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
Process “Control Costs”
-Inputs: Project Management Plan (Cost Management Plan, Cost Baseline, Performance Measurement Baseline), Lessons Learned Register, Project Funding
Requirements, Work Performance Data, OPAs
-Techniques+Tools: Expert Judgment, Data Analysis (Earned Value Management, Variance Analysis, Trend Analysis, Reserve Analysis), To-complete Performance Index (TCPI), PMIS
-Outputs: Work Performance Information, Cost Forecasts, Change Requests, Project Management Plan Updates (Cost Management Plan, Cost Baseline, Performance Measurement Baseline), Project Documents Updates (Assumption Log, Basis of Estimates, Cost Estimates, Lessons Learned Register, Risk Register)
EVA - Cost variance (CV)
EV-AC
negative means over budget
EVA - Schedule variance (SV)
EV-PV
negative means behind schedule
EVA - Cost performance index (CPI)
EV/AC
<1 means over budget
EVA - Schedule performance index (SPI)
EV/PV
<1 means behind schedule
EVA - Estimate at completion (EAC)
- When current variances are thought to be atypical for the future/if future work will accomplished at planned rate
EAC=AC+BAC–EV - When current variances are thought to be typical for the future (performed at present CPI)
EAC = BAC / CPI - considering both SPI and CPI
EAC = AC + [(BAC - EV) / (CPI x SPI)]
EVA - To-complete performance index (TCPI)
CPI that is required to be achieved with the remaining resources to meet the specified management goal
BAC-based: TCPI = (BAC - EV) / (BAC - AC)
->efficiency that be achieved to complete on plan
EAC-based: TCPI = (BAC - EV) / (EAC - AC)
->efficiency that be achieved to complete the current EAC
(>1 harder; =1 same; <1 easier)
also tool that is used in ‘Control Costs’
EVA - Estimate to complete (ETC)
ETC = EAC - AC
EVA - Variance at completion (VAC)
VAC = BAC - EAC
