MECH 3170 Ch. 7 - Cost Management Flashcards
What does Project Cost Management include?
Includes the processes involved in planning, estimating, budgeting, financing, funding, managing, and controlling costs so that the project can be completed within the approved budget.
What does 7.1 Plan Cost Management (P) result in??
Results in a Cost Management Plan that provides processes for how the project budget will be managed throughout the project
What should the Cost Management Plan include?
Units of measure, levels of precision, levels of accuracy, control thresholds, earned value management rules, reporting formats
What is 7.2 Estimate Costs (P)?
It is the process of developing an approximation of the monetary resources needed to complete project activities.
What should cost estimates include?
An analysis of all potential costing options and alternatives that could be utilized to complete the project in the most cost effective manner possible.
What are possible costing options to consider?
Make vs buy;
Buy vs lease;
Sharing of resources, etc
Estimate Accuracy
Cost estimates for a project should be provided in a range
What are the stages of Estimate Accuracy and estimates?
Rough Order of Magnitude;
Budget Estimate;
Definitive Estimate
What is the rough order of Magnitude, when is it used, and what estimate accuracy does it have?
Rough Order of Magnitude is usually made during project initiating when little is known about the project. It typically has a range of +/- 50% from actual. This can vary depending on how much is known about the project.
What is Budget Estimate, when is it used, and what estimate accuracy does it have?
Usually made during project planning. Typical range is +/-10% to 25% from actual
What is Definitive Estimate, when is it used, and what estimate accuracy does it have?
As the project progresses, the estimate will become more refined. Typical ranges is +/-10% from actual
What costs need to be included in your project estimate?
All costs involved in all the efforts needed to complete the project.
What are the 4 main ways to categorize and look at costs?
Variable, fixed, direct, and indirect costs
What are Variable Costs?
Costs that change with the amount of production or the amount of work. Example, cost of material, supplies, wages, etc
What are Fixed Costs?
Costs that don’t change as production changes. Example, cost of set-up, rent, etc
What are Direct Costs?
Costs that are directly attributable to the work on the project. Example, team travel, team wages, costs of material used on the project, etc
What are Indirect Costs?
Overhead items or costs incurred for the benefit of more than one project. Example, taxes, janitorial services, HR, etc
What is Life Cycle Costing?
Involves looking at the cost of the whole life of the product (or service) produced by the project, not just the cost of the project.
Why is it important to consider the life cycle cost?
Neglecting the long term maintenance and operating costs might have detrimental effects on these downstream costs.
Sustainment costs are often much higher than the initial procurement/project costs. Important for stakeholders to understand the overall costs of the product/service
How is estimating done?
Using the same techniques as for estimating activity durations, as well as bottom-up estimating.
One-point, analogous, parametric, Three-point, and bottom-up estimating
What is bottom-up estimating?
Involves creating a detailed estimate for each work activity or package, rolling these up into control accounts, and finally into an overall project estimate. Requires an accurate WBS
