Chapter Seven | Cost Management Flashcards
What does AC stand for and the interpretation
Actual cost
As of today, what is the actual cost incurred for the work completed?
What does AT stand for and def
Actual time
Actual time used to complete an activity
What does BAC stand for And what is the interpretation?
Budget at completion
How much did we budget for the total project effort?
What does COQ stand for
Cost of quality
What does CPI stand for
Cost performance index
What does CV stand for
Cost variance
What does EAC stand for
Estimate at completion
What does ES stand for and def
Earned schedule
Time allotted to complete an activity
What does ETC stand for, def and formula
Estimate to complete
Represents the funds needed to finish the project based on the current spending efficiency of the project
ETC= EAC - AC
What does EVA stand for and def
Earned value analysis
Compares the performance measurement baseline to the actual schedule and cost performances
A snapshot in time
What does EVM stand for and def
Earned value management
Identifies and monitors key dimensions for each work package, control account, or total project budget BAC
What does IRR stand for
Internal rate of return
What does NPV stand for
Net present value
What does PERT stand for
Program evaluation and review technique
What does PMB stand for
Performance measurement baseline
What does PV stand for and interpretation
Planned value
As of today, but is there estimated value of the work planned, what “should” be done?
What does ROM stand for
Rough order of magnitude
What does SPI stand for
Schedule performance index
What does SV stand for
Schedule variance
What does TCPI stand for and def
To complete performance index
How to finish project on original budget
What does VAC stand for, def and formula
Variance at completion
The difference between the original budget at completion and the estimate at completion
This tells us how much the completed project was over or under budget
VAC= BAC - EAC
What is project cost management?
The process involved in planning estimating budgeting financing funding managing and controlling costs so the project can be completed within the approved budget
Once you pass the project on to where it will live
the impact on the budget of the department you pass this back to Is called what?
Life cycle costing
What needs to be considered and tailoring a project cost plan? 5
Knowledge management
estimating and budgeting
earned value management
use of agile approach
governance
Agile| Detailed estimates are only used for a what?
Short term planning in a just in time style
7.1. Plan cost management
What does this mean and what is the benefit?
The process of defining HOW the project cost will be estimated budget and managed monitored and controlled.
The key benefit is that it provides guidance and direction on how the project costs will be managed throughout the project
This is for the team
7.1. Cost can be either ________ or _________
Variable costs or fixed costs
7.1 What does variable cost mean and what are three examples
Cost that change with the amount of production or work
material
equipment
project labor
7.1 What does fixed costs mean and what are two examples
Costs that do not change as production changes
set up cost
facility rent
7.1 What is direct cost and what are some examples
Items or services used ONLY for the project
Travel expenses material project office space training equipment labor
7.1 What is the definition of indirect cost and examples
Items or services used for multiple projects, functional, or operational areas
You pay your share
Taxes maintenance utilities security overhead IT support salaries services office expenses
NOTE
7.1 You cannot complete project budget until risk management plan is completed
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7.1. Output
Cost mng plan establishes
Units of measure level of precision level of accuracy for estimating organizational procedure links rules for measuring cost performance reporting formats and frequencies strategic funding choices control thresholds
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7.1 output
What does the control thresholds do
Control threshold to tell you the amount of variation allowed from a baseline
Crossing the threshold triggers a corrected or preventative action
7.2 cost estimating
What is cost estimating?
The process of developing the likely costs for resources required to complete the project work and activities
The likely cost for resources required to complete an activity and includes cost trade-offs and risk
7.2 What does estimating cost process results in
A set of activity cost estimates and the basis for each estimate
7.2 What are the three types of estimates and the ranges?
Rough order of magnitude estimate
(-25% to +75%)
budget estimate
definitive estimate (-5% to +10%)
7.2 T&T
What are the four types of estimating tools and techniques
Analogous estimating
parametric estimating
bottom up estimating
three point estimating
7.2 T&T
What is analogous estimating aka And when is it used?
(Top down)
Also known as management expectations
applied early in a project when limited details are available
utilizes expert judgment and historical information
provides gross value estimate of the activity or summary activities
7.2 T&T
What is parametric estimating and what does it provide?
(Remember meters example)
When you trust the numbers
Uses a relationship between historical data and variables to calculate an estimate for an activity
provides higher level accuracy depending on sophistication and underlying data built into the model
can be applied to the total project or to segments of the project
7.2 T&T
Which technique provide the greatest level of detail
Bottom up estimating
7.2 T&T
What are the two types of three point estimating?
Beta distribution
triangular distribution
7.2 T&T
What are the two types of reserves And definitions
Contingency reserves
KNOWN-UNKNOWN
Funds within the cost baseline, budgeted for the uncertainty, or identified risks that can affect a project
Management reserves UNKNOWN-UNKNOWN or force majeure can affect the project are NOT included in the baseline but are part of the overall funding
7.2 output
What is the cost estimate output defined as
Quantitative evaluation of the probable costs to complete project work as well as contingency reserves for identified risk and management reserves to cover unplanned work
7.3 What is the definition of determine budget?
Determine budget is the process of aggregating the costs of the activities to establish an authorized cost baseline
includes all funds required to execute the project
the result of this aggregation is the COST BASELINE OR BUDGET
7.3 T&T
What happens in cost aggregation (the process)
To create a budget activity costs are rolled up to work package cost
Work package cost along with the cost of risk contingency reserves are then rolled up to control accounts
Summation of the control accounts make up the project cost baseline also known as the budget at completion (BAC)
Management reserves are not part of the BAC
7.3 T&T
What is another way of thinking about funding limit reconciliation
Balancing your checkbook
7.3 output Note
Cost baseline can only be changed through integrated change control procedures. Developed as a summation of the approved budgets by time.
Typically shown as an S curve to compared to actual costs.
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7.3 output
And earned value management the cost performance baseline is also called what?
Performance measurement baseline (PMB)
7.4 What does the control costs process do and what are the key benefits
The process monitors the status of the project to update the project costs and manage changes to the cost baseline
key benefit is that it provides the means to monitor the plan and recognize variances in order to take correct of action and minimize risk
7.4 What is the key to effective cost control
The management of the approved cost baseline and changes to that baseline
7.4 What will impact the cost of a project the most?
Project changes
7.4 T&T control cost
What does earned value analysis integrate in order to form what?
Earned value analysis integrates the baselines for scope, cost, and schedule to form the performance measurement baseline
What does EV stand for and what is the interpretation
Earned value
As of today, what is the estimated value of the work actually completed?
7.4 T&T control cost
What is planned value?
The authorized budget assigned to scheduled work
Total PV is the what ________
Budget at completion also sometimes called performance measurement baseline
BAC. PMB
7.4 T&T control cost
What is earned value
The measure of actual work performed. It is expressed in terms of the budget authorized for the work
EV can never be more than ______
PV
7.4 T&T control cost
EV
Is the budget for authorized work that has been completed
= planned value (PV) x %percent complete
Needs to be related to the BAC
Includes work done ahead of schedule
Progressive measurement criteria should be establish for each WBS component to measure work in progress
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7.4 T&T control cost
What is actual cost
The realized cost incurred for the work performed on an activity during a specific time period
AC includes the cost of work done ahead of schedule
EVM things to remember
For variance (CV and SV)
Positive is _______
Negative is ______
Positive is good
negative is bad
-$200 CV or SV Means the project is over budget or behind schedule
EVM things to remember
For index (CPI or SPI)
Greater than one is _______
Less than one is ________
Greater than one is good
Under budget or ahead of schedule
Less than one is bad
Over budget or behind schedule
Note EAC (estimate at completion)
Atypical EAC if cost deviated, but you now expect to complete the remaining work 100% as planned
Typical EAC if the project schedule is a factor impacting the etc and/or the client is insisting you complete the project on schedule
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TCPI
What are the two formulas types
Original - budget at completion
new approved - estimate at completion
TCPI
What is the formula if you need to complete the project in the original budget
TCPI = (BAC-EV) / (BAC-AC)
TCPI
What formula is used if you developed and got approval of a new cost estimate
TCPI = (BAC-EV) / (EAC-AC)
7.4 T&T control cost
Earned schedule theory
What are the two formulas
Schedule variance equals earn schedule minus actual time
SV = ES - AT
Schedule performance index equals Earned schedule divided by actual time
SPI = ES/AT
Cost Summary for exam
To improve accuracy, base estimates on the WBS
Estimating should be done by the person doing the work
Historical information from past projects is most accurate and key to improved estimates
Accuracy of estimates can be increased by eliminating risk or reducing their impacts
Estimates must be kept as realistic and as accurate as possible throughout the life of the project by
re-estimating and reviewing them
Remember, the PM has a professional responsibility to maintain the estimate accuracy for the life of the project
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Cost summary for exam Part II
The cost baseline (schedule and scope baseline) should be kept and not changed UNLESS there is an approved change request or the perform in a graded change control process
The cost baseline is the approved version of the budget and includes contingency reserves but excludes management reserves
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