Cost Management

Question 1

Value analysis

Answer 1

Focus is to find a less costly way to do the same work

Question 2

Cost risk

Answer 2

Cost related risk and crosses across multiple knowledge areas

Question 3

Plan cost management

Answer 3

How you’re going to plan manage and control project costs

Question 4

Return on investments

Answer 4

Used to measure the potential profitability of an investment by calculating the benefits received in relation to the cost

Question 5

Discounted cash flow

Answer 5

Technique to estimate the attractiveness of an investments by predicting how much money will be relieved in the future and discounting it to its current value

Question 6

Estimate costs

Answer 6

Coming up with cost estimates for each activity

Question 7

Types of costs

Answer 7

Variable costs - change with the amount of production or the amount of work ex: materials supplies and wages

Fixed costs - do not change as production changes ex: set-up, rent, utilities

Direct costs - directly attributed to the work on the project ex: travel, team wages, recognition and cost of material used on the project

Indirect Costs - overhead items or costs incurred for the benefit of more than one project ex: taxes fringe benefits and janitorial services

Question 8

Bottom up estimating

Answer 8

Creating detailed estimate for each part of an activity or work package estimates are then rolled up into control accounts and then into an overall project estimate

Question 9

PV

Answer 9

Planned value

As of today what is the estimated value of the work planned to be done

Question 10

EV

Answer 10

Earned value

As of today what is the estimated value of the work actually accomplished

Question 11

AC

Answer 11

Actual cost ( total cost )

As of today what is the actual cost incurred for the work accomplished

Question 12

BAC

Answer 12

Budget at completion

How much did we budget for the total object effort

Question 13

EAC

Answer 13

Estimate at completion

What do we currently expect the TOTAL project to cost

Question 14

ETC

Answer 14

Estimate to complete

From this point on how much more do we expect it to cost to finish the project

Question 15

VAC

Answer 15

Variance at completion

As of today how much over or under budget do we expect to be at the end of the project

Question 16

Cost variance formula

Answer 16

EV - AC

Negative is over budget positive is under budget

Question 17

Schedule variance formula

Answer 17

EV - PV

Negative is behind schedule positive is ahead of schedule

Question 18

Cost performance Index

Answer 18

EV / AC

We are getting x amount worth of work out of every $1 spent

Greater than one is good less than one is bad

Question 19

Schedule performance

Answer 19

EV / PV

We are only progressing at x% of the rate originally planned

Greater than 1 is good less than 1 is bad

Question 20

Variance at completion

Answer 20

BAC - EAC

How much over or under budget will we be at the end of the project

Question 21

Estimate to complete

Answer 21

EAC - AC

How much more will the project cost

Question 22

To complete performance index formula

Answer 22

(BAC - EV ) / (BAC - AC)

In order to stay in budget what rate must we meet for the remaining work

Question 23

Estimate at completion

Answer 23

AC + bottom up ETC

Calculates the actual costs to date plus a new estimate for the remaining work

BAC / CPI

Used if no variances from the BAC have occurred or you will continue at the same rate of spending

AC + (BAC - EV)

Calculates actual costs to date plus remaining budget

AC + (BAC - EV) / CPI x SPI)

Calculates actual to date plan plus the remaining budget modified by performance

Question 24

Rough order of magnitude estimate

Answer 24

Made during project initiating

-25 to +75 percent from actual

Question 25

Budget estimate

Answer 25

Made during project planning

-10 to + 25 percent from actual

Question 26

Definitive estimate

Answer 26

+/-10 percent from actual

Question 27

Life cycle costing

Answer 27

Looking at the cost of the life of the product not just the cost of the project

Question 28

Cost management plan

Answer 28

Currency
Reporting formats to be used
Rules for measuring cost performance
Control thresholds 
Cost change control procedures
Funding decisions
How cost activities will be conducts
Rules for measuring cost performance

Question 29

Inputs to estimating costs

Answer 29

Cost management plan
Scope baseline 
Project schedule 
HR management plan
Risk register
Enterprise environmental factors
Organizational process assets
Project management costs

Question 30

How is cost estimating done

Answer 30

One-point estimating
Analogous estimating 
Parametric estimating 
3 point estimating
Bottom up estimating

Question 31

Control costs

Answer 31

Follow the cost management plan 
Look at organizational process assets
Reserve analysis
Determine variances by measuring 
Use progress reporting 
Earned value management

Question 32

Accuracy of estimates

Answer 32

Estimates should be in a range and over time you can narrow the estimate range

Organizations have different standards for different ranges

Rough order of magnitude (rom) estimates - initiating
Budget estimate - planning
Definitive estimate - as the project progresses

Question 33

Determine budget

Answer 33

Inputs

• cost management plan
• risk register ( for contingency reserves)
• scope baseline
• project schedule
• org process assets
• activity cost estimates
• basis of estimates
• resource calendars
• agreements about cost

PM must perform risk management activists and include reserves in the estimate