Cost

Question 1

Cost Basleline Breakdown

Answer 1

Authorized time phased, total project budget, excluding management reserves, which is used to measure, monitor and control cost performance.
Estimates: Wrkpg + contingency res(No mgmt. reservs)

Question 2

What to consider in Make or Buy Analysis?

Answer 2

Output from Plan Procurements Decide to make in house or hire vendor. Might use:
* Payback period
* ROI
* Internal Rate of Return(IRR): Higher the better
* Discounted CashFlow: Higher the better
* Net Present Value(NPV): Higher the better
* Benefit/Cost Analysis(BCA):Higher the better

Question 3

Payback Period?

Answer 3

Estimate to predict how long will take to pay back initial investment of capital

Shorter Payback period the better.
Measure ongoing costs vs initial costs for each. 2 lines plotted

Question 4

Fromula PV, FV

Answer 4

PV= FV/(1+n)^i

FV= PV(1+n)^i

Question 5

Direct Costs Vs Indirect Costs

Answer 5

Direct Costs: Cost incurred by project in order for project to exist. Ex: Equipment needed to complete project work, salaries, of project team, and other expenses tied directly to project existence.

Indirect Costs: Costs attributed to the costs of doing business. Ex: Utilities, office space, and other overhead facilities.

Question 6

What are Sunk Costs?

Answer 6

Costs that have already been incurred, and there is no way to recover this cost.
Always equal to AC.
* They do not affect decision to go forward in project, that’s irrational decision making.
* Only take into account Cost to Complete and Future benefits of project completion

Sunken Cost Fallacy: If project past budget and only half way done. Should org consider money spent already on deciding to continue the project?
* No don’t consider sunken cost, will cause irrational decision making
* Only consider what’s the Cost to complete from here and future expected benefit of completing project.