Chapter 7

Question 1

When is the project cost estimated ?

Answer 1

During the initiating phase or when the project charter /proposal is prepared (no detailed plans tho)

Question 2

Which specific activities are defined in the planning phase ?

Answer 2

• estimates of resources are made , durations and costs for each activity
• resources include people , materials , equipment and facilities
• estimated activity resources are used to for estimating activity costs

Question 3

The ESTIMATED COST OF AN ACTIVITY ?

Answer 3

Based on an estimate of the types of quantities of resources required to perform the activity

Question 4

What elements are included in the estimation of a cost for an activity ? (7)

Answer 4

1. Labour costs
2. Material costs
3. Equipment costs
4. Facilities costs
5. Subcontractors and consultants costs
6. Travel costs
7. Reserve

Question 5

4. Facilities costs?
5. Subcontractors/consultants costs ?
6. Travel costs ?

Answer 5

4. Purchasing special facilities or additional space for project team (security reasons -store materials -build/assemble / test project deliverable +. Est cost for renting space)
5. When project teams or contractors don’t have expertise or resources to do certain project tasks , they may outsource some work to S and C to perform activities (may be possible to outsource specific component tasks)
6. If required must be included (airfare , lodging and meals)

Question 6

7. Reserve ?

Answer 6

7. Project team /contractor may include an est amount for contingencies to cover unexpected situations that may come up
   • items overlooked when project scope was formed , activities that must be redone or high impact risk probability
   • often seperate budgets set for contingencies at project level rather than specific activities

Question 7

1. Labour costs ?
2. Material costs ?
3. Equipment costs?

Answer 7

1. Est costs for types/ classification of people expected to work on project (based on est work time and rand labour rate for each person / classification)
2. Est costs of materials for project team /contractor needs to purchase for P (paint , pipes, computers)
3. Equipment needs to be purchased as part of the project (computers / machinery)

Question 8

Good practices for cost est ?

Answer 8

• good to have a person responsible for performing activity est the coast associated with activity
• est costs for activity should be reasonable and realistic
• start of the project may not be possible to confidently/accurately est costs for all activities

Question 9

Project budgeting process steps ?

Answer 9

STEP1 : Determine the total budget cost (TBC)

• aggregate amount of est costs of all activities to perform and complete a work package or project

STEP2 : Develop a time based budget

• distribution by time period of the total budgeted cost for work package or project over its expected time span on when specific activities are scheduled to be performed

Question 10

What is a TBC?

Answer 10

Sum of the est costs of all specific activities that make up that work package

Question 11

If the sum of initial est exceeds sponsor budget ?

Answer 11

Reduce costs and recalculate

• not uncommon but may take several iterations of revision to arrive at an acceptable baseline budget
• when they budgets for packages are aggregated it cannot exceed total funds from sponsor they budgeted

Question 12

How would you reduce costs to get within sponsors budget ?

Answer 12

• may mean making trade-off decision to replace some resources with lower cost / more efficient resources/ subcontracting certain tasks /reducing scope
• going back to sponsor and asking for additional funds or approval to reduce scope (inform quickly to manage expectations)

Question 13

What is a time phased budget ?

Answer 13

Distributing each TBC over expected time span of its work package

cost is determined for each period within time span based on when activities are scheduled to be performed

HOW MUCH OF THE BUDGET SHOULD’VE BEEN SPENT AT ANY POINT IN TIME

Question 14

The Cumulative Budgeted Cost ? (CBC)

Answer 14

also known as PV (planned Value) or BCWS (Budgeted cost of work scheduled)

Amount calculated by adding up the budgeted costs for each time period up to that point in time

Amount budgeted to complete all the work that is scheduled to be performed up to a specific point in time

Question 15

CBC is used for ?

Answer 15

Used to analyse the cost performance of project

Question 16

How to keep track of cost on a project ?

Answer 16

Set up a system to collect , on a regular and timely basis data on costs actually expended

• include processes , procedures
• accounting structure established backed on WBS numbering system so each item of actual cost can be charged to appropriate work packages
• each packaged actual cost can then be summed and compared to CBC

Question 17

Time sheets ?

Answer 17

Used to report Labour hours

Individuals working on the project indicate the numbers of the work packages on which they worked and the amount of hours they spent on each work package

• these are multiplied by hourly cost rate for each person to determine actual rand cost
• person indicates proper project no. And work package no. On time sheet to ensure actual labour costs are charged to appropriate project
• when invoices are revived for stuff purchased for project they have to be charged to proper work package no.

Question 18

Commited costs ?

Answer 18

Funds that have been obligated for an item that has been ordered or purchase but not yet paid for , thus are not available to be spent elsewhere on the project because they will be needed some time later to pay for item

Question 19

Why are commited costs treated in a special way by accounting system ?

Answer 19

So that the accounting system periodically assigns a portion of their total cost to actual cost

Question 20

THE ACTUAL COST OF WORK PERFORMED (ACWP) ?

Answer 20

Also known as CAC (cumulative actual cost

Amount of costs actually expended and committed to complete all the work performed up to a specified point in time

Question 21

Calculate earned value ?

Answer 21

earned value : budgeted cost of work performed (value of work actually performed)

Calculate : collecting data on % complete for each work package and then converting this to rand amount by multiplying TBC of the work package by % complete

0.3% x R2000 = R600 
Daily budget = R200 
Total expended = R400

Question 22

Prevent premature inflated % completion est.?

Answer 22

Keep work packages or activities small in terms of scope and est duration

(activities should not be longer in est duration that the time intervals at which actual project performance will be reviewed and compared to planned progress)

Question 23

Cumulative Earned value (CEV) ?

Answer 23

Value of work actually performed up to a specific point in time

CEV= TBC (% of work est to be completed)

Question 24

Steps to Analyse cost performance ?

Answer 24

Following is Used to determine wether project is being performed within budget and weather the value of work performed is in line with actual cost.

1. TBC ( Total budgeted cost )
2. CBC (Cumulative budgeted cost)
3. CAC (Cumulative Actual cost)
4. CEV (Cumulative Earned Value)

Question 25

**COST PERFORMANCE INDEX?**

Answer 25

*Indicator of cost performance and is a measure of **cost efficiency** with which the project is being performed.* CPI = CEV/ CAC

Question 26

**COST VARIANCE** ?

Answer 26

Indicator of cost performance which is different between CEV of **work performed** and CAC, and is expressed in terms of **rands** CV = CEV - CAC

Question 27

When analysing cost performance ?

Answer 27

Important that all data be as current as possible and based on same reporting period

Question 28

**FORECASTED COST AT COMPLETION** (FCAC)

Answer 28

Aka Estimated Cost at completion **ECA** What the total cost will be at the completion of the project or work package based on **actual cost** expended, **earned value of work** performed and **remaining work** to be done

Question 29

**Calculating FCAC (method1)**?

Answer 29

*assumes the work to be performed on remaining portion of project /work package will be done at the same rate of efficiency as worked performed so far* FCAC = TBC / CPI

Question 30

**Calculating FCAC (method2)**?

Answer 30

*assumes regardless of efficiency rate the project /work package has experienced in past, the work to be performed on the raining portion of project /work package will be done according to budget* FCAC= CAC + (TBC-CEV)

Question 31

**Calculating FCAC (method3)**?

Answer 31

*Re-estimating all Costa’s for all remaining work to be performed, then adding this re-estimate to CAC* **can be time consuming but may be necessary is project experiences per distance deviations from plan or extensive changes** FCAC = CAC + Reestimate of remaining work to be performed

Question 32

**TO-COMPLETE PERFORMANCE INDEX** (TCPI) ?

Answer 32

*rate of performance required for the remaining work to complete the project/ work package within TBC* TCPI= (TBC-CEV) = amount of earned value of work remaining needing to be done —————————————————- (TBC-CAC) = amount of budget still left

Question 33

Key to effective cost control ?

Answer 33

Analyse cost performance on a regular and **timely basis**

Question 34

Cost control starts with?

Answer 34

**Establishing a baseline time phased budget** Showing how the costs are expected to be expended during the time span of the project

Question 35

Monitor the actual cost expended and earned value

Answer 35

- Crucial that cost variances and inefficiencies be identified early so corrective action be taken immediately - once project gets out of control may be difficult to complete within budget

Question 36

1. Analysing cost performance to determine which work package may require **corrective action** ?

Answer 36

- identifying those work packages that have negative CV or CPI of less that 0.2 - work packages for which CV or CPI has deteriorated since prior reporting period should be identified - concentrated effort must be applied to work packages with negative variances to reduce cost or improve efficiency of work performed - amount of CV should determine the priority for applying concentrated efforts **(work packages with largest neg CV should be top priority)**

Question 37

Cost control involves ?

Answer 37

1. Analysing cost performance to determine which work package may require **corrective action** 2. Deciding what specific corrective action should be taken 3. Revising the project plan including est durations & costs to incorporate the planned corrective action

Question 38

2. Deciding what specific corrective action should be taken **REDUCE COST OF 2 types of activities**

Answer 38

1. Activities that will be performed in near term 2. Activities that have a large est cost

Question 39

Methods to reduce activity costs ?

Answer 39

- substitute less expensive materials to meet specifications - assign person with greater expertise/ experience to perform / help with activity and get it done more efficiently - increase productivity through improved methods of tech