PMI - Planning and Managing the Project Budget

Question 1

Budget at completion (BAC)
Definition

Answer 1

The total authorized budget for the project. (at start of project)

Question 2

Actual Cost (AC)
Definition

Answer 2

The total cost actually incurred for work performed for an activity, AC is simply the amount of money you’ve spent so far.

Question 3

Planned Value (PV)
Definition

Answer 3

The budgeted amount assigned to the work scheduled to have been completed. The assumption is that the work is planned in a uniform manner.

Question 4

Planned Value (PV)
Formula

Answer 4

Budget at completion (BAC) × (time passed ÷ total schedule time) = Planned value (PV)

BAC × (time passed ÷ total schedule time) = PV

Question 5

Earned Value (EV)
Definition

Answer 5

The value of completed work, expressed in terms of the budget assigned to that work.

Question 6

Earned Value (EV)
Formula

Answer 6

Budget at completion (BAC) × (work completed ÷ total work required) = Earned Value (EV)

BAC × (work completed ÷ total work required) = EV

Question 7

Schedule Variance (SV)
Definition

Answer 7

The difference between the budgeted value a project has earned through completed work and the planned value of this work. This value indicates whether project work is proceeding as planned in the schedule.

Question 8

Schedule Variance (SV)
Formula

Answer 8

Earned Value (EV) - Planned Value (PV) = Schedule Variance (SV)

EV - PV = SV

Question 9

Cost Variance (CV)
Definition

Answer 9

The difference between earned value and actual costs, which indicates cost performance.

Question 10

Cost Variance (CV)
Formula

Answer 10

Earned Value (EV) - Actual Cost (AC) = Cost Variance (CV)

EV) - AC = CV

Question 11

Schedule Performance Index (SPI)
Definition

Answer 11

The ratio between earned value and planned value, which represents schedule performance.
- An SPI of 1 indicates the project is on schedule.
- A value greater than 1 indicates it is ahead of schedule.
- A value less than 1 indicates it is behind schedule.

Question 12

Schedule Performance Index (SPI)
Formula

Answer 12

Earned Value (EV) / Planned Value (PV) = Schedule Performance Index (SPI)

EV / PV = SPI

Question 13

Cost Performance Index (CPI)
Definition

Answer 13

The ratio between earned value and actual costs, which represents cost performance.
- A CPI value greater than 1 indicates better performance than expected
- A value less than 1 indicates poor performance.

Question 14

Cost Performance Index (CPI)
Formula

Answer 14

Earned Value (EV) / Actual Cost (AC) = Cost Performance Index (CPI)

EV / AC = CPI

Question 15

Earned Value Management (EVM)
Definition

Answer 15

Earned value management, or EVM, involves measuring and monitoring several key performance dimensions using a variety of formulas.

Question 16

Forecasting
Definition

Answer 16

Forecasting helps you calculate accurate estimates of costs for future activities that have not yet been completed, based on current work performance and cost information.

Question 17

Estimate At Completion (EAC)
Definition

Answer 17

A formula used to calculate and forecasting the total cost of a project that’s faced with uncertainty

Question 18

Estimate At Completion (EAC) > Bottom-up
Definition

Answer 18

When you want to forecast EAC based on the project manager’s bottom-up ETC. Used when the original budget n longer valid, was incorrect, wrong data or changes have happened.

Question 19

Estimate At Completion (EAC) > Bottom-up
Formula

Answer 19

Actual Cost (AC) + Bottom-up Estimate To Complete (ETC) = Estimate At Completion (EAC)

AC + ETC = EAC

Question 20

Estimate At Completion (EAC) > Based on Budget Value
Definition

Answer 20

When variances are not expected to occur for the remainder of the project, so the costs of future work are estimated to be the same as the budgeted costs.
Use when unforeseen events are over budget and remaining work will stay the same.

Question 21

Estimate At Completion (EAC) > Based on Budget Value
Formula

Answer 21

Actual Cost (AC) + Budget at completion (BAC) - Earned Value (EV) = Estimate At Completion (EAC)

AC + BAC - EV = EAC

Question 22

Estimate At Completion (EAC) > Based on Cost Performance Index (CPI)
Definition

Answer 22

When you want to take the cost performance of a project into account and assume its current cost performance level won’t change for the remainder of the project.
Use if project expected to continue to have the same cost performance as it has to date.

Question 23

Estimate At Completion (EAC) > Based on Cost Performance Index (CPI)
Formula

Answer 23

Budget at Completion (BAC) / Cost Performance Index (CPI) = Estimate At Completion (EAC)

BAC / CPI = EAC

Question 24

Estimate At Completion (EAC) > Based on Cost Performance Index (CPI) & Schedule Performance Index (SPI)
Definition

Answer 24

When you want to take both the schedule and cost performance of the project into account, and the project schedule is a factor likely to impact the ETC.
Fixed deadline.

Question 25

Estimate At Completion (EAC) > Based on Cost Performance Index (CPI) & Schedule Performance Index (SPI)
Formula

Answer 25

Actual Cost (AC) + [(Budget at completion (BAC) – Earned Value (EV)) ÷ (cumulative CPI × cumulative SPI)] = Estimate At Completion (EAC)

AC + [(BAC – EV) ÷ (cumulative CPI × cumulative SPI)] = EAC

Question 26

To-Complete Performance Index (TCPI)
Definition

Answer 26

If over budget the TCPI indicates what has to be achieved on remaining work if a project to meet a financial goal.

Calculating the TCPI give you a new cost performance for the project meet the budget.

• A TCPI grater than 1 performance is better than planned
• A TCPI less than 1 performance is less than planned

Question 27

To-Complete Performance Index (TCPI)
Formula

Answer 27

(Budget at completion (BAC) - Earned Value (EV)) / (Budget at completion (BAC))

(BAC - EV) / (BAC - AV) = TCPI

Question 28

Analogous Estimating
Definition

Answer 28

Analogous estimating is when you use the cost of a past project to forecast the cost of a current project. It’s most reliable when the projects you compare are very similar.

Question 29

Bottom-up Estimating
Definition

Answer 29

Bottom-up estimating, is when you estimat the costs of individual work packages or activities and then rolling up those costs to higher levels.

Question 30

Parametric Estimating
Definition

Answer 30

Parametric estimating is forecasting costs using parameters related to the scope of the project and product, as well as resource cost information. Parameters, which are attributes of an activity, can include its scope, cost, budget and duration.

EG approximate the cost of materials to build a townhouse, you could use the average cost per square yard of building materials and the size of the house in square yards as parameters.

Question 31

Three-Point Estimate
Definition

Answer 31

Use Three-Point of Risk factors to estimate
- Best Case
- Worst Case
- Most Likely Case

Question 32

Three-Point Estimate - PERT
Formula

Answer 32

(1x Best Case) + (4 x Most Likely) + (1 x Worst Case) / 6 = Expected Cost

Question 33

Reserve Analysis
Definition

Answer 33

• Establishing a contingency reserve
• This is for if going over budget
• Based on % of estimated cost

Question 34

Alternative Analysis
Definition

Answer 34

Alternative Analysis is analyzing all options and picking the best one.

Example: is it better to buy or develop a projects deliverable

Question 35

Three-Point Estimate - PERT
Definition

Answer 35

Three-Point Estimate if you don’t know how ‘likely’ or ‘probability’ it is each option is to happen.
- Best Case
- Worst Case
- Most Likely Case

Question 36

Three-Point Estimate
Formula

Answer 36

Estimated = Estimated Amount X Probability
and then add them all together

(Best Case X Probability%) + (Worst Case X Probability%) + (Most Likely Case X Probability%) = Expected Cost

Question 37

Level of Uncertainty
Definition

Answer 37

Level of Uncertainty measures the uncertainty in the project (eg budget) helps work out the range (eg between $1000 and $1100)

Question 37

Level of Uncertainty
Formula

Answer 37

(Best Case - Worst Case) / 6 = Level of Uncertainty

BCS - WCS / 6 = LV

Question 38

Tools and techniques you will use when developing the Budget for your project

Answer 38

• Cost aggregation
• Reserve analysis
• Historical information review
• Parametric estimates
• Funding limit reconciliation
• Financing
• Reserve analysis
• Funding limit reconciliation

Question 39

Cost Aggregation for Budgets
Definition

Answer 39

This means adding together the activity cost estimates for each component in the WBS.

The process of estimating the total cost of a project by combining the individual cost estimates of its activities, work packages, or deliverables.

It’s a lot like performing a bottom-up estimate.

Question 40

Data Analysis for Budgets
Definition

Answer 40

Data analysis, are technique which includes reserve analysis.

Question 41

Reserve analysis for Budgets
Definition

Answer 41

Can be used to determine realistic reserves. These consist of contingency reserves and management reserves.

Question 42

Contingency Reserves for Budgets
Definition

Answer 42

Contingency reserves are to account for unplanned changes related to risk events that occur during the project. Contingency reserves are part of the cost baseline and the total budget.

Question 43

Management reserves for Budgets
Definition

Answer 43

Are for unplanned changes to scope and cost. They are not included in the cost baseline, but are included in the total budget. The project manager will need to seek approval before accessing the management reserve.

Question 44

Expert Judgment for Budgets
Definition

Answer 44

Besides your own, this includes the expert judgment of people with specialized knowledge about particular project activities, and about associated costs. It can help you develop a more accurate budget.

Question 45

Historical information review for Budgets
Definition

Answer 45

Historical relationships between specific activities and their costs can help you determine more accurate estimates of what activities in the current projects will cost.

Question 46

Funding limit reconciliation for Budgets
Definition

Answer 46

Is all about regulating cash flow over the life of the project. It involves arranging the time phased budget so that planned expenditures never exceed planned funds on hand.

Question 47

Financing for Budgets
Definition

Answer 47

Sometimes work must be rescheduled to level out cash flow projections. This involves finding the funding requirements for the project. Financing can be from internal or external sources.