PM3110 Chapter 8

Question 1

Activity-based costing

Answer 1

. a budgeting method that assigns costs first to activities and then to the projects based on each project’s use of resources.

Question 2

Ballpark estimates

Answer 2

.typically used when either information or time is scarce. Companies often use them as preliminary estimates for resource requirements or to determine if a competitive bid can be attempted for a project contract.

Question 3

Bottom-up budgeting

Answer 3

.begins inductively from the work breakdown structure to apply direct and indirect costs to project activities. The sum of the total costs associated with each activity are then aggregated, first to the work package level, then at the deliverable level, at which point all task budgets are combined, and then higher up the chain where the sum of the work package budgets are aggregated to create the overall project budget.

Question 4

Comparative estimates

Answer 4

.are based on the assumption that historical data can be used as a frame of reference for current estimates on similar projects.

Question 5

Crashing costs

Answer 5

.suppose the project has fallen behind schedule and the decision is made to “_____” certain project activities in the hopes of regaining lost time. Among these costs could be: expanded use of overtime, hiring additional temporary workers, contracting with external resources or organizations for support, and incurring higher costs for transportation or logistics in speeding up materials deliveries.

Question 6

Definitive estimates

Answer 6

These estimates can be given only upon the completion of most design work, at a point when the scope and capabilities of the project are quite well understood.These estimates can be expected to have an accuracy of ±5%.

Question 7

Direct costs

Answer 7

.These are clearly assigned to the aspect of the project that generated the cost. Labor and materials may be the best examples.

Question 8

Expedited costs

Answer 8

.are unplanned costs incurred when steps are taken to speed up the project’s completion.

Question 9

Feasibility estimates

Answer 9

.based as a guideline on real numbers, or ­figures derived after the completion of the preliminary project design work.

Question 10

Fixed costs

Answer 10

.These are routinely used for construction projects, where there are published materials cost tables that can give reasonably accurate cost estimates for a wide range of project activities based on an estimate of the quantities involved. Because they are developed farther down the life cycle, these estimates are often expressed in terms of a degree of accuracy of+/- 10%.

Question 11

Function point analysis

Answer 11

.a system for estimating the size of software projects based on what the software does.The measure then relates directly to the business requirements that the software is intended to address. It can therefore be readily applied across a wide range of development environments and throughout the life of a development project, from early requirements definition to full operational use.

Question 12

Function points

Answer 12

.a standard unit of measure that represents the functional size of a software application. In the same way that a house is measured by the square feet it provides, the size of an application can be measured by the number of function points it delivers to the users of the application.

Question 13

Indirect costs

Answer 13

.generally are linked to two features: overhead, and selling and general administration.

Question 14

Learning curves

Answer 14

.experience and common sense teach us that repetition of activities often leads to reduction in the time necessary to complete the activity over time. Some research, infact, supports the idea that performance improves by a fixed percentage each time production doubles.

Question 15

Nonrecurring costs

Answer 15

.these costs are associated with charges applied once at the beginning or end of the project, such as preliminary marketing analysis, personnel training, or outplacement services.

Question 16

Normal costs

Answer 16

.those costs incurred in the routine process of working to complete the project according to the original, planned schedule agreed to by all project stakeholders at the beginning of the project.

Question 17

Parametric estimation

Answer 17

.These are detailed estimates of current projects by taking older work and inserting a multiplier to account for the impact of inflation, labor and materials increases, and other reasonable direct costs.

Question 18

Project budget

Answer 18

.a plan that identifies the allocated resources, the project’s goals, and the schedule that allows an organization to achieve those goals.

Question 19

Recurring costs

Answer 19

.these costs typically continue to operate over the project’s life cycle. Most labor, material, logistics, and sales costs are considered this because some budgetary charge is applied against them throughout significant portions of the project development cycle.

Question 20

Time-phased budget

Answer 20

.This budget allocates costs across both project activities and the anticipated time in which the budget is to be expended. It allows the project team to match its schedule baseline with a budget baseline, identifying milestones for both schedule performance and project expense.

Question 21

Top-down budgeting

Answer 21

.This budget requires the direct input from the organization’s top management; in essence, this approach seeks to first ascertain the opinions and experiences of top management regarding estimated project costs.

Question 22

Variable costs

Answer 22

.These costs accelerate or increase through usage; that is, the cost is in direct proportion to the usage level.