PMI - Planning and Managing the Project Budget Flashcards
the basics of creating budgets and estimating and controlling costs. You'll explore cost forecasts, estimating using methods like estimate to complete (ETC), estimate at completion (EAC), cost performance index, and bottom-up and analogous estimating.
Budget at completion (BAC)
Definition
The total authorized budget for the project. (at start of project)
Actual Cost (AC)
Definition
The total cost actually incurred for work performed for an activity, AC is simply the amount of money you’ve spent so far.
Planned Value (PV)
Definition
The budgeted amount assigned to the work scheduled to have been completed. The assumption is that the work is planned in a uniform manner.
Planned Value (PV)
Formula
Budget at completion (BAC) × (time passed ÷ total schedule time) = Planned value (PV)
BAC × (time passed ÷ total schedule time) = PV
Earned Value (EV)
Definition
The value of completed work, expressed in terms of the budget assigned to that work.
Earned Value (EV)
Formula
Budget at completion (BAC) × (work completed ÷ total work required) = Earned Value (EV)
BAC × (work completed ÷ total work required) = EV
Schedule Variance (SV)
Definition
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.
Schedule Variance (SV)
Formula
Earned Value (EV) - Planned Value (PV) = Schedule Variance (SV)
EV - PV = SV
Cost Variance (CV)
Definition
The difference between earned value and actual costs, which indicates cost performance.
Cost Variance (CV)
Formula
Earned Value (EV) - Actual Cost (AC) = Cost Variance (CV)
EV) - AC = CV
Schedule Performance Index (SPI)
Definition
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.
Schedule Performance Index (SPI)
Formula
Earned Value (EV) / Planned Value (PV) = Schedule Performance Index (SPI)
EV / PV = SPI
Cost Performance Index (CPI)
Definition
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.
Cost Performance Index (CPI)
Formula
Earned Value (EV) / Actual Cost (AC) = Cost Performance Index (CPI)
EV / AC = CPI
Earned Value Management (EVM)
Definition
Earned value management, or EVM, involves measuring and monitoring several key performance dimensions using a variety of formulas.
Forecasting
Definition
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.
Estimate At Completion (EAC)
Definition
A formula used to calculate and forecasting the total cost of a project that’s faced with uncertainty
Estimate At Completion (EAC) > Bottom-up
Definition
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.
Estimate At Completion (EAC) > Bottom-up
Formula
Actual Cost (AC) + Bottom-up Estimate To Complete (ETC) = Estimate At Completion (EAC)
AC + ETC = EAC
Estimate At Completion (EAC) > Based on Budget Value
Definition
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.
Estimate At Completion (EAC) > Based on Budget Value
Formula
Actual Cost (AC) + Budget at completion (BAC) - Earned Value (EV) = Estimate At Completion (EAC)
AC + BAC - EV = EAC
Estimate At Completion (EAC) > Based on Cost Performance Index (CPI)
Definition
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.
Estimate At Completion (EAC) > Based on Cost Performance Index (CPI)
Formula
Budget at Completion (BAC) / Cost Performance Index (CPI) = Estimate At Completion (EAC)
BAC / CPI = EAC
Estimate At Completion (EAC) > Based on Cost Performance Index (CPI) & Schedule Performance Index (SPI)
Definition
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.
Estimate At Completion (EAC) > Based on Cost Performance Index (CPI) & Schedule Performance Index (SPI)
Formula
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
To-Complete Performance Index (TCPI)
Definition
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
To-Complete Performance Index (TCPI)
Formula
(Budget at completion (BAC) - Earned Value (EV)) / (Budget at completion (BAC))
(BAC - EV) / (BAC - AV) = TCPI
Analogous Estimating
Definition
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.
Bottom-up Estimating
Definition
Bottom-up estimating, is when you estimat the costs of individual work packages or activities and then rolling up those costs to higher levels.
Parametric Estimating
Definition
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.
Three-Point Estimate
Definition
Use Three-Point of Risk factors to estimate
- Best Case
- Worst Case
- Most Likely Case
Three-Point Estimate - PERT
Formula
(1x Best Case) + (4 x Most Likely) + (1 x Worst Case) / 6 = Expected Cost
Reserve Analysis
Definition
- Establishing a contingency reserve
- This is for if going over budget
- Based on % of estimated cost
Alternative Analysis
Definition
Alternative Analysis is analyzing all options and picking the best one.
Example: is it better to buy or develop a projects deliverable
Three-Point Estimate - PERT
Definition
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
Three-Point Estimate
Formula
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
Level of Uncertainty
Definition
Level of Uncertainty measures the uncertainty in the project (eg budget) helps work out the range (eg between $1000 and $1100)
Level of Uncertainty
Formula
(Best Case - Worst Case) / 6 = Level of Uncertainty
BCS - WCS / 6 = LV
Tools and techniques you will use when developing the Budget for your project
- Cost aggregation
- Reserve analysis
- Historical information review
- Parametric estimates
- Funding limit reconciliation
- Financing
- Reserve analysis
- Funding limit reconciliation
Cost Aggregation for Budgets
Definition
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.
Data Analysis for Budgets
Definition
Data analysis, are technique which includes reserve analysis.
Reserve analysis for Budgets
Definition
Can be used to determine realistic reserves. These consist of contingency reserves and management reserves.
Contingency Reserves for Budgets
Definition
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.
Management reserves for Budgets
Definition
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.
Expert Judgment for Budgets
Definition
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.
Historical information review for Budgets
Definition
Historical relationships between specific activities and their costs can help you determine more accurate estimates of what activities in the current projects will cost.
Funding limit reconciliation for Budgets
Definition
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.
Financing for Budgets
Definition
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.
