Plan
Estimate cost ITTO
Inputs Cost Management Plan Scope Baseline Human Resource Management Plan Project Schedule Risk register Enterprise Environmental Factors Organisational process Assets
TT Expert Judgement Analogous estimating Parametric Estimating Bottom-up estimating Three-point estimating Reserve analysis Cost of quality Project Management software Vendor bid analysis Group decision making techniques
Outputs
Activity cost estimates
Basis for estimates
Project documents updates
Determine budget ( what is it?)
Process of aggregating the estimated cost of individual activities or work packages to establish an authorised cost baseline.
Determine budget ITTO
Inputs: Cost Management Plan Scope baseline Activity cost estimates Basis for estimates Project Schedule Resource calendars Risk register Agreements Organisational Process assets
T&T Cost aggregation Reserve analysis Expert judgement Historical relationships Funding limit reconciliation
Outputs
Cost baseline
Project funding requirements
Project Document updates
Control Cost
Inputs: Project Management Plan Project Funding requirements Work performance data Organisational Process Assets
T&T Earned value management Forecasting To-complete performance index Performance reviews Project Management software Reserve analysis
Outputs Work performance information Cost forecasts Change requests PMP updates Project documents updates Organisational process assets updates
Actual Cost AC
The actual amount of money the project has spent to date
Analogous estimating
An approach that relies on historical information to predict the cost of the current project. It is also known as to-down estimating and is the least reliable of all the cost-estimating approaches
Bottom-up estimating
An estimating approach that starts from zero, accounts for each component of the WBS, and arrives at a sum for the project. It is completed with the project team and can be one of the most time-consuming and most reliable methods to predict costs.
Budget estimate
The estimate is also somewhat broad and is used early in the planning processes and also is top-down estimates. The range of variance for the estimate can be from -10 tp +25 percent
Commercial database
A cost estimating approach that uses a database, typically software-driven, to create the cost estimate for a project.
Contingency reviews
A contingency allowance to account for overrun in costs. Contingency allowances are used at the project manager’s discretion and with management’s approval to counteract cost overruns for scheduled activities and risk events.
Cost aggregation
Costs are parallel to each WBS work package. The costs of each work package are aggregated to the corresponding control accounts. Each control account then is aggregated to the sum of the project costs.
Cost baseline
A time-lapse exposure of when the project monies are to be spend in relation to cumulative values of the work completed in the project.
Cost budgeting
The cost aggregation achieved by assigning specific dollar amounts for each of the schedules activities or, more likely, for each of the work packages in the WBS. Cost budgeting applies the cost estimates over time.
Cost change control system
A system that examines any chances associates with scope changes, the cost of material, and the cost of any other resources, and the associated impact on the overall project cost.
Cost Management Plan
The cost management plan dictates how cost variances will be managed
Cost of poor quality
The monies spent to recover from non adhering to the expected level of quality. Examples many include rework, defect repair, loss of life or limb because safety precautions were not taken, loss of sales, and loss of customers. This also known as the cost of non-conformance to quality.
Cost of quality
The monies spent to attain the expected level of quality within a project. Examples include training, testing, and safety precautions.
Cost Performance Index (CPI)
Measure the project based on its financial performance. CPI=EV/AC
Cost Variance (CV)
The difference of the earned value amount and the cumulative actual costs of the project. The formulas is CV=EV-AC.
Definite estimate
This estimate type is on the most accurate. It’s used in the planning processes and is associates with bottom-up estimating. You need the WBS in order to create the definite estimate. The range of variances for the estimate can be from -5 percent to +10 percent.
Direct costs
Costs are attributes directly to the project work and cannot be shares amount projects ( for example, airfare, hotels, long-distance phone charges, and so-on).
Earned Value (EV)
Earned Value is the physical work completed to date and the authorised budget for that work. It is the percentage if the BAC that represents the actual work completed in the project.
Estimate at completion (EAC)
Forecasting formulas predict the likely completed costs of the project based on current scenarios within the project.
EAC=AC+(BAC-EV)
EAC=BAC/CPI
Estimate to complete (ETC)
An earned value management formulas that predicts how mush funding the project will require to be completed. ETC= EAC-AC
Fixed cost
Costs that remain constant throughout the life of the project
Funding limit reconciliation
An organisation’s approach to managing cash flow against the project deliverables based on a schedule, milestone accomplishment or data-constraints.
Indirect costs
Costs that are representative of more that one project.
Known unknown
An event that will likely happen within the project, but when it will happen and to what degree is unknown.
Leaning curve
An approach that assumes the cost per unit decreases the more units workers complete, because workers can learn as they complete the required work.
Oligopoly
A market condition where the market is so tight that the action of one vendor affect the actions of all the others.
Opportunity cost
The total cost of the opportunity that is refused to realise an opposing opportunity.
Parametric estimating
It’s an approach using a parametric model to extrapolate what cost will be needed for a project. For example ( cost per hour and cost per unit) it can include variables and points based on conditions.
Planned value ( PV)
Planned value is the work scheduled and the budget authorized to accomplish that work. It is the percentage of the BAC that reflects where the project should be at this point in time.
Project variance
The final variance which is discovered only at the project completion. VAR= BAC-AC
Regression analysis
This is a statistical approach to predicting what future values may be, based on historical values. Regression analysis creates quantitative prediction 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.
Reserve analysis
it is for unknown unknowns with a project. The management reserve is all a part of the project cost baseline, but is included as part of the project budget.
Rough Order of Magnitude
These are rough estimate is used during the initiating processes and in top- down estimates. A range of estimates can be from -25 to +75%
Schedule performance index (SPI)
Measures to the project based on its schedule performance. SPI= EV/PV
Schedule variance
The difference between the earned value and the planned value. The formula is SV= EV-PV
Single source
Many vendors can provide what your project needs to purchase but you prefer to work with the specific vendor
Sole source
only one vendor can provide what your project needs to purchase
Sunk costs
Money that have already been invested in a project
To- complete performance index (TCPI)
A formula to a forecast the likelihood of a project to achieve its goal based on what’s happening in the project right now. There are two different flavours for the TPCI, depending on what you want to accomplish. If you want to see if your project can meet the budget incompletion you will use this formula: TCPI=BAC-EV/BAC-AC. If you want to see if you project can meet the newly created estimate at completion, you will use this version of the formula: TCPI=BAC-EV/ EAC-AC
variable costs
costs that change based on the conditions applied in the project (the number of meeting participants, the supply of and demand for materials, and so on).
Variance
difference between what was expected and what was experienced
Variance at completion
A forecasting formula that predict how much of the variance the project will likely have, based on current condition within the project. The formula is: VAC=BAC-EAC
