Project Cost Management Terms

Question 1

Actual Cost (AC)

Answer 1

The actual amount of monies the project has spent to date

Question 2

Analagous Estimating

Answer 2

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

Question 3

Bottom-up estimating

Answer 3

Estimating approach that starts from zero, accounts for each component of the WBS, and arrives at a sum for the project. One of the most releaible methods to predict project costs

Question 4

Budget Estimate

Answer 4

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.

Question 5

Commercial Database

Answer 5

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

Question 6

Contingency Reserve

Answer 6

Contingency allowance to account for overruns in costs. They are used at the PM’s discretion and with managements approval

Question 7

Cost aggregation

Answer 7

Costs are parrallel to each WBS work package. The costs of each work package are aggregated to their corresponding control accounts.

Question 8

Cost baseline

Answer 8

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

Question 9

Cost budgeting

Answer 9

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.

Question 10

Cost change control system

Answer 10

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

Question 11

Cost Management Plan

Answer 11

This dictates how cost variances will be managed

Question 12

Cost of poor quality

Answer 12

The monies spent to recover from not adhering to the expected level of quality. Examples : rework, defect repair, loss of life

Question 13

Cost of quality

Answer 13

The monies spent to attain the expected level of quality within a project. Examples : Training, safety, testing

Question 14

Cost Performance Index (CPI)

Answer 14

Measures the project based on its financial performance. Formula is EV/AC

Question 15

Cost variance (CV)

Answer 15

Difference of the earned value and the cumulative actual costs of the project. Formula is EV-AC

Question 16

Definitive Estimate

Answer 16

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 this estimate. Range of variance from -5 to +10 percent

Question 17

Direct Costs

Answer 17

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

Question 18

Earned value (EV)

Answer 18

The physical work completed to date and the authorized budget for that work. It is the percentage of BAC that represents the actual work completed in the project

Question 19

Estimate at Completion (EAC)

Answer 19

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

Question 20

Estimate to complete (ETC)

Answer 20

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.

Question 21

Fixed Costs

Answer 21

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).

Question 22

Funding limit reconciliation

Answer 22

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

Question 23

Indirect Costs

Answer 23

Costs that are representative of more than one project

Question 24

Known Unknown

Answer 24

An event that will likely happen within the project, but when it will happen and to what degree is unknown

Question 25

Learning Curve

Answer 25

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

Question 26

Oligopoly

Answer 26

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

Question 27

Opportunity Cost

Answer 27

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

Question 28

Parametric Estimating

Answer 28

Estimating approach that uses a model to extrapolate what costs will be needed. For ex : Cost per hour and cost per unit

Question 29

Planned Value (PV)

Answer 29

The work scheduled and the budget authorized to accomplish that work. It is the % of the BAC that reflects where the project should be at that point in time

Question 30

Project variance

Answer 30

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

Question 31

Regression analysis

Answer 31

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.

Question 32

Reserve analysis

Answer 32

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.

Question 33

Rough order of magnitude

Answer 33

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.

Question 34

Schedule Performance Index (SPI)

Answer 34

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

Question 35

Schedule Variance (SV)

Answer 35

The difference between the earned value and the planned value. Formula is SV = EV - PV

Question 36

Single Source

Answer 36

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

Question 37

Sole Source

Answer 37

Only one vendor can provide what your project needs to purchase.

Question 38

Sunk Costs

Answer 38

Monies that have already been invested in a project

Question 39

To-Complete Performance Index

Answer 39

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).

Question 40

Variable Costs

Answer 40

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

Question 41

Variance

Answer 41

The difference between what was expected and what was experienced

Question 42

Variance at Completion (VAC)

Answer 42

Forecasting formula that predicts how much of a variance the project will likely have based on current conditions within the project. Formula is VAC= BAC -EAC