Cost Formulas and Terms Flashcards
(32 cards)
Fixed Cost
are costs that are constant throughout the life of the project. An example of a fixed cost
would be monthly rent
Variable costs
costs that vary depending on the amount of resources used on the project. For
example, if you rent a piece of equipment for the project, but you decide you need more
Direct costs
are costs that are billed directly to your project. For example, buying equipment just for
the project.
1Indirect costs
costs that can’t be directly traced to a specific project and therefore will be
accumulated and allocated equitable over multiple projects. For example, electricity or water for the
building.
Life cycle costing
looks at the total cost of the project from building it to transferring it to the owner
through its life. If a project is creating a new database the cost will include building the database, the cost
of maintaining it while it’s still in use and then the cost of dismantling it when it retires or is replaced.
Sunk costs
are costs that have already been spent during the project. Don’t include sunk costs when
making future decisions about project costs.
Analogous estimating
s also known as top-down estimating and is based on another similar project in
the organization. It’s important to note that when comparing to another project, it has to be apples to
apples for the best estimates.
xIt may not be as accurate as other types of estimating, like bottom- up.
Parametric estimating
is an estimating technique in which an algorithm is used to calculate cost or
duration based on historical data and project parameters.
• It’s best used for activities that are linear
• This type of estimating is not good for activities that are unknown or haven’t been done previously
Bottom-up estimating
is the most accurate of the estimates and is when an estimate is applied to each
activity, starting from the bottom and working its way to the top. The estimates are then aggregated up
for a total cost. This process can be time consuming, but it’s more accurate
Three-point estimating
also called program evaluation and review technique (PERT) and is where
you use three data points to make an estimate. The three points are as follows:
• Pessimistic: worst-case scenario
• Realistic: most likely
• Optimistic: best-case scenario
Three-point estimating formula:
Beta Distribution
P+(4)R+O/6.
Example: Let’s say a team member gives you the following estimates for the cost of an
activity: realistically $50, optimistically 20, and pessimistically $80.
80+(4)50+20/6 = 80+200+20/6 = 300/6 = $50 is the estimate for this activity.
Three-point estimating formula:
Triangular distribution
P+R+O/3.
uses the same three points and the formula is much easier to use, but it’s not
as accurate.
range of possible estimates
Briefly mentioned in the PMBOK: Rough order of magnitude: +75% to 100% to -25% to -50% Conceptual: +50% to -30% Preliminary: +30% to -20% Definitive: +20% to -15% Control: +15% to -10%
Determine Budget
It is part of the Planning Proccess Group and this determine the cost baseline against which project performance can be monitored and controlled
Reserve analysis
is a data analysis tool used to establish the contingency and management reserves. work.
Management reserves
are in place to cover any unexpected
Cost baseline
which is the approved time-phased version of the budget but it excludes management reserves.
Control Cost
This is under monitoring and control proccess. Deinifnition: the process of monitoring the status of the project to update the project costs and managing changes
to the cost baseline
To-complete performance index, or TCPI.
This is a projection of cost performance the team needs to meet in order to meet the original plan
Cost Control Tools and Techniques
Earn Value Management is a methodology that combines scope, schedule, and resource measurements to assess project performance and progress. The following are the EV formulas that are detailed later:
Earn Value Management formulas: Budget at Completion (BAC), Planned Value (PV), Earned Value (EV),Actual Cost (AC)
Variances for Approved Based Line:Schedule Variance (SV), Cost Variance (CV), Schedule Performance Index (SPI), Cost performance Index (CPI)
Value Used for forecasting: Estimate at Completion (ETC), Estimate to Completion (ETC), Variance at Completion (VAC)
Earned Value Forecast: To-complete performance index (TCPI)
Planned value (PV)
Formula: Planned% Complete x BAC
Def: What the project should be worth. The value of the work you plan on completing during a specific period of time in
the project schedule. Or it’s the authorized budget assigned to scheduled work.
Budget at Completion (BAC)
Formula: none but it’s the sum of all budgets established for the work to be performed. What the project budget is?
Actual Cost (AC)
Formula none
Def: What the project has spent so far
The actual money spent on the project at a given point in time. Or it’s the realized
cost incurred for the work performed on an activity during a specific time period.
Cost Variance (CV)
Formula: EV-AC
Def: The difference between earned value and the actual costs.
