Cost Terminology

Question 1

Actual Cost (AC)

Answer 1

Represents the total costs that have actually been accrued up to a particular point in time; also known as actual cost of work performed

Question 2

Analogous Estimates (Technique)

Answer 2

Process of using a previous project of similar characteristic (size, cost, scope) to estimate a new project

Question 3

Baseline

Answer 3

Estimate/plan that the project tries to achieve (cost, scope, time, etc.)

Question 4

Bottom-Up Estimating

Answer 4

A detailed estimating approach that usually involves team input- As the team builds the pieces of the estimate, they build the total estimate from the bottom up.

Question 5

Budget

Answer 5

The total amount of money expected to be spent on a project based on the original cost estimates plus any approved changes

Question 6

Budget at Completion (BAC)

Answer 6

Total project budget; amount of money planned to be spent by the time the project is complete; sum of all planned value (PV)

Question 7

Budgetary Estimate

Answer 7

An estimate used to put money into a company’s (or project’s) budget

Question 8

Chart of Accounts (Tool)

Answer 8

A structure used to monitor project cost that usually aligns with a company’s accounting system and WBS of the project or program

Question 9

Code of Accounts (Tool)

Answer 9

A numbering system used in project management to identify pieces of the work breakdown structure

Question 10

Control Account (Tool)

Answer 10

A point where scope, time, budgeted cost, and actual cost come together to measure performance on a project - The control account is used at multiple interface points on the project.

Question 11

Control Costs

Answer 11

The process of controlling changes to the budget and monitoring project spending

Question 12

Cost Management Plan

Answer 12

The document that explains how to handle cost estimations, budgeting , variances, and other cost-related items on the project

Question 13

Cost Performance Baseline

Answer 13

A budget version for a specific time period that is used as the basis for expenditure comparison

Question 14

Cost Performance Index (CPI)

Answer 14

A ratio that shows the current efficiency of money being spent on the project; Formula: EV/AC - A value of one means you are getting out what you put in (which is good); less than one is bad; greater than one is good.

Question 15

Cost Variance (CV)

Answer 15

The difference between what has been built (EV) and what the cost was to build it (AC); Formula: EV-AC -A value of zero (0) means the project is creating what it should for the cost as planned . A negative value means you are over budget; a positive value means you are under budget.

Question 16

Definitive Estimate

Answer 16

A cost estimate that provides the accurate estimation of the project cost; the final estimate to be used on the project before implementation begins; Tolerance range: -10 to +10%

Question 17

Determine Budget

Answer 17

The process of applying the overall cost estimates to the individual work elements to allow for a baseline cost measurement

Question 18

Direct Cost

Answer 18

Cost that is directly applicable to the project (Ex: test computer for software being created on the project, IC chips, or labor used on the project)

Question 19

Earned Value (EV)

Answer 19

Represents the value of the work that has actually been accomplished or completed up to a particular point in time; the percent complete of each activity multiplied by the planned value; also known as budgeted cost of work performed (BCWP)

Question 20

Earned Value Management (EVM)

Answer 20

Earned value management technique that factors in cost (AC) and time (PV) along with what has actually been accomplished (EV) to show the state of the project; produces a quantifiable status of the project instead of a “gut feel” estimate which can be inaccurate and inconsistent

Question 21

Earned Value Technique (EVT) (Technique)

Answer 21

The technique associated with measuring the amount of completion of a work breakdown structure component, control account or project

Question 22

Estimate at Completion (EAC)

Answer 22

Represents the projected total estimate, based on the current efficiency (CPI) with which you are spending money on the project; One version of the formula: BAC/CPI

Question 23

Estimate Costs

Answer 23

The process of estimating (educated consistent process) the cost of people and other resources to complete the project activities

Question 24

Estimate to Complete (ETC)

Answer 24

Represents the projected total estimate remaining to be spent, based on the current efficiency (CPI) with which you are spending money on the project; Formula : EAC-AC

Question 25

Indirect Cost

Answer 25

Cost that is not directly accrued on the project (Ex: electricity, taxes, rent)

Question 26

Internal Rate of Return (IRR)

Answer 26

A project comparison value; represents the discounted rate that zeroes out the net present value (NPV)

Question 27

Learning Curve Theory

Answer 27

A theory which states that the more of something that is produced, the lower the unit cost of it becomes due to an improvement in efficiency

Question 28

Life Cycle Costing

Answer 28

Consideration of not just project cost, but total ownership (operations and support) cost of the item created by the project

Question 29

Management Reserves

Answer 29

Money set aside to account for unpredictable items (unknown unknowns)

Question 30

Net Present Value (NPV)

Answer 30

A value used in capital budgeting , in which the present value of cash inflow is subtracted from the present value of cash outflows; compares the value of a dollar today versus the value of that same dollar in the future, after taking inflation and return into account

Question 31

Opportunity Cost

Answer 31

The cost associated with giving up one opportunity for another (Ex: Project A $50K, Project B $75K. If you select Project B, it has an opportunity cost of the total of Project A, which is $50K.)

Question 32

Parametric Modeling

Answer 32

Application of a mathematical model used to estimate project components (time, cost, scope) by having other variables entered into the application

Question 33

Planned Value (PV)

Answer 33

Represents the total costs that should have been spent up to a particular point in time; also known as budgeted cost of work scheduled (BCWS)

Question 34

Profit

Answer 34

Money made after expenses have been subtracted from revenue

Question 35

Profit Margin

Answer 35

Ratio between revenues and profit on a project, product, or initiative

Question 36

Project Cost Management

Answer 36

Processes used to complete the project within the approved budget

Question 37

Reserves

Answer 37

Money set aside in a budget used for items that are difficult to predict; also known as contingency reserves

Question 38

Rough Order of Magnitude (ROM) Estimate

Answer 38

Very early cost estimate used to give a rough estimate of what the project will cost to complete: Tolerance range: -50% to +50%.

Question 39

Schedule Performance Index (SIP)

Answer 39

Ratio of earned value and planned value that can be used to calculate how a project is progressing

Question 40

Schedule Variance (SV)

Answer 40

The difference between what has been built (EV) and the time it should take to build it (PV); Formula: EV-PV- A value of zero (0) means the project is creating what it should in the planned timeframe. A negative value means that it is taking longer than planned on the project to complete activities.

Question 41

S-Curve

Answer 41

Graphic representation of costs, work, and other quantities over time so that the planned value, earned value, and actual cost of the work can be seen

Question 42

Sunk Cost

Answer 42

Money that has already been spent on a project; should not be considered when selecting or evaluating a project

Question 43

Tangible Cost/Benefit

Answer 43

Easily measurable cost or benefit of a project; measured in dollars

Question 44

To-Complete-Performance Index (TCPI)

Answer 44

The ratio of remaining work to remaining funds.