cost management Flashcards
what is cost
a resource sacrificed or foregone to achieve a specific objective or something given up in exchange
processes of project cost management (4)
- planning cost management
- estimating costs
- determining the budget
- controlling costs
profit is
revenue - expenditure
profit margin is
the ratio of revenues to profits
life cycle costing considers..
the total cost of ownership, or development plus support costs, for a project
cash flow analysis determines..
the estimated annual costs and benefits for a project and the resulting annual cash flow
types of costs and benefits (4)
- tangible
- intangible
- direct
- indirect
tangible costs or benefits
costs or benefits that an organization can easily measure in dollars
Intangible costs or benefits
costs or benefits that are difficult to measure in monetary terms
direct costs
costs that can be directly related to producing the products and services of the project
indirect costs
costs that are not directly related to the products or services of the project, but are indirectly related to performing the project
reserves
money added to the project cost estimates to mitigate cost risk by allowing for future situations that are difficult to predict
two types of reserves
- contingency
- management
contingency reserves allow for
future situations that may be partially planned for (identified risks)
management reserves allow for
future situations that are unpredictable (unidentified risks)
what does the project team use to develop a cost management plan
- expert judgement
- meetings
- analytical techniques
3 types of cost estimates
- rough order of magnitude (ROM)
- budgetary
- definitive
tools and techniques used to estimate costs and explain them (3)
- analogous/top-down estimates: use the actual cost of a previous, similar project
- bottom-up estimates: involve estimating individual work items or activities and summing them
- parametric modeling: a mathematical model
problems that can happen during costs estimation (4)
- estimates are done too quickly
2 lack in estimating experience - human beings are biased toward
- management desires accuracy
cost budgeting involves
allocating the project cost estimate to individual work items over time
what is a required input for cost budgeting
a WBS
goal of cost budgeting
to produce a cost baseline (cost estimates + contingency reserve)
what does project cost control include (3)
- monitoring cost performance
- ensuring that only appropriate project changes are included in a revised cost baseline
- informing project stakeholders of changes that will affect costs
why would an organization have problems with cost control
because many projects do not progress exactly as planned, new or revised cost estimates are often required
