question

Cost Management Processes (3)

answer

- Estimate costs (PLANNING) - Determine the budget (PLANNING) - Control costs (M&C)

question

Cost estimating and cost budgeting

answer

On smaller scope projects, cost estimating and cost budgeting are so tightly linked that they can be viewed as a single process that can be performed by a single person over a relatively short period of time

question

When is the ability to influence cost the greatest?

answer

In the early stages of the project This is why early scope definition is so critical

question

Control Account

answer

On some large projects it might be more practical to estimate and control costs at a HIGHER LEVEL than the individual activities - this is CONTROL ACCOUNT Estimating and controlling costs at a level higher than the work package level in the WBS

question

Cost Management Plan

answer

aka BUDGET MGMT PLAN or BUDGET PLAN Created with the rest of the mgmt plans in DEVELOP PROJECT MGMT PLAN process in INTEGRATION MGMT May include the following: - Specifications for how estimates should be stated - Level of accuracy needed for estimates - Reporting formats to be used - Rules for measuring cost performance - Whether costs will include both direct costs (those directly attributable to the project) and indirect costs (e.g. overhead) - Establishment of a cost baseline for measuing against as part of project M&C - Control thresholds - Cost change control procedures

question

Cost thresholds

answer

The amount of variation allowed before you need to take action Part of the cost mgmt plan and an example of how PMs think in advance about how they will manage costs

question

Life Cycle Costing

answer

Looking at the cost of the whole life of the product, not just the cost of the project Ex: Not wise to design the product so the project costs are low but the maintenance costs are higher than the project cost savings

question

Value Analysis

answer

aka Value Engineering Finding a less costly way to do the same work (e.g. How can we decrease cost on the project while maintaining the same scope?) - Systematically identify all the required project functions, assign values to these functions and provide functions at teh lowest overall cost w/o loss of performance

question

Cost Risk

answer

Involves risk, procuement and cost managment - crosses several knowledge areas

question

7.1 Estimate Costs Process Group? Knowledge Area? Inputs (6)? T&T (9)? Outputs (3)?

answer

Process Group: PLANNING Knowledge Area: COST MGMT Inputs: .1 Scope baseline .2 Project schedule .3 Human resource plan .4 Risk register .5 Enterprise environmental factors .6 Organizational process assets T&T: .1 Expert judgment .2 Analogous estimating .3 Parametric estimating .4 Bottom-up estimating .5 Three-point estimating .6 Reserve analysis .7 Cost of quality .8 Project mgmt estimating software .9 Vendor bid analysis Outputs: .1 Activity cost estimates .2 Basis of estimates .3 Project document updates

question

Objective of ESTIMATE COSTS

answer

Coming up w/ cost estimates for each activity - Will be combined into one time-phased spending plan during DETERMINE BUDGET

question

Which costs should be estimated?

answer

Costs involved in all the efforts needed to complete the project: - Costs of quality efforts - Costs of risk efforts - Costs of the PM's time - Costs of the PM activities - Costs directly associated w/ the project, including labor, materials, training for the project, computers, etc. - Office expenses for physical office spaces used directly for the project - Profit, when applicable - Overhead costs, such as mgmt salaries and general office supplies

question

Fixed vs. Variable Costs

answer

Variable = costs change w/ the amount of production or the amount of work (e.g. cost of material, supplies, wages) Fixed = costs do NOT change as production changes (e.g. cost of set-up, rent, etc.)

question

Direct vs. Indirect Costs

answer

Direct = costs directly attributable to the work on the project (e.g. team travel, team wages, recognition, cost of materials used on the project) Indirect = Overhead items or costs incurred for the benefit of more than one project (e.g. taxes, fringe benefits, janitorial services)

question

Scope Baseline (INPUT)

answer

Provides the details of WHAT you are estimating - what is in scope - what constraints have been put on the project Scope baseline = scope statement + WBS + WBS dictionary

question

Project Schedule (INPUT)

answer

Schedule contains the activities, the resources assigned to complete the work and when the work will occur You need a schedule before you can come up w/ a budget: - The timing of whenyou buy something affects its cost - You need to develop a time-phased spending plan to control project expenditure so you know how much money will be spent during specific periods of time

question

Human Resource Plan (INPUT)

answer

Consider reward systems (increase productivity and ultimately save money) and labor rates

question

Risk Register (INPUT)

answer

Risk mgmt will save time and oney, but there are costs associated w/ the efforts to control risks

question

How is estimating done? (T&T)

answer

Same techniques described in the Time Mgmt chapter - One-point estimating - Analogous estimating - Parametric estimating - Three-point estimating (PERT) In addition, BOTTOM-UP ESTIMATING - Creating detailed estimates for each activity or work package - Estimates are rolled up into CONTROL ACCOUNTS and finally an overall project estimate - REQUIRES an accurate WBS

question

Reserve Analysis (T&T)

answer

ID which activities have significant risks and determining how much tiem and money to set aside to account for the risks if they occur Contingency reserves > known risks Management reserves > accommodate unknown risks or unidentified risks

question

Cost of Quality (T&T)

answer

Cost of work added to the project to accommodate quality efforts

question

Vendor Bid Analysis (T&T)

answer

Cost estimating may include analysis of what the project should cost, based on the responsive bids from qualified vendors

question

Accuracy of Estimates

answer

Estimates made early in the project will be less accurate than those made later, when more is known about the project Estimates should be in a range

question

Estimate Ranges - Rough Order of Magnitude (ROM) estimate - Budget estimate - Definitive estimate

answer

Rough Order of Magnitude (ROM) estimate - Usually made during project INITIATING - Typical range for ROM estimates is + / - 50 percent from actual Budget estimate - Usually made during project PLANNING - Typical range of -10 to +25 percent from actual Definitive estimate - More refined estimate as the project progresses - Typical range or + / - 10 percent

question

Activity Cost Estimates (OUTPUT)

answer

Quantitative assessment of the probable costs required to complete project work

question

Basis for Estimates (OUTPUT)

answer

Amount and type of add'l details supporting the cost estimate Supporting detail: - Basis of the estimate (i.e. how it was developed) - Assumptions made - Known constraints - Range of possible estimates - Confidence level in final estimate

question

7.2 Determine Budget Process Group? Knowledge Area? Inputs (7)? T&T (5)? Outputs (3)?

answer

Process Group: PLANNING Knowledge Area: COST MGMT Inputs: .1 Activity cost estimates .2 Basis of estimates .3 Scope baseline .4 Project schedule .5 Resource calendars .6 Contracts .7 Organizational process assets T&T: .1 Cost aggregation .2 Reserve analysis .3 Expert judgment .4 Historical relationships .5 Funding limit reconciliation Outputs: .1 Cost performance baseline .2 Project funding requirements .3 Project document updates

question

Objective of Determine Budget

answer

PM calculates teh total cost of the project in order to determine the amount of funds the organization needs to have available for the project Meeting the cost baseline will be the measure of project success

question

How do RESERVES fit into the COST BASELINE and the COST BUDGET? Reserve Analysis (T&T)

answer

In estimating the total cost of a project, the PM must perform risk mgmt activities and include RESERVES in the estimate 2 types of reserves: - Contingency = Known risks identified during risk reponse planning - Management = Add'l funds set aside to cover unforeseen risks or changes to the project The COST BASELINE includes CONTINGENCY RESERVES and represents the funds the PM has aurhtority to manage and control COST BUDGET = cost baseline + MANAGEMENT RESERVES

question

Cost Aggregation (T&T)

answer

To create a budget - activity costs are rolled up to work package costs - work package costs are rolled up to control account costs - control account costs are rolled up to project costs - CONTINGENCY RESERVES are added to achieve COST BASELINE - MANAGEMENT RESERVES are added to achieve COST BUDGET

question

Funding Limit Reconciliation (T&T)

answer

Expenditure of funds should be reconciled w/ any funding limits on the commitment of funds for the project - a variance b/w FUNDING LIMITS and the PLANNED EXPENDITURE will sometimes necessitate the rescheduling of work to level out the rate of expenditures Check CASH FLOW (part of funding limit reconciliation) - funding may not be available when it is needed on the project, causing changes to other parts of the project iterations of the project docs or PM plan - the cost baseline, therefore, is time-phased and may be shown as an S-curve

question

Cost Peformance Baseline (OUTPUT)

answer

An authorized time-phased budget at completion (BAC) used to measure, monitor and control overall cost performance on the budget Developed as a summation of the APPROVED BUDGETS BY TIME PERIOD and is typically displayed as an S-CURVE

question

Project Funding Requirements (OUTPUT)

answer

Total funding requirements and periodid funding requirements (e.g. quarterly, monthly) are derived from the cost baseline Funding often occurs in incremental amounts that are not continuous - appear as steps

question

7.3 Control Costs Process Group? Knowledge Area? Inputs (4)? T&T (6)? Outputs (6)?

answer

Process Group: PLANNING Knowledge Area: M&C Inputs: .1 Project management plan .2 Project funding requirements .3 Work performance information .4 Organizational process assets T&T: .1 Earned Value Measurement (EVM) .2 Forecasting .3 To-complete performance index .4 Performance reviews .5 Variance analysis .6 Project management software Outputs: .1 Work performance measurements .2 Budget forecasts .3 Organizational process assets .4 Change requests .5 Project management plan updates .6 Project document updates

question

Progress Reporting - % complete - 50/50 rule - 20/80 rule - 0/100 rule

answer

On projects where work is not objectively measured, the estimate team members provide re: percent complete is simply a guess (and does NOt provide a reaslistic estimate of the project's progress) There are alternatives to asking for % complete when using a properly broken down WBS: - 50/50 rule = an activity is considered complete when it begins and gets credit for the last 50 percent only when it is complete - 20/80 rule = an activity is considered complete when it begins and gets credit for the last 80 percent only when it is completed - 0/100 rule = an activity does not get credit for partial completion; it only gets credit for full completion

question

Earned Value Measurement (EVM) (T&T)

answer

Method used to measure project performance against the SCOPE, SCHEDULE and COST BASELINES (aka the PERFORMANCE BASELINE) The measurements resulting from an EVM analysis indicate whether there are any potential deviations from teh scope, schedule or cost baselines EVM is BETTER than simply comparing planned to actual results: - Integrates cost, time and work done (or scope) - Can be used to FORECAST FUTURE PERFORMANCE and PROJECT COMPLETION DATES and COSTS

question

**PV

answer

PV = Planned Value As of today, what is the value of the WORK PLANNED TO BE DONE?

question

**EV

answer

EV = Earned Value As of today, what is the estimated value of the WORK ACTUALLY ACCOMPLISHED?

question

**AC

answer

AC = Actual Cost (total cost) As of today, what is the ACTUAL COST INCURRED for the WORK ACCOMPLISHED?

question

**BAC

answer

BAC = Budget at Completion (the budget) How much did we BUDGET for the TOTAL project effort?

question

**EAC

answer

EAC = Estimate at Completion What do we currently expect the TOTAL project to cost (a forecast)?

question

**ETC

answer

ETC = Estimate to Complete From this point forward, how much MORE do we expect it to cost to finish the project (a forecast)?

question

**VAC

answer

VAC = Variance at Completion As of today, how much over or under budget do we expect to be at the end of the project?

question

**CV (formula & interpretation)

answer

CV = Cost Variance Formula: EV - AC Interpretation: - NEGATIVE is over budget - POSTIIVE is under budget

question

**SV (formula & interpretation)

answer

SV = Schedule Variance Formula: EV - PV Intpertation: - NEGATIVE is behind schedule - POSITIVE is ahead of schedule

question

**CPI (formula & interpretation)

answer

CPI = Cost Performance Index Formula: EV / AC Interpretation: - We are getting $____ worth or work out of every $1 spent - Fund ARE or ARE NOT being used efficiently

question

**SPI (formula & interpretation)

answer

SPI = Schedule Performance Index Formula: EV / PV Interpretation: - We are (only) progressing at ____ % of the rate originally planned

question

**EAC (multiple formulas & interpretation)

answer

EAC = Estimate at Completion Note: There are many ways to calculate EAC, depending upon the assumptions made. But the PURPOSE is to create FORECASTS base on past performance on the project Interpretation: - As of now, how much do we expect the total project to cost?

question

**TCPI

answer

TCPI = To Complete Performance Index Formula: (BAC - EV) / (BAC - AC) Interpretation: - Divides the remaining work to be done by the money remaining to do it - Answers the question "In order to stay within budget, what rate must we meet for the remaining work?"

question

**ETC

answer

ETC = Estimate to Complete Formula: - EAC - AC (How much more will the project cost?) - Reestimate (reestimate the reamining work from the bottom-up)

question

**VAC

answer

VAC = Variance at Completion Formula: BAC - EAC Interpretation: - How much over or under budget will we be at the end of the project?

question

ETC vs. EAC

answer

BOTH forecast future performance based on what actually occurred on the proejct, taking into account any variances from the plan the project has already experienced ETC - estimate of HOW MUCH MORE the REMAINING part of the project will cost to complete EAC - what the TOTAL PROJECT COST is forecasetd to be

question

**Understand and memorize the following related to EVM formulas

answer

- EV comes first in every formula - If it is a VARIANCE, the formula is EV minus something - If it is an INDEX, the formula is EV dividied by something - If the formula relates to COST, use AC - If the formula relates to SCHEDULE, use PV - For VARIANCE INTERPRETATION, negative is bad, positive is good - For INDICES INPERPREATION, great than one is good, less than one is bad

question

What is a formula for estimate at completion (EAC)?

answer

BAC / Cumulative CPI

question

What estimating method would use optimistic time estimates?

answer

Three-point estimate

question

"How much work should be done" has what earned value name?

answer

Planned value

question

What is the critical path?

answer

The longest duration path in the network; the shortest time to complete the project

question

The types and quantities of resources required are calculated in what part of time mgmt?

answer

Estimate activity resources

question

What does the schedule variance tell you?

answer

How far behind or ahead of schedule you are

question

What schedule network analysis technique involves crashing?

answer

Schedule compression

question

What does a finish-to-start relationship mean?

answer

One activity must finish before the next can start

question

What does the estimate at completion tell you?

answer

What we expect the total project to cost

question

Why would you crash a project?

answer

To shorten the project duration

question

The "what-if" scenario method of schedule network analysis primarily makes use of what technique?

answer

Monte Carlo analysis

question

What are sunk costs?

answer

Expended costs

question

What does a milestone chart show?

answer

Dates of significant events on the project

question

What is the duration of a milestone?

answer

Zero

question

What is analogous estimating?

answer

Top-down estimating

question

What are fixed costs?

answer

Costs that do not change with project activity

question

What are direct costs?

answer

Costs incurred directly by the project

question

What is the earned value name for "how much you have spent to date?"

answer

Actual cost

question

What is value analysis?

answer

Finding a less costly way to complete the work w/o affecting quality

question

What is a management reserve?

answer

An amount of time or money set aside to uncover unforeseen risks

question

What is the cost variance formula?

answer

EV - AC

question

Cost risk is greater for the buyer in what type of contract?

answer

Cost reimburseable

question

What schedule network analysis technique uses buffers?

answer

Critical chain method

question

What does present value mean?

answer

The value today of future cash flows

question

What is the formula for total float?

answer

LS - ES OR LF - EF This is the amount of time an activity can be delayed w/o delaying the project

question

Why would a project manager want to use resource leveling?

answer

The smooth the peaks and valleys of monthly resource usage consumed by the project

question

What does a benefit cost ratio of .25 mean?

answer

Benefits are 2.5 times the costs

question

A critical path activity will generally have how much float?

answer

Zero

question

What is parametric estimating?

answer

Using mathematical relationships found in historical info to create estimates (e.g. dollars per foot of material)

question

What is the range of accuracy with a definitive estimate?

answer

+ / - 10 percent

Cost Management Test Questions – Flashcards

Unlock all answers in this set

Haven't found what you were looking for?

Search for samples, answers to your questions and flashcards