Cost Management Flashcards
Cost management plan
The cost management plan is a component of the project management plan and describes how the project costs will be planned, structured, and controlled. The cost management processes and their associated tools and techniques are documented in the cost management plan.
Three-point estimating
Depending on the assumed distribution of values within the range of the three estimates, the expected cost, cE, can be calculated using a formula. Two commonly used formulas are triangular and beta distributions. The formulas are:
Triangular distribution.
cE = (cO + cM + cP) / 3
Beta distribution.
cE = (cO + 4cM + cP) / 6
Cost estimates
Cost estimates include quantitative assessments of the probable costs required to complete project work, as well as contingency amounts to account for identified risks, and management reserve to cover unplanned work. Cost estimates can be presented in summary form or in detail.
Basis of Estimates
The amount and type of additional details supporting the cost estimate vary by application area. Regardless of the level of detail, the supporting documentation should provide a clear and complete understanding of how the cost estimate was derived.
Documentation of the basis of the estimate (i.e., how it was developed)
Documentation of all assumptions made
Documentation of any known constraints
Documentation of identified risks included when estimating costs
Indication of the range of possible estimates (e.g., US$10,000 (±10%) to indicate that the item is expected to cost between a range of values)
Indication of the confidence level of the final estimate
Determine Budget
Determine Budget is the process of aggregating the estimated costs of individual activities or work packages to establish an authorized cost baseline.
Cost Baseline
The cost baseline is the approved version of the time-phased project budget, excluding any management reserves, which can only be changed through formal change control procedures. It is used as a basis for comparison to actual results. The cost baseline is developed as a summation of the approved budgets for the different schedule activities.
The cost baseline for a project includes all expenses except management reserves
Data Analysis Terms
Planned value (PV) is the authorized budget assigned to scheduled work.
Earned value (EV) is a measure of work performed expressed in terms of the budget authorized for that work.
Actual cost (AC) is the realized cost incurred for the work performed on an activity during a specific time period.
Schedule variance (SV) is a measure of schedule performance expressed as the difference between the earned value and the planned value. Equation: SV = EV – PV
Cost variance (CV) is the amount of budget deficit or surplus at a given point in time, expressed as the difference between earned value and the actual cost. Equation: CV = EV – AC
Earned value analysis (EVA)
Earned value analysis compares the performance measurement baseline to the actual schedule and cost performance. EVM integrates the scope baseline with the cost baseline and schedule baseline to form the performance measurement baseline. EVM develops and monitors three key dimensions for each work package and control account: PV, EV, and AC.
Variance analysis
Variance analysis, as used in EVM, is the explanation (cause, impact, and corrective actions). Cost and schedule variances are the most frequently analyzed measurements.
Schedule variance (SV) is a measure of schedule performance expressed as the difference between the earned value and the planned value. Equation: SV = EV – PV
Cost variance (CV) is the amount of budget deficit or surplus at a given point in time, expressed as the difference between earned value and the actual cost. Equation: CV = EV – AC
The schedule performance index (SPI) is a measure of schedule efficiency expressed as the ratio of earned value to planned value.
Equation: SPI = EV/PV
The cost performance index (CPI) is a measure of the cost efficiency of budgeted resources, expressed as a ratio of earned value to actual cost.
Equation: CPI = EV/AC
Trend Analysis
Trend analysis examines project performance over time to determine if performance is improving or deteriorating.
Charts. In earned value analysis, three parameters of planned value, earned value, and actual cost can be monitored and reported on both a period-by-period basis (typically weekly or monthly) and on a cumulative basis.
Forecasting. As the project progresses, the project team may develop a forecast for the estimate at completion (EAC) that may differ from the budget at completion (BAC) based on the project performance
Management reserves
Management reserves are an amount of the project budget withheld for management control purposes and are reserved for unforeseen work that is within scope of the project. Management reserves are intended to address the unknown unknowns that can affect a project. The management reserve is not included in the cost baseline but is part of the overall project budget and funding requirements. When an amount of management reserves is used to fund unforeseen work, the amount of management reserve used is added to the cost baseline, thus requiring an approved change to the cost baseline.
To-Complete Performance Index (TCPI)
The to-complete performance index (TCPI) is a measure of the cost performance that is required to be achieved with the remaining resources in order to meet a specified management goal, expressed as the ratio of the cost to finish the outstanding work to the remaining budget.
Performance measurement baseline PMB
For projects that use earned value management, the cost baseline is referred to as the performance measurement baseline
Rough order of magnitude (ROM)
Rough order of magnitude (ROM) estimate in the range of −25% to +75%
S-curve
A project’s S-curve is a time-phased display of the project’s cost baseline. When the cost baseline (as well as other variables, such as actual costs, earned value, and work, etc.) is plotted, the graph takes a shape that resembles an ‘S’; it is flatter at the beginning and the end, and steeper in the middle.
