Chapter 7: Project Cost Management Terms

Question 1

The actual amount of monies the project has spent to date.

Answer 1

Actual cost (AC)

Question 2

An approach that relies on historical information to predict the cost of the current project. It is also known as top-down estimating and is the least reliable of all the cost-estimating approaches.

Answer 2

Analogous estimating

Question 3

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 project costs.

Answer 3

Bottom-up estimating

Question 4

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.

Answer 4

Budget estimate

Question 5

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

Answer 5

Commercial database

Question 6

A contingency allowance to account for overruns 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.

Answer 6

Contingency reserve

Question 7

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.

Answer 7

Cost aggregation

Question 8

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.

Answer 8

Cost baseline

Question 9

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.

Answer 9

Cost budgeting

Question 10

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.

Answer 10

Cost change control system

Question 11

The _______ plan dictates how cost variances will be managed.

Answer 11

Cost management plan

Question 12

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.

Answer 12

Cost of poor quality

Question 13

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

Answer 13

Cost of quality

Question 14

The difference of the earned value amount and the cumulative actual costs of the project.

Formula:
CV = ?? – ??

Answer 14

Cost variance (CV)

CV = EV – AC

Question 15

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.

Answer 15

Definitive estimate

Question 16

Costs are attributed directly to the project work and cannot be shared among projects (for example, airfare, hotels, long-distance phone charges, and so on).

Answer 16

Direct costs

Question 17

Earned value is the physical work completed to date and the authorized budget for that work. It is the percentage of the BAC that represents the actual work completed in the project.

Formula:
EV = ??? X ???

Answer 17

Earned value (EV)

EV = %Complete X BAC

Question 18

These forecasting formulas predict the likely completed costs of the project based on current scenarios within the project.

Formula:
EAC = ??? / ???

Answer 18

Estimate at completion (EAC)

EAC = BAC / CPI

Question 19

An earned value management formula that predicts how much funding the project will require to be completed. Three variations of this formula are based on conditions the project may be experiencing.

Formula:
ETC = ??? – ???

Answer 19

Estimate to complete (ETC)

ETC = EAC – AC

Question 20

Costs that remain constant throughout the life of the project (the cost of a piece of rented equipment for the project, the cost of a consultant brought on to the project, and so on).

Answer 20

Fixed costs

Question 21

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

Answer 21

Funding limit reconciliation

Question 22

Costs that are representative of more than one project (for example, utilities for the performing organization, access to a training room, project management software license, and so on).

Answer 22

Indirect costs

Question 23

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.

Answer 23

Known unknown

Question 24

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

Answer 24

Learning curve

Question 25

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

Answer 25

Oligopoly

Question 26

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

Answer 26

Opportunity cost

Question 27

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.

Answer 27

Parametric estimating

Question 28

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.

Answer 28

Planned value (PV)

PV = % Complete

Question 29

The final variance, which is discovered only at the project’s completion.

Formula:
VAR = ??? - ??

Answer 29

Project variance

VAR = BAC – AC

Question 30

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.

Answer 30

Regression analysis

Question 31

Cost reserves are for unknown unknowns within a project. The management reserve is not part of the project cost baseline, but is included as part of the project budget.

Answer 31

Reserve analysis

Question 32

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.

Answer 32

Rough order of magnitude (ROM)

Question 33

Measures the project based on its schedule performance.

Formula:
SPI = ?? / ??

Answer 33

Schedule performance index (SPI)

SPI = EV / PV

Question 34

The difference between the earned value and the planned value.

Formula:
SV = ?? – ??

Answer 34

Schedule variance (SV)

SV = EV – PV

Question 35

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

Answer 35

Single source

Question 36

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

Answer 36

Sole source

Question 37

Monies that have already been invested in a project.

Answer 37

Sunk costs

Question 38

A formula to forecast the likelihood of a project to achieve its goals based on what’s happening in the project right now. There are two different flavors for the
TCPI, depending on what you want to accomplish.

If you want to see if your project can meet the budget at completion, you’ll use this formula:
TCPI (BAC) = (??? – ??) / (??? – ??)

If you want to see if your project can meet the newly created estimate at completion, you’ll use this version of the formula:
TCPI (EAC) = (??? – ??) / (??? – ??)

Answer 38

To-Complete Performance Index

TCPI (BAC) = (BAC - EV) / (BAC - AC)

TCPI (EAC) = (BAC - EV) / (EAC - AC)

Question 39

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).

Answer 39

Variable costs

Question 40

The difference between what was expected and what was experienced.

Answer 40

Variance

Question 41

A forecasting formula that predicts how much of a variance the project will likely have based on current conditions within the project.

Formula:
VAC = ??? – ???

Answer 41

Variance at completion (VAC)

VAC = BAC – EAC

Question 42

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

Answer 42

Cost of quality

Question 43

Measures the project based on its financial performance.

Formula:
CPI = ?? / ??

Answer 43

Cost performance index (CPI)

CPI = EV / AC