Project Cost Management Flashcards
AC
Actual Cost. The actual amount of monies the project
has spent to date.
Analogous Estimating
An approach that relies on historical information to predict the cost of the current project. Also known as top-down estimating and is the least reliable of all the cost-estimating approaches.
Bottom-Up Estimating
An estimating approach that starts from zero, accounts for each component of the WBS, and arrives at a sum for the project. It is completed with the project team and can be one of the most time-consuming yet most reliable methods to predict project costs.
Budget Estimate
This estimate is also somewhat broad and is used early in the planning processes and also in top-down
estimates. The range of variance for the estimate can be from –10 percent to +25 percent.
Commercial Database
A cost-estimating approach that uses a database, typically software-driven, to create the cost estimate for a project.
Contingency Reserve
A contingency allowance to account for overruns in costs. Contingency allowances are used at the project
manager’s discretion and with management’s approval to counteract cost overruns for scheduled activities and
risk events.
Cost Aggregation
Costs are parallel to each WBS work package. The costs of each work package are aggregated to their
corresponding control accounts. Each control account then is aggregated to the sum of the project costs.
Cost Baseline
A time-lapse exposure of when the project monies are to be spent in relation to cumulative values of the work
completed in the project.
Cost Budgeting
The cost aggregation achieved by assigning specific dollar amounts for each of the scheduled activities or for each of the work packages in the WBS. Cost budgeting applies the cost estimates over time.
Cost Change Control System
A system that examines any changes associated with scope changes, the cost of materials and the cost of any other resources, and the associated impact on
the overall project cost.
Cost Management Plan
Dictates how cost variances will be managed.
Cost of Poor Quality
The monies spent to recover from not adhering to the expected level of quality (e.g. rework, defect repair, loss of life or limb because safety precautions were not taken, loss of sales, and loss of customers). Also known
as the cost of nonconformance to quality.
Cost of Quality
The monies spent to attain the expected level of quality within a project (e.g. training, testing, and safety precautions).
CPI
Cost Performance Index. Measures the project based on its financial performance.
CPI = EV/AC
CV
Cost Variance. The difference of the earned value
amount and the cumulative actual costs of the project.
CV = EV – AC
Definitive Estimate
This estimate type is one of the most accurate. It’s used late in the planning processes and is associated with bottom-up estimating. You need the WBS in order to create the definitive estimate. The range of variance for the estimate can be from –5 percent to +10 percent.
Direct Costs
Costs are attributed directly to the project work and cannot be shared among projects (e.g. airfare, hotels,
long-distance phone charges).
EV
Earned Value. The physical work completed to date and the authorized budget for that work. It is the percentage
of the BAC that represents the actual work completed in the project.
EAC
Estimate at Completion. These forecasting formulas predict the likely completed costs of the project based on current scenarios within the project.
Fixed Costs
Costs that remain constant throughout the life of the project (e.g. the cost of a piece of rented equipment for the project, the cost of a consultant brought on to the
project).
ETC
Estimate to Complete. An earned value management formula that predicts how much funding the project will require to be completed. Three variations of this formula are based on conditions the project may be
experiencing.
Funding Limit Reconciliation
An organization’s approach to managing cash flow against the project deliverables based on a schedule, milestone accomplishment, or data constraints.
Indirect Costs
Costs that are representative of more than one project (e.g. utilities for the performing organization, access to a training room, project management software license).
Known Unknown
An event that will likely happen within the project, but when it will happen and to what degree is unknown. These events, such as delays, are usually risk-related.
Learning Curve
An approach that assumes the cost per unit decreases the more units workers complete, because workers learn as they complete the required work.
Oligopoly
A market condition where the market is so tight that the actions of one vendor affect the actions of all the others.
Opportunity Cost
The total cost of the opportunity that is refused to realize an opposing opportunity.
Parametric Estimating
An approach using a parametric model to extrapolate what costs will be needed for a project (e.g. cost per hour and cost per unit). It can include variables and points based on conditions.
PV
Planned Value. The work scheduled and the budget authorized to accomplish that work. It is the percentage of the BAC that reflects where the project should be at this point in time.
Project Variance
The final variance, which is discovered only at the project’s completion.
VAR = BAC – AC
Regression Analysis
A statistical approach to predicting what future values may be based on historical values. Regression analysis
creates quantitative predictions based on variables within one value to predict variables in another. This form of estimating relies solely on pure statistical
math to reveal relationships between variables and to predict future values.
Reserve Analysis
Cost reserves are for unknown unknowns within a project. The management reserve is not part of the project cost baseline, but is included as part of the
project budget.
Rough Order of Magnitude
This rough estimate is used during the initiating processes and in top-down estimates. The range of variance for the estimate can be from –25 percent to +75 percent.
SPI
Schedule Performance Index. Measures the project based on its schedule performance.
SPI = EV/PV
SV
Schedule Variance. The difference between the earned value and the planned value.
SV = EV – PV
Single Source
Many vendors can provide what your project needs to purchase, but you prefer to work with a specific vendor.
Sole Source
Only one vendor can provide what your project needs to purchase (e.g. a specific consultant, specialized
service, or unique type of material).
Sunk Costs
Monies that have already been invested in a project.
TCPI
To-Complete Performance Index. A formula to forecast the likelihood of a project to achieve its goals based on
what’s happening in the project right now. There are two different flavors for the TCPI, depending on what you want to accomplish.
If you want to see if your project can meet the budget at completion, you’ll use this formula:
TCPI = (BAC – EV)/(BAC – AC)
If you want to see if your project can meet the newly
created estimate at completion, you’ll use this formula:
TCPI = (BAC – EV)/(EAC – AC)
Variable Costs
Costs that change based on the conditions applied in the project (e.g. the number of meeting participants, the
supply of and demand for materials).
Variance
The difference between what was expected and what was experienced.
VAC
Variance at Completion. A forecasting formula that predicts how much of a variance the project will likely
have based on current conditions within the project.
VAC = BAC – EAC
