Project Cost Management

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What is a cost overrun?

The additional percentage or dollar amount by which actual costs exceed estimates

Information technology projects have a poor track record for meeting what type of goals?

Budget goals

___________ includes the processes required to ensure that a project team completes a project within an approved budget.

Project cost management

What are the three project cost management processes?

1. Estimating costs
2. Determining the budget
3. Controlling costs

Which project cost management process involves developing an approximation or estimate of the costs of the resources needed to complete a project.

Estimating costs

What are the main outputs of the estimating process?

1. Activity cost estimates
2. Basis of estimates
3. Project document updates

Which project cost management process involves allocating the overall cost estimate to individual work items to establish a baseline for measuring performance?

Determining the budget

What are the main outputs of the cost budgeting process?

1. A cost performance baseline
2. Project funding requirements
3. Project document updates

Which project cost management process involves controlling changes to the project budget?

Controlling costs

What are the main outputs of the cost control process?

1. Work performance measurements
2. Budget forecasts
3. Organizational process asset updates
4. Change requests
5. Project management plan updates
6. Project document updates

_________ are revenues minus expenditures.

Profits

The ratio of revenue to profits is called what?

Profit margin

___________ allows you to see a big-picture view of the cost of a project throughout its life cycle, and helps you develop an accurate projection of a project's financial costs and benefits.

Life cycle costing

___________ is a method for determining the estimated annual costs and benefits for a project and the resulting annual cash flow.

Cash flow analysis

What are tangible costs or benefits?

Those costs or benefits that an organization can easily measure in dollars

What are intangible costs or benefits?

Costs or benefits that are difficult to measure in monetary terms

__________ are costs that are not directly related to producing the products and services of the project, but are indirectly related to performing the project.

Indirect costs

__________ are costs that can be directly related to producing the products and services of the project.

Direct costs

__________ costs can be attributed directly to a certain project.

Direct costs

The cost of electricity in a large building that has many employees working on various projects, would be considered a/an ____________ cost.

Indirect cost

What is sunk money?

Money that has been spent in the past

__________ states that when many items are produced repetitively , the unit cost of those items decreases in a regular pattern as more units are produced.

Learning curve theory

__________ are dollars included in a cost estimate to mitigate cost research by allowing for future situations that are difficult to predict.

Reserves

__________ allow for future situations that may be partially planned for and are included in the project cost baseline.

Contingency reserves

Future situations that may be partially planned for are sometimes called ____________.

Known unknowns

__________ allow for future situations that are unpredictable.

Management reserves

Future situations that are unpredictable are sometimes called ____________.

Unknown unknowns

What are the three basic types of cost estimates?

1. Rough order of magnitude (ROM) estimate
2. Budgetary estimate
3. Definitive estimate

What does a rough order of magnitude (ROM) estimate provide?

An estimate of what a project will cost

ROM estimates are also referred to as what?

1. Ballpark estimate
2. Guesstimate
3. Swag
4. Broad gauge

When is a ROM estimate done?

Very early or even before a project is officially started

What is used to allocate money into an organization's budget?

Budgetary estimate

What provides an accurate estimate of project costs?

Definitive estimate

Which of the three estimates should be the most accurate?

Definitive estimate

True or False: Estimates are usually done at various stages of a project and should become more accurate over time.

TRUE

What is a cost management plan?

A document that describes how the organization will manage cost variances on the project

What are some commonly used tools and techniques available to assist in creating a cost estimate?

1. Analogous cost estimating
2. Bottom-Up estimating
3. Parametric modeling
4. Cost of Quality
5. PM estimating software
6. Vendor bid analysis
7. Reserve analysis

What are analogous estimates also called?

Top-down estimates

__________ estimates use the actual cost of a previous, similar project as the basis for estimating the cost of the current project.

Analogous estimates

__________ estimates involve estimating individual work items or activities and summing them to get a rapid project total.

Bottom-up estimates

Bottom-up estimates are sometimes referred to as ____________.

Activity-based costing

What is one of the drawbacks of bottom-up estimates?

They are usually time-sensitive and therefore expensive to develop.

Which cost estimation technique uses project characteristics (parameters) in a mathematical model to estimate project costs?

Parametric modeling

Author, Tom DeMarco, suggest four reason for cost estimate inaccuracies. What are they?

1. Cost estimates are done too quickly
2. Lack of estimating experience
3. Human beings are biased towards underestimation
4. Management desires accuracy

What is the main goal of the cost budgeting process?

To produce a cost baseline for measuring project performance and project funding requirements.

What is a cost baseline?

A time-phased budget that project managers use to measure and monitor cost performance.

______________ is a project performance measurement technique that integrates scope, time, and cost data.

Earned value management (EVM)

What is a baseline?

The original project plan plus approved changes

Earned value management involves calculating what three values for each activity from a project's WBS?

1. Planned value (PV)
2. Actual cost (AC)
3. Earned value (EV)

The planned value is also called what?

the budget

What is the portion of the approved total cost estimates planned to be spent on an activity during a given period?

Planned value (PV)

__________ is the total direct and indirect costs incurred in accomplishing work on an activity in a given period.

Actual cost (AC)

__________ is the estimate of the value of the physical work actually completed.

Earned value (EV)

What is the Earned value based on?

The original planned costs for the project or activity and the rate at which the team is completing work on the project.

__________ is the ratio of actual work completed to the percentage of work planned to have been completed at any given time during the life of the project or activity.

Rate of performance (RP)

What is cost variance?

The earned value minus the actual cost

What is schedule variance (SV)?

The earned value minus the planned value

__________ is the ratio of earned value to actual cost and can be used to estimate the projected cost of completing the project.

Cost performance index (CPI)

__________ is the ratio of earned value to planned value and can be used to estimate the projected time to complete the project.

Schedule performance index (SPI)

What is an estimate of what it will cost to complete the project based on performance to date?

Estimate at completion (EAC)

What does BAC stand for and what is it?

Budget at completion. It is the original total budget for the project.

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