Cost Management Flashcards
what is value analysis or value engineering?
reducing cost without affecting scope
Name 7 cost benefit analysis methods
Plan Cost Management
All are cost benefits analysis methods:
- BCR - benefit to cost ratio used to predict future returns. BCR <1 = investment will lose money, BCR >1 = profitable
- ROI - return on investment, measures efficiency of investment, a ratio to measure actual returns. Higher is better
- Internal Rate of Return IRR - interest rate when inflows and outflows equal 0
- Payback period - shorter is better
- Present value (time value of money) - today’s value of future money
- Net Present value - sum of all cash inflows minus outflows
- Depreciation - decrease in value over time
What is ROI?
Plan Cost Management
a ratio that shows the return of an investment in relationship to the cost of the investment used to show actual returns
the efficiency of investment
ROI > 1 project is profitable
ROI < 1 project isn’t profitable
The higher the ROI the more favorable the project is to the organization
What is IRR?
Plan Cost Management
an indicator of the profitability of a series of cash flows.
It is the interest rate at which cash inflows and outflow equal 0
Example 22%
The higher the IRR the better financial value if brings the organization
What is PBP Payback period?
Plan Cost Management
the length of time to recover the investment, when cash flows are positive
payback period = initial investment / periodic cash flow
Ex. 10,000 / 1,000/month = 10 months
what is present value?
Plan Cost Management
Present Value (PV) - the future value in terms of todays money adjusted for inflation PV = value / (1+interest rate)^year
What is NPV?
Plan Cost Management
one single figure that represents the expected net value of all cost and benefit.
It is the sum of all cash inflows (in present value) minus the initial cost
An effective tool to determine if a project is profitable
NPV > 0 = profitable
NPV<0 = project will lose money
The larger the NPV, the more profitable the project will be
Name 3 kinds of depreciation
Plan Cost Management
decrease in value of assets over time
Straight line
Double declining balance (accelerated) - reduction in value is twice as much as straight line in the first year and lower later (like a new car)
Sum of year depreciation (accelerated) - greater depreciation in the earlier years and less later
Ex. 5 yrs = 1+2+3+4+5=15. Yr 1 is 5/15, yr 2 is 4/15, yr 3 is 3/15..
What is lifecycle costing? what’s included?
Plan Cost Management
life cycle costing, total cost of ownership
production cost + running + maintenance cost, etc. How much will it cost to maintain the project
What is Earned schedule Analysis
Plan Cost Management
Expansion of EVM to include the concept of EARNED SCHEDULE (ES and AT, actual time).
Variances, >1 is ahead of schedule
SPI with ES/AT measures efficiency
What is agile estimating?
Plan Cost Management
If there’s a high degree of uncertainty or undefined scope, detailed estimates may not be useful. Instead lightweight, fast methods can be used to create a high-level forecast of labor costs, which can be adjusted with change
Detailed estimates are reserved for short-term planning, just-in-time horizon
What does the Cost Management plan include?
- Level of accuracy - range
- Level of precision - how estimates are rounded up and down
- Unit of measurement
Control threshold - Rules of performance measurement - when and how reports will be made
- Reporting formats
What’s included in cost estimates?
Estimate Costs
WBS estimates contingency reserves indirect costs vendor bids cost of quality Range % EEFs- exchange rates, inflation
What is an agile estimate?
Estimate Costs
lightweight, high-level forecast and only provide detailed estimates at the last responsible moment. Progressive elaboration
Estimating techniques (4)
Estimate Costs
Analogous - fast / not accurate
Paremetric - good for repetition - fast / accuracy depends
Bottoms-up - slow / accurate
Three point (triangular and PERT distribution)
