Cost

Question 1

What are considerations for Project Cost Management

Answer 1

• Knowledge mgmt
• Estimating
• Budgeting
• Earned value management
• Agile approaches
• Governance

Question 2

What Processes are a part of Project Cost Management?

Answer 2

• Plan cost management
  
  • Estimate costs
  • Determine Budget
  • Control Costs

Question 3

What is the contingency reserve?

Answer 3

Time/money allocated in the schedule or cost baseline for known risks with active response strategies.

Question 4

PM Role

Answer 4

• Recognize the differences between each project, organization, and group of stakeholders to measure project costs in the way that works best for the project

Question 5

When thinking about cost and impact, what is important to remember?

Answer 5

Projects spend money from initiation to completion, mistakes can have dramatic effects.

Question 6

What is the cost baseline?

Answer 6

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

Question 7

What is a cost management plan?

Answer 7

• Part of the PM Plan
• Documents cost management processes and their associated tools and tech’s
• Describes how the project costs will be planned, estimated, budgeted, structured, managed, and controlled.
• Sets framework that allows cost processes to be efficient and coordinated
  Includes:
  
  • Level of precision to which activity cost estimates will be rounded up or down
    Variance thresholds for monitoring cost performance used to indicate an agreed-upon allowable amount of variation before some action needs to be taken

Question 8

What is estimate costs?

Answer 8

• One of the most important parts of project planning
• Process of developing an approximation of the cost of resources needed to complete project work.
• Let’s you consider details and features of project activities

Question 9

What is a cost estimate?

Answer 9

• A quantitative assessment of the likely costs for resources required to complete the activity
• Made for all resources such as labor, materials, services, etc
• Expressed in units of currency, or sometimes other UOM like hours/time
• Accounts for contingency amounts to account for identified risks and mgmt reserves for unplanned work
• Estimates should include the “root”, the method, and the assumed accuracy

Question 10

Describe progressive elaboration in terms of Cost Management, and ROM

Answer 10

• Scope becomes clearer and estimates will be more accurate as the project progresses
• The rough order of magnitude (ROM) is an estimate of costs provided in the early stages of a project when scope and requirements are not fully defined.
  • May have larger range initially than in the later stages of the project

Question 11

What is Analog estimating in terms of cost management?

Answer 11

A technique for estimating the duration or cost of an activity or a project using historical data from a similar activity or project.
- Frequently used to estimate project costs when there is limited information
- Less-costly, not the most accurate
Uses ratios comparing the size of the previous work to the size of the current work, then multiplies the cost of the previous project by the ratio

Question 12

What is Parametric Estimating?

Answer 12

• Uses a statistical relationship between historical data and other variables to calculate an estimate for activity parameters
  • Sq footage in construction
• # of units is multiplied by the cost per unit to derive a cost estimateProduces a higher level of accuracy depending on the accuracy + sophistication of data

Question 13

What is bottom up estimating?

Answer 13

• Takes detailed estimates at the work package level, to determine the most accurate estimate possible
  • Estimate the cost of work packages or activities to the greatest level of detail
  • Roll up costs to higher levels for reporting/tracking

Question 14

What is three point estimating?

Answer 14

• Used to account for uncertainty in cost estimates
  • Most Likely (cM) estimate
  • Optimistic (cO) estimate based on analysis of the best case scenario
  • Pessimistic (cP) estimate based on analysis of the worst case scenario

Question 15

What is Triangular distribution and when to use it?

Answer 15

Type of 3 point estimating.
• cE = (cO + cM + cP)/3
Use when there is insufficient historical data

Question 16

What is Beta Distribution and when to use it?

Answer 16

Type of 3 point estimating.
• cE =(cO + 4cM + cP)/6
• Used when 1+ scenario’s is more likely to occur
Provides a weighted average

Question 17

What is the key benefit of determining the budget?

Answer 17

determining the cost baseline against which project performance can be monitored and controlled

Question 18

What is the difference between the project budget and the cost baseline?

Answer 18

Project Budget = all funds authorized to execute the project

Cost Baseline = approved version of the time-phased project budget that includes contingency reserves but excludes mgmt reserves
Projects can have multiple cost baselines

Question 19

What is needed to efficiently control costs, blue sky?

Answer 19

• Analyzing the relationship between consumption of funds and work being accomplished
• Knowledge of actual costs spent to date

Question 20

What does it say about the project if funds are being consumed too slowly or quickly?

Answer 20

Slowly - might be a bad thing, work might not be progressing or being finished in certain areas
Fast - change request needs to be submitted to increase/reallocate the budget item

Question 21

What do significant deviations from the cost baseline result in?

Answer 21

• Modifying the scheduling of the project
• Introducing an additional risk
• Reducing scope through configuration or change management
• Other project modifications

Question 22

What is trend analysis?

Answer 22

• Examines project performance over time to determine if performance is improving or deteriorating
• Can involves charts and forecasting
• 3 parameters of Earned Value Mgmt (EV/PV/AC) can be represented by lines on a chart, with cost/time on X/Y
• Different ways to forecast based on various risk scenarios

Question 23

What is Reserve Control?

Answer 23

• Used to monitor the status of contingency and mgmt reserves, and determines if the reserves are still needed, or if more are needed
• Part of trend analysis
• Uses To-complete Performance index

Question 24

Explain the “To-complete performance index”

Answer 24

• It is a measure of cost performance, required to be achieved with the remaining resources to meet specified goals.
• Expressed as the ratio of the Cost to Finish the outstanding work to the remaining budget
• The equation is based upon BAC:
  TCPI = (BAC-EV)/(BAC-AC)

Question 25

What is Variance analysis?

Answer 25

- Collects and assembles information on project performance - Used in EVM - Explanation - cause, impact, corrective actions - for cost, schedule, and quality variance at completion

Question 26

What are the typesof Variance Analysis?

Answer 26

``` Cost Variance: CV = EV - AC Schedule Variance: SV = EV - PV Variance At Completion: VAC = BAC - EAC Schedule Performance Index: SPI = EV/PV Cost Performance Index: CPI = EV/AC ```

Question 27

What is Earned Value Analysis (EVA)? - explanation - what does it forecast? - 3 dimensions

Answer 27

- Shows the health of the project by integrating scope, schedule, and cost - Specific mathematical metrics - Compares the performance measurement baseline to the actual schedule and cost performance - Reported for both the current reporting period and cumulatively - Forecasts: • Total cost of the project at completion • The efficiency required to complete the project - Three key dimensions • Planned Value (PV) Authorized budget assigned to scheduled work. Sometimes referred to as the Performance Measurement Baseline (PMB) • Earned Value (EV) Measure of work performed until a specific date. Expressed in Monetary value obtained for work performed. Needs to related to the PMB. Cannot be greater than the authorized PV Budget. Often used to calculate the percent complete of a project • Actual Cost (AC) Budget spent until a specific date for the work performed until that date. The total cost incurred in accomplishing the work that the EV measured

Question 28

What does work performance data contain in relation to cost?

Answer 28

Data on project status such as which costs have been authorized, incurred, invoiced, and paid

Question 29

What is "work Performance Information?"

Answer 29

- Includes information on how the project work is performing compared to the cost baseline. - Includes equations and mathematics, including these two key values: • Budget at Completion - BAC: total budget allocated to the project • Estimate at completion - EAC: expected total cost of completing all work expressed. EAC = AC (Actual Cost) + ETC (Estimate to Complete)