Project Cost Management Flashcards
Which of the following should be considered when tailoring processes for Project Cost Management
ANSWER: Estimating, budgeting, and governance
What are the considerations when tailoring processes for project cost management?
Considerations for tailoring project cost management include, but are not limited to: knowledge management, estimating and budgeting, earned value management, use of agile approach, governance.
What describes the approved version of the time-phased project budget, excluding any management reserves which can be changed only through formal change control procedures and is used as a basis for comparison to actual results?
ANSWER: Cost baseline
What is the cost baseline?
The approved version of the time phased project budget, excluding any management reserves, which can only be changed through formal change control procedures and is used as a basis for comparison to actual results.
The cost baseline is developed as a summation of the approved budgets for the different schedule activities
The cost baseline is a time-phased view that is typically displayed in the form of an S-curve
Determining the approximate monetary resources required to complete project activities is the purpose of what Project Cost Management process?
Estimate Costs
What is the Estimate Costs process of Project Cost Management?
The process of developing an approximation of the cost of resources needed to complete project work.
What is the key benefit of the Estimate Costs process of Project Cost Management?
The key benefit of this process is that it determines the monetary resources required for the project. The process is performed periodically throughout the project as needed.
What is the purpose of Project Cost Management?
Project Cost Management includes the processes involved in planning, estimating, budgeting, financing, funding, managing, and controlling costs so that the project can be completed within the approved budget.
What is a contingency reserve?
Time or money allocated in the schedule or cost baseline for known risks with active response strategies.
What are the Project Cost Management processes?
- Plan cost management
- estimate costs
- determine budget
- control costs
What is the role of the PM during Project Cost Management?
- estimating, tracking, managing, and controlling the cost throughout the project life cycle
- each project, organization, and group of stakeholders is different
- recognize the differences and measure project costs in a way that works best for the project
What other processes can the Project Cost Management processes impact?
- resource management
- schedule management
- risk management
- change management
What is a budget?
- spreads costs over time, allocating funds to the resources needed to have the project meet its schedule
- the estimated costs are just numbers. once you have determined when you need these monies, it becomes a budget
What is the plan cost management process of Project Cost Management?
introduces the key concepts to be used for cost management and creates a cost management plan that documents how the project costs will be estimated, budgeted, managed, monitored, and controlled
What is the estimate costs process of Project Cost Management?
develops and approximation of the cost of resources needed to complete project work. the ability to influence cost is the greatest at the early stages of the project, making early scope definition critical
What is the determine budget process of Project Cost Management?
means allocating funds to the resources needed to have the project meet its schedule. If the budget is spent too quickly and management wants it to be spent more slowly, the project will take longer
What is the control costs process of Project Cost Management?
helps you determine if costs are going out of tolerance in areas to either attempt to reduce the overrun and/or request increased funding for that area. When a budget is created, it’s important that everyone understands that the numbers are approximations. It’s the project manager’s responsibility to notice overrun and respond to it.
What are the Cost Management processes included in the Planning Process Group of Project Management?
- plan cost management
- estimate costs
- determine budget
What is the Project Cost Management process included in the Monitoring and Controlling Process Group of Project Management? `
control costs
What are the tailoring considerations for Project Cost Management?
- knowledge management
- estimating and budgeting
- earned value management
- governance
- agile methodologies
What is the key benefit of order of magnitude estimates?
- generate a fast, high-level forecast of project costs, which can then be adjusted for change
- detailed estimates are reserved for short-term planning
What is Earned Value Management (EVM)?
A methodology that combines scope, schedule, and resource measurements to assess project performance and progress against the project baseline.
EVM is one of the best techniques for controlling costs
It helps you understand how you are spending money and what progress is earned for the money spent
What is Earned Schedule (ES)?
No additional information is needed to calculate ES.
Replaces the schedule variance measures used in traditional EVM (earned value-planned value) with ES and actual time (AT)
The resulting schedule variance equation is ES-AT
If the amount of ES is greater than O, the project is considered ahead of schedule.
What is the cost management plan?
a component of the project management plan and describes how the project costs will be planned, structured, and controlled. It can include:
- level of precision to which activity cost estimates will be rounded up or down
- variance thresholds for monitoring cost performance used to indicate and agreed-upon allowable amount of variation before some action needs to be taken
What are the inputs to the plan cost management process of Project Cost Management?
- project charter
- project management plan (schedule management plan, risk management plan)
- enterprise environmental factors (EEFs)
- Organizational process assets
What are the tools and techniques for the plan cost management process of Project Cost Management?
- expert judgement
- data analysis
- meetings
What is the purpose of plan cost management?
goal: create the cost management plan
1. documents cost management processes and their associated tools and techniques
2. defines how the project costs will be estimated, budgeted, managed, monitored, and controlled
3. sets the framework that allows cost processes to be efficient and coordinated
What is the role of the PM during plan cost management?
continually manage the budget often by reviewing earned value (EV) results
there is typically a regularly scheduled project review when many aspects of the project are reviewed; the sponsor and upper management are exposed to the budget or earned value/earned schedule performance
if the project cost is not running according to expectations, it is important stakeholders are informed immediately so action can be taken
What is the impact of plan cost management?
- the plan cost management process helps manage stakeholder’s expectations
- planning helps secure the control and transparency to obtain stakeholders’ buy-in
- the plan cost management process can influence the other components of the project management plan, including schedule, resource, procurement, and risk
What EEFs can impact plan cost management?
- organization culture and structure
- market conditions
- currency exchange rates
- published commercial information
- project management information system (PMIS)
- productivity differences
What are organizational process assets (OPAs)?
the way your company does business-including lessons learned.
What are the OPAs that can impact cost management plan?
- financial controls procedures
- historical information and lessons learned repository
- financial databases
- existing formal and informal cost estimating and budgeting-related policies, procedures, and guidelines
What are the outputs for the plan cost management process of Project Cost Management?
- cost management plan
What are the outputs of the estimate costs process of Project Cost Management?
- cost estimates
- basis of estimates
- project documents updates (assumption log, lessons learned registrar, risk registrar)
What is a cost estimate?
a quantitative assessment of the likely costs for resources required to complete the activity.
Cost estimates are generally expressed in units of some currency and sometimes other units of measure, such as staff hours or staff days, are used to facilitate comparisons by eliminating the effects of currency fluctuations.
Costs are estimated for all resources that will be charged to the project
What are the estimated resources that are applied to the cost estimate?
costs are estimated for all resources that will be charged to the project. this includes, but is not limited to labor, materials, equipment, services, and facilities, as well as special categories such as an inflation allowance, cost of financing, or contingency costs.
a cost estimate is a quantitative assessment of the likely costs for resources required to complete the activity
What are the inputs to the estimate costs process of Project Cost Management?
- project management plan (cost management plan, quality management plan, scope baseline)
- project documents (lessons learned register, project schedule, resources requirements, risk register)
- enterprise environmental factors (EEFs)
- organizational process assets
What is the purpose of the estimates cost process of Project Cost Management?
One of the most important parts of project planning.
it sets the stage for the budget and allows you to consider the details and features of project activities
develop an approximation of the cost of resource needed to complete project work.
What is the role of the PM during the estimates cost process of Project Cost Management?
- facilitate the estimate costs process and include all necessary subject matter experts (SMEs) from the project team.
- accountable for this process and should iterate it until the costs are estimated
- seek all the help you feel is needed to establish a firm cost baseline
- the reasons for the costs should be well documented in projects records and OPAs
What is the impact of the estimate costs process of Project Cost Management?
- requires information from all other estimating and planning processes
- resources identified in those processes might require funding that should be estimated
- estimate costs process by itself doesn’t influence the other processes. it provides a quantitative assessment for the costs of the tasks in the project
What is progressive elaboration?
as the project progresses, the scope will become clearer and estimates will be more accurate
the rough order of magnitude (ROM) is an estimate of costs provided in the early stages of a project when scope and requirements are not fully defined
The ROM estimate may have a larger range in the initiation phase and a narrower range later in the project
What is analogous cost estimating?
- uses historical data from a similar activity to compare current work to previous, similar work
- it compares the size of the previous work to the expected size of the current work
- the ratio of the current work to the previous work is multiplied by the previous cost
- additional factors can be incorporated to make the estimate more accurate
- This type of estimate is:
used to get a high level estimate when detailed information is not available
less costly
less time consuming
less accurate than other estimation methods
What is parametric estimating?
- uses the statistical relationship between historical data and other variables (such as square footage in construction) to calculate a cost estimate
- the number of units is multiplied by the cost per unit to derive a cost estimate for that particular entity
- This method can:
produce a higher level of accuracy depending upon the sophistication and underlying data built into the module
be applied to a total project or to segments of a project
can be used with other estimating methods
What is bottom-up estimating?
- takes detailed estimates at the work package level to determine the most accurate estimate possible
- to begin, estimate the cost of work packages or activities to the greatest level of detail. then, roll up costs to higher levels for reporting and tracking purposes
- the cost and accuracy of bottom-up estimating is typically influenced by the size or other attributes of the individual activity or work package
What is three point estimating?
- used to account for uncertainty in the cost estimate
- first, stakeholders need to provide estimates for most likely, optimistic, and pessimistic scenarios
- By using the most likely scenario or realistic effort estimates (cM), with the optimistic scenario (cO), and pessimistic scenario (cP), we can derive the most accurate estimate (cE) using one of these two similar formulas: triangular distribution and beta distribution
these provide an expected cost and clarify the range of uncertainty around the expected cost
What is the triangular distribution equation?
cE = (cO + cM + cP) / 3.
use when there is insufficient historical data
What is the beta distribution equation?
cE = (cO + 4cM + cP) / 6
use when there is sufficient historical information
What are the EEfs that can impact the estimate costs process?
- market conditions
- published commercial information
- exchange rates and inflation
What are some of the possible OPAs for the estimate costs process?
- cost estimating policies
- cost estimating templates
- historical information and lessons learned repositories
What is the basis of estimates?
- provides the amount and type of additional details supporting the cost estimate.
- can vary in details but should always provide a clear understanding of how the estimate was derived. This may include factors such as:
How the estimate was developed
All assumptions made
Any known constraints
Identified risks
Range of possible estimates
Confidence level of the final estimate
What are the tools and techniques for the estimates cost process of Project Cost Management?
- three-point estimating
- bottom-up estimating
- parametric estimating
- analogous estimating
- expert judgement
- project management information system (pmis)
- Decision making
- Data analysis (such as alternative analysis, reserve analysis, cost of quality)
What is the purpose of the determine budget process of Project Cost Management?
- aggregate the estimated costs of individual activities or work packages to establish and authorized cost baseline
- the key benefit is to determine the cost baseline against which project performance can be monitored and controlled
What is the role of the PM during the determine budget process of Project Cost Management?
- on smaller projects, cost estimating and budgeting are tightly linked an can be a single process performed by one person
- Several factors should be considered for managing large-scale projects and determining budget
- work closely with the stakeholders to ensure cost estimates and funding are aligned with the work
- understand the funding source and requirements/limitations
What is the impact of the determine budget process of Project Cost Management?
- determining the budget provides a basis for project cost control
- the determine budget process provides cost baselines used in monitoring and controlling the project
- for example, in resource planning, determining the budget for resources helps plan for travel and training
What is a project budget?
Includes all the funds authorized to execute the project
What are the inputs to the determine budget process of Project Cost Management?
- Project documents (basis of estimates, cost estimates, project schedule, risk register)
- EEFs (exchange rates)
- project management plan (cost mgmt. plan, resource mgmt. plan, scope baseline)
- OPAs (budgeting-related policies, historical information and lessons-learned repositories, cost budgeting tools, reporting methods)
- Business documents (business case, benefits management plan)
- Agreements
What are some of the possible OPAs for the determine budget process?
- budgeting-related policies
- historical information and lessons-learned repositories
- cost budgeting tools
- reporting methods
What are the outputs for determine budget process?
- cost baseline
- project documents updates (cost estimates, project schedule, risk register)
- Project funding requirements
What are the tools and techniques for the determine budget process?
- expert judgment
- historical information review
- cost aggregation
- financing
- data analysis
- funding limit reconciliation
What are the tools and techniques for the determine budget process?
- expert judgment
- historical information review
- cost aggregation
- financing
- data analysis (reserve analysis)
- funding limit reconciliation
What is the purpose of the control costs process of Project Cost Management?
- Monitor the budget to look for variances from the approved cost baseline
- controlling costs requires knowledge of actual costs spent to date, and analyzing the relationship between the consumption of funds to the work being accomplished
- Project cost control include the following:
- influencing the factors that create changes to the authorized cost baseline
- monitoring cost performance to isolate and understand variances from the approved cost baseline
- monitoring work performance against funds expended
- preventing unapproved changes from being included in the reported cost or resource usage
- informing appropriate stakeholders of all approved changes and associated cost
- bringing expected cost overruns with acceptable limits
What is the key benefit of the control costs process?
- the cost baseline is maintained throughout the project
If funds are consumed too fast, then a change request should be submitted to increase (or reallocate) the budget item
On the other hand, not spending money fast enough can also be a big problem
What is the role of the PM during the control costs process?
- controlling project costs
- costs are estimated and the budget is created and monitored
- if there’s variance, the offending cost or costs are isolated
- ensures change requests are acted on in a timely manner
- ensures cost expenditures do not exceed their limit
- brings cost overruns within acceptable limits by recommending and facilitating changes
What is the impact of the control costs process?
- Any issues with cost can trigger management processes for other dimensions of the project such as time, risks, or change management
- A significant deviation from the cost baseline can result in the following:
- modifying the schedule of the project
- introducing an additional risk
- reducing scope through configuration or change management
- other project modifications
What is work performance information?
- Includes information on how the project work is performing compared to the cost baseline
a. budget at completion (BAC): the total budget allocated to the project
b. estimate at completion (EAC)
What is the budget at completion (BAC)?
The total budget allocated to the project
What is the estimate at completion (EAC)
the expected total cost of completing all work expressed. Actual cost (AC) + estimate to complete (ETC)
What is earned value analysis (EVA)?
- shows the health of the project by integrating scope, schedule, and cost
- EVA can be reported for the current reporting period and also cumulatively
- EVA can be used to forecast:
- total cost of the project at completion
- the efficiency required to complete the project (as outlined in the baseline budget)
What are the three key dimensions for EVA?
- Planned value (PV)
- Earned value (EV)
- actual cost (AC)
What is the planned value (PV) dimension for EVA?
the authorized budget assigned to the scheduled work. the total of the PV is sometimes referred to as the performance measurement baseline (PMB)
What is the earned value (EV) dimension for EVA?
a measure of work performed until a specific date, expressed in monetary value obtained as a result of the work performed. the EV needs to relate to the PMB. The EV cannot be greater than the authorized PV budget for a component. The EV is often used to calculate the percent complete of a project
What is the actual cost (AC) dimension for EVA?
the budget spent until a specific date for the work performed until that date. the total cost incurred in accomplishing the work that the EV measured
What is variance analysis?
collects and assembles information on project performance variances. common topics are schedule, cost, and quality variances
What is variance at completion (VAC)?
a projection of the amount of budget (deficit or surplus) expressed as the difference between the budget at completion (BAC) and the estimate at completion (EAC)
VAC = BAC - EAC
What is schedule variance?
a measure of schedule performance
SV = EV - PV
What is cost variance (CV)?
the amount of budget deficit or surplus at a given point in time
CV = EV - AC
What is a schedule performance index?
a measure of schedule efficiency. if the result is greater than 1, more work was completed than was planned.
SPI = EV/PV
What is a schedule performance index (SPI)?
a measure of schedule efficiency. if the result is greater than 1, more work was completed than was planned.
SPI = EV/PV
What is a cost performance index (CPI)?
measures the cost efficiency of budgeted resources. if the result is greater than 1, the project is saving money.
CPI = EV/AC
What are the inputs to the control costs process?
- project documents (lessons learned register)
- OPAs
- project funding requirements
- project management plan (cost mgmt. plan, cost baseline, performance measurement baseline)
- work performance data
What are some of the possible OPAs for the control cost process?
- cost control-related policies, procedures, and guidelines
- cost control tools
- monitoring and reporting methods
What are the outputs for the control costs process?
- project documents updates (assumption log, basis of estimates, cost estimates, risk register)
- change requests
- work performance information
- project management plan updates (cost mgmt. plan, cost baseline, performance measurement baseline)
- cost forecasts
What are the tools and techniques for the control costs process?
- expert judgement
- data analysis (EVA, variance analysis, trend analysis, reserve analysis)
- project management information system (PMIS)
- To-Complete performance index (TCPI)
What is TCPI?
To-complete performance index
an indication of the efficiency the project manager will have to achieve in order to meet the original goals
