Cost Management Flashcards
Life Cycle Costing
Life cycle costing, or whole-life costing, is taking into consideration the whole life of the product, and not just the cost of the project. It’s the process of estimating how much money you will spend on a product or service over the course of its life.
Value Analysis (also Value Engineering)
Technique used to find a less costly way to do the same work . It helps to answer the question “How can we decrease costs on the project while maintaining the same scope?”
Cost management plan
- includes information on how to plan, manage, and monitor and control project costs
- part of the project management plan
- includes
- specification for estimates (e.g. currency)
- levels of accuracy needed
- approved estimating techniques
- reporting formats to be used
- rules for measuring cost performance
- guidance on which costs should be considered (direct, indirect, etc.)
- cost change control procedures
- funding decisions
- roles and responsibilities for cost activities
Process “Plan Cost Management”
- Goal: create plan on how to plan, manage, and monitor and control project costs
- Inputs: Project Charter, Project Management Plan (Schedule+Risk Mgmt Plan), EEFs, OPAs
- Tools+Techniques: Expert judgement, data analysis, meetings
- Outputs: Cost management plan
Process “Estimate Costs”
- Goal: Coming up with cost estimates for all project activities and resources required to complete them.
- Inputs: Project mgmt plan (cost+quality mgmt plan, scope baseline); project documents (lessons learned register, project schedule, resource requirements, risk register); EEFs, OPAs
- Tools+Techniques: Expert judgment, Estimating techniques (Analogous, parametric, bottom-up, three-point), data analysis (reserve analysis, alternative analysis, cost of quality), PMIS, decision making
- Outputs: Cost estimates, basis of estimates (explanation of how estimates were derived), Project Documents Updates (Assumption Log, Lessons Learned Register, Risk Register)
Estimate Ranges
ROM (rough order of magnitude) estimate:
-range: -25 to +75% (usually used during initiation phase)
Budget estimate:
-range: -10 to +25%
Definite estimate:
-range: -5 to +10% (depends on project mgr)
Process “Determine Budget”
-Goal: calculate the total cost of the project to determine the amount of funds the organization needs to have available for the project (also includes sanity checks and reconciliation e.g. with benefits mgmt plan, parametric estimates, cost constraints, etc.)
-Inputs: Project Management Plan (Cost+Resource Management Plan, Scope Baseline), Project Documents (Cost estimates, basis of estimates, project schedule, risk register), business documents (business case+benefits mgmt plan), agreements, EEFs, OPAs
-Tools+Techniques: Expert Judgment, Cost Aggregation, Data Analysis (Reserve Analysis), Historical Information
Review, Funding Limit Reconciliation, Financing
-Outputs: Cost Baseline; Project Funding Requirements; Project Documents Updates (Cost Estimates; Project Schedule; Risk Register)
Project/Cost budget
Cost baseline + mgmt reserves (unidentified risks) = cost budget
Level of details for estimates (based on work)
Activity estimates -> Work package estimates - > Control account estimates -> Project estimates
Cost baseline
= Project estimates + contingency reserves (identified risks)
- the portion of the budget the project mgr has control over and is used to measure the success)
- is time-phased and might be shown as an S-curve
Benefit Cost Ratio (BCR)
Benefit/Cost (ratio of the benefits/revenue of a project relative to its costs -> the higher the better)
-result of cost benefit analysis
Burn Rate
Actual Cost/Earned Value (= rate at which the project budget is being burned)
Net Present Value (NPV)
- present value of the total benefits (income or revenue) minus the costs over several time periods
- generally, if the NPV is positive, the investment is a good choice
- usually the project with the greatest NPV is selected
Internal Rate of Return (IRR)
-the annual rate of growth an investment is expected to generate (i.e. the higher the better)
Present Value (PV)
- value today of future cash flows
- formula: PV = FV/(1+r)^n
