Cost Mgmt Flashcards
Cost management
Scope first, schedule second, cost third
Estimates from the bottom up
Budget is constructed from applying rates and dates against those resources and activities to creat activity cost estimates and a cost baseline, as prescribed in the cost mgmt plan
Cost management processes
Initiating - none
Planning - plan cost mgmt, estimate costs, determine budget
Executing - none
Monitoring & controlling - control costs
Closing - none
Plan cost mgmt output
Cost management plan
Estimate cost output
Cost estimates
Determine budget outputs
Cost baseline, project funding requirements
Control cost outputs
Work performance info, cost forecasts
Life cycle costing
Total cost of ownership from purchase/creation, through operations and finally to disposal
Encourages making decisions based on the bigger picture
Value engineering
Trying to get more out of the project in every possible way
Increase bottom line, decrease costs, improve quality, shorten schedule
Plan cost mgmt
Process that creates the plan that will guide and direct the three other cost mgmt processes
Overall budget could’ve been planned in advance but not the details
Cost mgmt plan
Plan that describes how the process of estimate costs, determine budgets and control costs will be carried out
Units of measure, levels of precision/accuracy, approval thresholds, reporting
Estimate costs
Each schedule activity is analyzed to evaluate the activity time estimate and the resource estimates associated with them, and a cost estimate is produced
The more you understand an activity, the more precise you want it to be
Estimate cost tools
Analogous estimating Parametric estimating Three point estimating Bottom up estimating Data analysis - alternatives analysis, reserve analysis, cost of quality
Analogous estimating
Actual results of a project from estimates
Parametric estimating
Good historical info, linear/scalable
$9m for 1 mile, 8 would be $72m
Bottom up estimating
Separate estimate for each activity
Accurate but time consuming and labor intensive
Three point estimating
Beta and triangular distributions
Reserve analysis
Contingencies = reserve amounts, buffer
Cost of quality
costs associated with achieving quality
Also cost of poor quality = non conformant quality costs
Cost estimates
How much it would cost to complete each schedule activity along with a contingency/reserve amount
Basis of estimates
Never too much detail, how you derived the costs
Budget
Takes the estimated project expenditures and maps them back to dates on the calendar
Determine budget
Time phases the cost estimates so that the performing org will know how to plan for cash flow and likely expenditures
Determine budget inputs
Agreements
Agreements
Agreements and contracts can provide info on what costs the project is contractually obliged to occur as well as when
Determine budget tools
Cost aggregation
Funding limit reconciliation
Financing
Cost aggregation
Even though costs are estimated at the activity level, these costs estimates should be rolled up to the work package level where they will be measured, managed, and controlled during the project
Funding limit reconciliation
Normal for a project to receive funding limit, but important for the project to reconcile planned spending with limits
Ex: 200k first month, 400k second month
Financing
Acquiring capital from outside sources may be necessary
Cost baseline
Cost estimates for all activities plus contingencies
What costs and when
Traditional projects have s curve - costs slow at first, accelerate throughout construction and then slow down during testing and closure
Project funding requirements
Cost baseline plus management reserves
Almost always related to planned expenditures but not identical
Ex: may require higher earlier for stuff like equipment
Control costs
Concerned with cost variance
Positive is good, negative is bad
Ensures costs stay on track and that change is detected whenever it occurs
Control costs tools
Data analysis - earned value analysis, reserve analysis, variance analysis, trend analysis
TCPI - to complete performance index - performance needed in order to achieve your earned value targets
Control costs work performance information
CV, SV, CPI, SPI, TCPI and AC
Control costs cost forecasts
Estimate at completion, estimate to complete
Budgeted at completion
BAC - how much was originally planned for the project to cost
Planned value
AKA budgeted cost of work scheduled
PV / BCWS
How much work should have been completed at a point in time based on the plan. Derived by measuring planned work completed at a point in time
PV = planned / complete x bac
Earned value
AKA budgeted cost of work performed - EV / BCWP
How much work was actually completed during a given period of time. Derived by measuring actual work completed at a point in the schedule
EV = actual / complete x bac
Actual cost
AKA actual cost of work performed - AC / ACWP
The money spend during a period of time
Cost variance
CV
The difference between what we expected to spend and what was actually spent
CV = EV - AC
Positive is better on cost than expected
Schedule variance
SV - difference between where we planned to be in the schedule and where we are
SV = EV - PV
Positive means project is ahead of schedule
Cost performance index
CPI - the rate at which the project performance is meeting cost expectations during a period of time
CPI = EV / AC
1 indicates directly on track, better than 1 is good
Cumulative CPI
CPIc - the rate at which project performance is meeting cost expectations from the beginning up to a point in time. Used to forecast the project cost at completion
CPIc = EVc / ACc
Schedule performance index
SPI - the rate at which project performance is meeting schedule expectations up to a point in time
SPI = EV / PV
Better than 1 is good
Estimate at completion
EAC - project the total cost at completion based on project performance up to a time
EAC = BAC / CPIc
Estimate to completion
ETC - project how much more will be spent on a project based on past performance
ETC = EAC - AC
Variance at completion
VAC - the difference between what was budgeted and what was actually spent
VAC = BAC - EAC
Positive indicates doing better than projected
To complete performance index
TCPI - performance that must be achieved in order to meet financial or schedule goals
TCPI = (BAC - EV) / remaining funds
Greater than 1 is bad
Fixed costs
Stay the same throughout the life of the project
Ex: heavy equipment, renting a bulldozer
Variable costs
May vary
Example: hourly labor, fueled
Direct cost
Billed directly to the project
Ex: materials used to construct a building
Indirect cost
Shared and allocated amount several or all projects
Example: manager’s salary
Sunk cost
Invested into or expended, unrecoverable
Opportunity cost
Cost of the loss of potential benefit from alternatives
