Cost Management Flashcards
Value analysis
Focus is to find a less costly way to do the same work
Cost risk
Cost related risk and crosses across multiple knowledge areas
Plan cost management
How you’re going to plan manage and control project costs
Return on investments
Used to measure the potential profitability of an investment by calculating the benefits received in relation to the cost
Discounted cash flow
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
Estimate costs
Coming up with cost estimates for each activity
Types of costs
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
Bottom up estimating
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
PV
Planned value
As of today what is the estimated value of the work planned to be done
EV
Earned value
As of today what is the estimated value of the work actually accomplished
AC
Actual cost ( total cost )
As of today what is the actual cost incurred for the work accomplished
BAC
Budget at completion
How much did we budget for the total object effort
EAC
Estimate at completion
What do we currently expect the TOTAL project to cost
ETC
Estimate to complete
From this point on how much more do we expect it to cost to finish the project
VAC
Variance at completion
As of today how much over or under budget do we expect to be at the end of the project
Cost variance formula
EV - AC
Negative is over budget positive is under budget
Schedule variance formula
EV - PV
Negative is behind schedule positive is ahead of schedule
Cost performance Index
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
Schedule performance
EV / PV
We are only progressing at x% of the rate originally planned
Greater than 1 is good less than 1 is bad
Variance at completion
BAC - EAC
How much over or under budget will we be at the end of the project
Estimate to complete
EAC - AC
How much more will the project cost
To complete performance index formula
(BAC - EV ) / (BAC - AC)
In order to stay in budget what rate must we meet for the remaining work
Estimate at completion
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
Rough order of magnitude estimate
Made during project initiating
-25 to +75 percent from actual
Budget estimate
Made during project planning
-10 to + 25 percent from actual
Definitive estimate
+/-10 percent from actual
Life cycle costing
Looking at the cost of the life of the product not just the cost of the project
Cost management plan
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
Inputs to estimating costs
Cost management plan Scope baseline Project schedule HR management plan Risk register Enterprise environmental factors Organizational process assets Project management costs
How is cost estimating done
One-point estimating Analogous estimating Parametric estimating 3 point estimating Bottom up estimating
Control costs
Follow the cost management plan Look at organizational process assets Reserve analysis Determine variances by measuring Use progress reporting Earned value management
Accuracy of estimates
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
Determine budget
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
