Project Cost Management

Question 1

Cost Aggregation

Answer 1

Summing the lower-level cost estimates associated with the various work packages for a given level within the project’s WBS or for a given cost control account.

Question 2

Analogous estimating

Answer 2

A technique for estimating the duration or cost of an activity or a project using historical data from a similar activity or project.

Question 3

Parametric estimating

Answer 3

An estimating technique in which an algorithm is used to calculate cost or duration based on historical data and project parameters.

Question 4

Bottom-up estimating

Answer 4

A method of estimating project duration or cost by aggregating the estimates of the lower-level components of the work breakdown structure (WBS).

Question 5

S-curve

Answer 5

A display of cumulative costs, labor hours or other quantities plotted against time. The name derives from the S-like shape of the curve, flatter at the beginning and end and steeper in the middle, which is typical of most projects. The beginning represents a slow, deliberate but accelerating start, while the end represents a deceleration as the work runs out.

Question 6

Cost baseline

Answer 6

the approved version of the time-phased project budget, excluding any management reserves, which can be changed only through formal change control procedures and is used as a basis for comparison to actual results.

Question 7

Earned value Management

Answer 7

A methodology that combines scope, schedule, and resource measurements to assess project performance and progress.

Question 8

Cost Management Processes

Answer 8

includes the processes involved in planning, estimating, budgeting, financing, funding, managing, and controlling costs so that the project can be completed within the approved budget.

primarily concerned with the resources needed to complete the schedule activities, future impacts should also be considered.

The processes:
* Plan Cost Management
* Estimate Costs
* Determine Budget
* Control Costs

Question 9

Plan Cost Management Process

Answer 9

The process that establishes the policies, procedures, and documentation for planning, managing, expending, and controlling project costs.

The key benefit of this process is in the identification of how project costs will be managed throughout the project.

Question 10

name inputs, tools & techniques, and outputs of Plan Cost Management Process

Answer 10

Inputs:
* Project management plan
* Project charter
* Enterprise environmental factors
* Organization process assets

Tools and Techniques:
* Expert judgement
* Analytical techniques
* Meetings

Outputs:
* Cost management plan

Question 11

Cost Management Plan

Answer 11

A component of a project or program management plan that describes how costs will be planned, structured, and controlled.

Question 12

Some topics that might be included the cost management plan are (but is not limited to):

Answer 12

Units of measure
Control thresholds
Rules for performance measurement
Cost reporting and format
Process management

Question 13

Estimate Costs Process

Answer 13

the process of developing an approximation of the monetary resources needed to complete project activities.

The key benefit of this process is that it determines the amount of cost required to complete project work.

Question 14

Estimate Costs Process inputs, tools & techniques, and outputs

Answer 14

Inputs:
* Cost management plan
* Human resource management plan
* Scope baseline
* Project schedule
* Risk register
* Enterprise environmental factors
* Organization process assets

Tools and Techniques:
* Expert judgement
* Analogous estimating
* Parametric estimating
* Bottom-up estimating
* Three-point estimating
* Reserve analysis
* Cost of quality
* Project management software
* Vendor bid analysis
* Group decision making techniques

Outputs:
* Activity cost estimates
* Basis of estimates
* Project document updates

Question 15

Cost estimating

Answer 15

a series of process interactions resulting in the development of activity cost estimates, along with the basis of those estimates.

the estimator must consider factors that may result in variations of the final estimate, such as positive and negative risk events.

All estimates should be provided with an estimate of variance based on the inherent risks involved.

Question 16

Types of costs:

Answer 16

Direct costs
Labor
Material
Equipment
Subcontractors
Indirect costs
Supervision
Engineering
Training
Taxes
Temporary facilities
Contingency costs
Inflation allowance
Risk factors

Question 17

Standard Project Estimating includes:

Answer 17

Analogous Estimates
Three Point Estimates
Parametric Estimates

Expert judgement and bottom-up estimating can also be used to estimate costs.

Question 18

Analogous Estimates

Answer 18

• Use information from prior, similar projects.
• Are useful in the beginning of the project when there is a minimal amount of information.
• Can be done for the overall project or at the control account or work package level.

usually quick to develop.

usually entails some form of expert judgement to discern the similarities and differences between the projects being compared.

Question 19

Three Point Estimates

Answer 19

• Are used when there is uncertainty associated with an estimate
• Take the optimistic, pessimistic, and most likely estimate to derive an expected cost.

Question 20

Parametric Estimates

Answer 20

• Use a mathematical model to develop a cost estimate
• Can have one parameter or multiple parameters
• Are used for work with good historical data
• Are not useful for intellectual or research and development work

used frequently in construction.

can be used early in process to provide a range. As details are known, the parametric model can get more precise.

Question 21

Expert Judgement

Answer 21

Judgment provided based upon expertise in an application area, knowledge area, discipline, industry, etc., as appropriate for the activity being performed. Such expertise may be provided by any group or person with specialized education, knowledge, skill, experience, or training.

Question 22

Determine Budget Process

Answer 22

The process of aggregating the estimated costs of individual activities or work packages to establish an authorized cost baseline.

The key benefit is in having identified all the costs needed to complete the project.

Question 23

Determine Budget Process inputs, tools & techniques, and outputs

Answer 23

Inputs:
* Cost management plan
* Scope baseline
* Activity cost estimates
* Basis of estimates
* Project schedule
* Resource calendars
* Risk register
* Agreements
* Organization process assets

Tools and Techniques:
* Cost aggregation
* Reserve analysis
* Expert judgement
* Historical relationships
* Funding limit reconciliation

Outputs:
* Cost baseline
* Project funding requirements
* Project document updates

Question 24

Reserve

Answer 24

A provision in the project management plan to mitigate cost and/or schedule risk. Often used with a modifier(e.g., management reserve, contingency reserve) to provide further detail on what types of risks are meant to be mitigated.

Historical relationships “use project parameters to predict total project cost.”

Funding limit reconciliation is when “funds spent are reconciled against customer limits for funds”.

Question 25

Contingency Reserve

Answer 25

Budget within the cost baseline or performance measurement baseline that is allocated for identified risks that are accepted and for which contingent or mitigated responses are developed.

Question 26

Management Reserve

Answer 26

An amount of project budget withheld for management control purposes. These are budgets reserved for unforeseen work that is within scope of the project. The management reserve is not included in the performance measurement baseline.

Question 27

Reserve Analysis

Answer 27

An analytical technique to determine the essential features and relationships of components in the project management plan to establish a reserve for the schedule duration, budget, estimated cost, or funds for a project.

Question 28

Risk reserves are determined by:

Answer 28

* Rules of thumb (heuristics) * Risk analysis * Lessons learned * Historical information

Question 29

difference between Contingency and Management Reserves

Answer 29

Contingency Reserves are reserves that you put in place for things that the team knows might happen. These risks are often called “known unknowns” because the teams has identified the risk, but cannot fully understand at present the impact or outcome of the risk. Management Reserves are the reserves that you put in place for things that might come up that the team hasn’t thought of. These risks are often call “unknown unknowns”. This is also sometimes called “padding”, but PMI does not like the term padding and does not consider them to be the same thing. PMI considers padding to be simply adding a reserve with no justification whatsoever.

Question 30

Determine Budget Process - Outputs

Answer 30

Project funding requirements * Total * Periodic (e.g., annual or quarterly) Project document updates * Risk updates * Cost estimates * Schedule updates

Question 31

Project funding requirements

Answer 31

Forecast project costs to be paid that are derived from the cost baseline for total or periodic requirements, including projected expenditures plus anticipated liabilities. outline the amount of total funding needed for the project. Although project expenditures usually occur relatively smoothly, funding often occurs in chunks. This is why funding requirements appears as a step function onto the graph above.

Question 32

cost baseline

Answer 32

the total estimated cost of the project and is developed by summing estimated costs by period. During project execution the budget is displayed graphically using an S-curve that indicates the accumulated AC (Actual Cost) of the project over a period of time compared with the budgeted costs for that time period. The S-curve provides a time-phased view of the project costs and budget. The S- curve graphics will display a progressive summary of costs over the life cycle of the project. As the cost baseline is being established, the cost estimates are rolled up from the work package cost estimates. Needed reserves are established to account for unplanned events. Each of the inputs to determine budget contributes to the cost baseline. Through cost aggregation and alignment with the project schedule, the cost baseline provides a method for measuring project performance.

Question 33

The difference between the cost baseline and the project budget:

Answer 33

management reserves. You will measure performance against the baseline; however, as discussed you will need the management reserve as part of the project budget to address unforeseen risks.

Question 34

Actual Cost (AC)

Answer 34

The realized cost incurred for the work performed on an activity during a specific time period.

Question 35

Budget at Completion (BAC)

Answer 35

The sum of all budgets established for the work to be performed. This is the total budget for the project.

Question 36

Product Life-Cycle Costs vs Project Life-Cycle Costs

Answer 36

Projects and operations differ primarily in that operations are ongoing and repetitive, while projects are temporary and unique. Project life-cycle costs consider all costs of the temporary endeavor (the project), whereas Product life-cycle costs consider all projects supporting the product and may include operational expenses as well.

Question 37

Product life-cycle cost analysis

Answer 37

is an integral part of strategic planning. What are the downstream implications for maintaining the project’s product in production or operation? Attempting to reduce the temporary effort or project budget by using shortcuts now may have significant impacts later.

Question 38

Control Costs Process

Answer 38

The process of monitoring the status of the project to update the project costs and managing changes to the cost baseline. The key benefit is that it provides the means to recognize variance from the plan. part of Project Cost Management and should be completely integrated with other control processes, such as scope change control, schedule change control, and quality control.

Question 39

Cost Control Basics:

Answer 39

* Establish cost performance thresholds. * Monitor cost performance for variances. * Bring expected costs within acceptable limits. * Accurately record changes to the baseline. * Guard against improper changes to the baseline. * Inform stakeholders of changes.

Question 40

Control Costs Process inputs, tools & techniques, and outputs

Answer 40

Inputs: * Project management plan * Project funding requirements * Work performance data * Organizational process assets Tools and Techniques: * EVM * Forecasting * TCPI * Performance reviews * Project management software * Reserve analysis Outputs: * Work performance information * Costs forecasts * Change requests * Project management plan updates * Project documents updates * Organizational process assets updates

Question 41

TCPI (To-Complete Performance Index )

Answer 41

A measure of the cost performance that is required to be achieved with the remaining resources in order to meet a specified management goal, expressed as the ratio of the cost to finish the outstanding work to the remaining budget.

Question 42

Variance Management

Answer 42

If the variance is outside an acceptable threshold, the team needs to implement a problem-solving process to determine how to resolve the issue. 1. Describe the problem and it’s setting. 2. Set objectives. 3. Identify the root cause. 4. Identify potential solutions. 5. Decide on the solution. 6. Implement the solution. 7. Monitor and adjust. This process will keep the team focused on the issues and drive the team to identify solutions.

Question 43

CV thresholds

Answer 43

should be agreed upon when planning the project by the project manager and the sponsor. A common threshold is 0-5% variance is acceptable, 5-10% variance is a warning, and greater than 10% is unacceptable. The project manager should monitor planned vs. actual expenditures for the work that was accomplished.

Question 44

To effectively control project costs

Answer 44

the project manager and the team should have a method in place to prevent unauthorized changes to the project budget and to manage changes that are determined to be necessary. This is accomplished through a cost change control system. Cost control is a subsidiary of the integrated change control system.

Question 45

Earned Value Management (EVM)

Answer 45

a technique used to integrate, measure, and report project performance for the project’s scope, schedule, and resources. * EVM involves three major factors: * PV (Planned Value) * AC (Actual Cost) * EV (Earned Value) Schedule Variance: SV = EV - PV Cost Variance: CV = EV - AC Schedule Performance Index: SPI = EV/PV Cost Performance Index: CPI = EV/AC This technique allows the project manager to relate schedule cost, and scope using specific mathematical formulas that, when used in calculations, will indicate where variances to the plan exist and where corrective action may be required. attempts to answer two questions: 1) Where are we today, and 2) where will we end up? The more frequently you address these two questions, the easier it will be to take the necessary corrective actions. Variances from a baseline are easier to manage when the variances are small and are detected early. compares work that has been planned (what has been scheduled to be completed within the measurement period) with the actual work that has been done (work performed within the measurement period). It also compares the planned cost of the work completed (what we had planned to pay) with the AC of the work (what we actually paid).

Question 46

PV (Planned Value)

Answer 46

The authorized budget assigned to scheduled work.

Question 47

Forecasting

Answer 47

An estimate or prediction of conditions and events in the project's future based on information and knowledge available at the time of the forecast. The information is based on the project's past performance and expected future performance, and includes information that could impact the project in the future, such as estimate at completion and estimate to complete.

Question 48

EV (Earned Value)

Answer 48

The measure of work performed expressed in terms of the budget authorized for that work.

Question 49

BAC (Budget at Completion)

Answer 49

The sum of all budgets established for the work to be performed. This is the total budget for the project.

Question 50

EAC (Estimate at Completion)

Answer 50

The expected total cost of completing all project work. forecasts the remaining work: Performed at the budgeted rate Performed at the present CPI When considering both SPI and CPI factors The EAC is compared with the project’s BAC to determine how well the project is expected to perform against the plan. The effectiveness of the original estimating process used in project planning will be a major factor in the degree of variance. There are many different ways to compute the EAC. The most accurate way is to develop a new bottom-up estimate while taking into account all current available information. However, developing a new bottom-up estimate takes time; therefore, many project managers will calculate an EAC using mathematical formulas. There are multiple versions of EAC formulas. The project manager would choose the appropriate formula based on the performance of the project to date and their expectation of future performance.

Question 51

ETC (Estimate to Complete)

Answer 51

The expected cost to finish all the remaining project work.

Question 52

VAC (Variance at Completion)

Answer 52

A projection of the amount of budget deficit or surplus, expressed as the difference between the budget at completion and the estimate at completion