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PMP > Project Cost Management > Flashcards

Project Cost Management Flashcards

1
Q

Project Cost Management

A

answers all the questions about how much the project costs

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2
Q

4 processes

A
  1. plan cost management, detail information on costs 2. estimate costs 3. determine budget, link back to wbs to itemize costs 4. control costs, don’t want wasted money
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3
Q

Actual cost (AC)

A

The actual amount of monies the project has spent to date.

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4
Q

Analogous estimating

A

An approach that relies on historical information to predict the cost of the current project. It is also known as top-down estimating and is the least reliable of all the cost-estimating approaches.

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5
Q

Bottom-up estimating

A

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 and most reliable methods to predict project costs.

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6
Q

Budget estimate

A

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.

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7
Q

Commercial database

A

A cost-estimating approach that uses a database, typically software-driven, to create the cost estimate for a project.

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8
Q

Contingency reserve

A

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.

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9
Q

Cost aggregation

A

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.

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10
Q

Cost baseline

A

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.

  • measures performance
  • predicts expenses over the project life
  • usually shown as an S-curve
  • Predicts when the project will be spending monies
  • discrepancies early are a signal that the project is slipping
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11
Q

Cost budgeting

A

The cost aggregation achieved by assigning specific dollar amounts for each of the scheduled activities or, more likely, for each of the work packages in the WBS. Cost budgeting applies the cost estimates over time.

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12
Q

Cost change control system

A

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.

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13
Q

Cost management plan

A

The cost management plan dictates how cost variances will be managed.

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14
Q

Cost of poor quality

A

The monies spent to recover from not adhering to the expected level of quality. Examples may include rework, defect repair, loss of life or limb because safety precautions were not taken, loss of sales, and loss of customers. This is also known as the cost of nonconformance to quality.

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15
Q

Cost of quality

A

The monies spent to attain the expected level of quality within a project. Examples include training, testing, and safety precautions.

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16
Q

Cost performance index (CPI)

A

Measures the project based on its financial performance. The formula is CPI = EV/AC.

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17
Q

Cost variance (CV)

A

The difference of the earned value amount and the cumulative actual costs of the project. The formula is CV = EV – AC.

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18
Q

Definitive estimate

A

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.

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19
Q

Direct costs

A

Costs are attributed directly to the project work and cannot be shared among projects (for example, airfare, hotels, long-distance phone charges, and so on).

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20
Q

Earned value (EV)

A

Earned value is 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.

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21
Q

Estimate at completion (EAC)

A

These forecasting formulas predict the likely completed costs of the project based on current scenarios within the project.

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22
Q

Estimate to complete (ETC)

A

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.

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23
Q

Fixed costs

A

Costs that remain constant throughout the life of the project (the cost of a piece of rented equipment for the project, the cost of a consultant brought on to the project, and so on).

24
Q

Funding limit reconciliation

A

An organization’s approach to managing cash flow against the project deliverables based on a schedule, milestone accomplishment, or data constraints.

  • reconcile planned and actual costs
  • cost variances
  • corrective actions
25
Q

Indirect costs

A

Costs that are representative of more than one project (for example, utilities for the performing organization, access to a training room, project management software license, and so on).

26
Q

Known unknown

A

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.

27
Q

Learning curve

A

An approach that assumes the cost per unit decreases the more units workers complete, because workers learn as they complete the required work.

28
Q

Oligopoly

A

A market condition where the market is so tight that the actions of one vendor affect the actions of all the others.

29
Q

Opportunity cost

A

The total cost of the opportunity that is refused to realize an opposing opportunity.

30
Q

Parametric estimating

A

An approach using a parametric model to extrapolate what costs will be needed for a project (for example, cost per hour and cost per unit). It can include variables and points based on conditions.

  • have a parameter to multiply across
  • a mathematical model based on known parameters to predict the cost
  • ex: cost per sq ft, cost per unit, etc.
  • types: regression analysis determine factors from historical info and learning curve learn as they complete the required work
31
Q

Planned value (PV)

A

Planned value is 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.

32
Q

Project variance

A

The final variance, which is discovered only at the project’s completion. The formula is VAR = BAC – AC.

33
Q

Regression analysis

A

This is 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.

34
Q

Reserve analysis

A

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.

35
Q

Rough order of magnitude

A

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.

36
Q

Schedule performance index (SPI)

A

Measures the project based on its schedule performance. The formula is SPI = EV/PV.

37
Q

Schedule variance (SV)

A

The difference between the earned value and the planned value. The formulas is SV = EV – PV.

38
Q

Single source

A

Many vendors can provide what your project needs to purchase, but you prefer to work with a specific vendor.

39
Q

Sole source

A

Only one vendor can provide what your project needs to purchase. Examples include a specific consultant, specialized service, or unique type of material.

40
Q

Sunk costs

A

Monies that have already been invested in a project.

41
Q

To-Complete Performance Index

A

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 version of the formula: TCPI = (BAC – EV)/(EAC – AC).

42
Q

Variable costs

A

Costs that change based on the conditions applied in the project (the number of meeting participants, the supply of and demand for materials, and so on).

43
Q

Variance

A

The difference between what was expected and what was experienced.

44
Q

Variance at completion (VAC)

A

A forecasting formula that predicts how much of a variance the project will likely have based on current conditions within the project. The formula is VAC = BAC – EAC.

45
Q

life cycle costing

A
  • how much to maintain the life cycle of product created
  • ex: appliances have maintenance cost throughout life
46
Q

ITTO Plan Cost Management

A
  • Subsidiary plan of the project management plan
  • Addresses 3 other cost management processes: how costs are estimates, how the project budget is managed, how costs will be controlled
  • Inputs: project charter, PM plan, schedule management plan, risk management plan, EEFs and OPAs
  • Tools and techniques: expert judgment, data analysis, meetings
  • Output: cost management plan
47
Q

ITTOs Estimate Costs

A
  • Inputs: PM plan, cost management plan, quality management plan, Scope baseline, Project docs, lessons learned register, project schedule, resource requirements, risk register, EEFs and OPAs
  • Tools and techniques: Expert judgment, Analogous estimating, parametric estimating, bottom-up estimating, three-point estimating, data analysis, alternative analysis, reserve analysis, cost quality, PMIs, Decision making, voting
  • Outputs: cost estimates, basis of estimates, Project docs updates, assumption log, lessons learned register, risk register
48
Q

Creating Cost Estimate three types

A
  1. rough order of magnitude aka ROM: -25% to +75% , not very reliable top of head estimate
  2. Budget Estimate: -10% to +25%
  3. Definitive estimate: -5% to +10%, base on WBS longest to create most accurate
49
Q

Risk Register in Cost Estimating

A
  • opportunity and threat
  • management reserves: unknown (time and risk)
  • contingency reserves: funds for known risk events
50
Q

Scope baseline components

A
  • project scope statement
  • wbs
  • wbs dictionary
  • all needed for cost estimating
51
Q

Bottom-Up Estimating

A
  • starts at zero
  • accounts for each component of the WBS
  • creates a sum for the project
  • completed with project team
  • most time-consuming methods
  • more expensive
  • most accurate
  • benefit: help team members buy into the project building value, create synergy
52
Q

Three-point estimate

A
  • (O+ML+P)/3 to find average
  • or PERT weighted towards ML (O+(4ML)+P)/3 usually little less
53
Q

ITTOs Determine Budget

A
  • aggregating the estimated costs
  • cost of work packages and activities
  • Inputs: PM plan, cost management plan, resource management plan, scope baseline, Project docs, basis of estimates, cost estimates, project schedule, risk register, Business docs, business case, benefits management plan, agreements, EEFs and OPAs
  • Tools and techniques: expert judgment, cost aggregation, data analysis, reserve analysis, historical information review, funding limit reconciliation, financing
  • Outputs: Cost baseline, Project funding requirements, project documents updates, cost estimates, project schedule, risk register
54
Q

Project Step Funding

A
  • Funding at different points of the project
  • can be use to control funding aka funding requirement to the next phase
55
Q

ITTOs Control Costs

A
  • Monitor status of the project
  • managing changes
  • Inputs: PM plan, cost management plan, cost baseline, performance measurement baseline, Project docs, lessons learned register, Project funding requirements, work performance data, organizational process assets
  • Tools and techniques: expert judgment, data analysis, EV analysis, Variance analysis, trend analysis, reserve analysis, To-complete performance index, PMIs
  • Outputs: work performance info, cost forecasts, change requests, PM plan updates, cost management plan, cost baseline, performance measurement baseline, Project docs updates, assumption log, basis of estimates, cost estimates, lessons learned register, risk register

PMP (19 decks)

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