Chapter 8

Question 1

What is cost management, cost accounting and cost estimation?

Answer 1

 Cost management has been defined to
encompass data collection, cost
accounting, and cost control.
 Cost accounting and cost control serve
as the chief mechanisms for identifying
and maintaining control over project costs.
 Cost estimation processes create a
reasonable budget baseline for the project.

Question 2

What are some of the common sources of project costs?

Answer 2

Labor
Materials
Subcontractors
Equipment & facilities
Travel

Question 3

What are some of the types of costs?

Answer 3

Direct Vs. Indirect
Recurring Vs. Nonrecurring
Fixed Vs. Variable
Normal Vs. Expedited

Question 4

What are some cost estimation methods?

Answer 4

Ballpark (order of magnitude) ±30%
Comparative ±15%
Feasibility ±10%
Definitive ±5%

Question 5

What is a learning curve?

Answer 5

Each doubling of output results in a reduction in time to perform the last iteration.
Y= aX^b where
Y = time required for the x unit of output
a = time required for the initial unit of output
X = the number of units to be produced
b = learning curve slope = log(learning %)/log(2)

Question 6

What is function point analysis?

Answer 6

Function Point Analysis is a system for
estimating the size of software projects
based on what the software does.
Function Points are a standard unit of
measure that represents the functional size
of a software application.

Question 7

What are some problems with Cost estimation?

Answer 7

Low initial estimates
Unexpected technical difficulties
Lack of definition
Specification changes
External factors

Question 8

How to create a project budget?

Answer 8

The budget is a plan that identifies the resources, goals, and schedule that allows a firm to achieve those goals.
Top-down
Bottom-up
Activity-based costing (ABC)

Question 9

How to calculate project budget using activity based costing?

Answer 9

1. Assign costs to activities that use resources.
2. Identify cost drivers associated with this activity.
3. Compute a cost rate per cost driver unit or transaction.
4. Multiply the cost driver rate times the
   volume of cost driver units used by the project.

Question 10

What are budget contingencies?

Answer 10

Allocation of extra funds to cover uncertainties and
improve the chance of finishing on time
Contingencies are needed because:
1. Project scope may change
2. Murphy’s Law is present
3. Cost estimation must anticipate interaction costs
4. Normal conditions are rarely encountered

Question 11

What are the benefits of contingency funding?

Answer 11

1. Recognizes future contains unknowns
2. Adds provision for company plans for
   an increase in project cost
3. Applies contingency fund as an early
   warning signal to potential overdrawn
   budget