Estimating Costs and Developing the Budget Flashcards
What activities are part of the project cost management knowledge area?
Monitoring project costs through the execution phase
- This is a correct option. Plan cost management involves establishing and documenting the procedures and policies that should be followed for planning, managing, executing, and controlling project costs. The cost management plan resulting from this process acts as a guide for the other processes in the project cost management knowledge area.
Estimating costs
- This is a correct option. Estimating costs is the process of forecasting what each project activity will cost based on the resources required to complete it. This includes human resources and physical resources, like material or equipment.
Determining how decisions will affect costs
- This is a correct option. This activity is to keep actual costs and the planned budget in line. It involves influencing the factors that cause cost variances and, when necessary, managing changes to the budget. Keeping an eye on cost trends and anticipating the cost of work that still needs to be done are important aspects of this.
Creating a budget
- This is a correct option. Creating a budget is the process of adding up the estimated costs for each activity or work package to get an estimated budget for the entire project. This provides you with a cost baseline against which you can monitor actual costs.
What are the inputs to the plan cost management process?
Project charter
- This is a correct option. The project charter contains a high-level summary budget that was created during project initiation.
Enterprise environmental factors
- This is a correct option. External factors such as market conditions and currency exchange rates influence project costs. Conditions internal to the enterprise such as the organizational structure and approval process can also influence cost planning.
Organizational process assets
- This is a correct option. Organizational process assets such as financial information, cost estimation procedures, budgeting policies, and historical information can all become inputs to planning cost management.
Project management plan
- This is a correct option. The project management plan contains information you need in order to plan how you will manage costs, such as activity durations and human resource assignments.
The tools and techniques of the plan cost management process would commonly be used simultaneously in the creation of the cost management plan.
Which scenario best describes how this might happen?
You meet with select members of your project team, as well as with a member of your company’s finance department, to make decisions about how the project will be funded
- This is the correct option. All three tools and techniques are being used here: expert judgment of the finance person and team members, data analysis of the various funding options considered, and a meeting that pulls everyone together in one place.
What types of information should you include in a cost management plan, which is the output of the plan cost management process?
Administrative guidelines
-The cost management plan should include administrative guidelines, such as the procedures for recording costs, reporting formats, and approving expenses.
Variance thresholds
- Variance thresholds are used when monitoring costs, so they should be included in the cost management plan. Thresholds indicate an agreed upon amount of variation to be allowed before some action needs to be taken.
Cost performance measurement
- The cost management plan might define the points at which cost performance will be measured and earned value will be established.
Level of accuracy of cost estimates
- A cost management plan may indicate the level of accuracy used for activity cost estimates.
Policy for cost contingencies
- It is important to determine during the planning phase whether estimates and budget items will be “padded” with a contingency amount. The cost management plan should state this and how much the contingency will be.
Which items are inputs to the estimate costs process?
Enterprise environmental factors
-The enterprise environmental factors that may impact the estimate costs process includes industry conditions, economic conditions, corporate culture, and legal requirements.
Organizational process assets
- Organizational process assets are sources of knowledge within your organization that can be useful to the project, such as historical information and lessons learned, cost estimating policies, and cost estimating templates. These can be used to help estimate costs.
Risk register
- The risk register is another project document input to the estimate costs process. It documents any known risks that may be associated with the project.
What elements are inputs to the estimate costs process?
Resource requirements
- The resource requirements identify the staff required for project work and their rates or salaries, so it’s an important input for estimating a project’s human resource costs.
Scope baseline
- This is a correct option. The scope baseline, part of the project management plan, includes the WBS and WBS dictionary, project scope statement, and constraints and assumptions – all of which can have cost implications.
Project schedule
- This is a correct option. The project schedule is a project document that defines which resources are needed, when, and for how long.
Cost management plan
- This is a correct option. The cost management plan is part of the project management plan and is an important input to the estimate costs process. It contains guidelines on which methods to use for estimating costs.
Estimates the cost of achieving and controlling project quality
Cost of quality is the technique of estimating the cost of ensuring that quality standards are reached, and of reworking a product if necessary to reach them.
Uses activity criteria related to product scope and resource prices to forecast project costs
Parametric estimating uses product parameters such as quantity and size and the market price of materials, staff, and other resources to calculate cost estimates
Calculates the cost of contingency plans
Reserve analysis is a method of estimating the amount of contingency reserves needed to protect against cost uncertainty.
Statistical tools for rapidly estimating costs
Project management information systems, or PMIS, include spreadsheets, cost simulation models, and other computerized statistical tools for rapidly estimating costs. Some of these tools enable you to forecast how the budget will look for the entire project based on your current parameters and cost estimates.
Uses costs from past projects to estimate the costs of a current project
- Analogous estimating uses past projects as sources of cost estimates for current similar projects.
Uses team members to finalize estimates
-Uses experts to assess and finalize draft cost estimates
Decision-making techniques, such as voting, can be used to evaluate and finalize cost estimates so they are more accurate.
Uses knowledge of past projects to estimate costs
Uses knowledge gained from previous projects to estimate costs
- Expert judgment uses the knowledge of others who have experience in similar projects to help with estimating an activity’s cost.
Calculates expected costs using optimistic, most likely, and pessimistic estimates
Three-point estimating creates optimistic, most likely, and pessimistic estimates, which are derived from expert judgment and analogous estimating. The result is an expected cost for an activity.
How can the bottom-up technique be used to estimate project costs?
By adding up the costs of labor and materials, any contingency reserves, and the cost of quality, then rolling up the estimated costs through to the highest level in the WBS
-Bottom-up estimating involves determining separate cost estimates for each work package in the WBS.
