What is cost?
Something given up in exchange; costs are usually measured in monetary units like dollars.
What is project cost management?
The processes required to ensure that the project is completed within an approved budget.
List the cost management processes.
Planning cost management; estimating costs; determining the budget; controlling costs.
What is a control account, and what is a control threshold?
Control account: the WBS component used for project cost accounting, often with a unique accounting code. Control threshold: the variation allowed before action is needed, e.g. ±10% of the baseline cost.
Give the three types of cost estimates with their accuracy.
Rough order of magnitude (ROM): −50% to +100%. Budgetary: −10% to +25%. Definitive: −5% to +10%.
When is a ROM estimate done and why?
Very early in a project, or even before it officially starts (often 3–5 years before completion), to provide an estimate of cost for selection decisions.
What is a budgetary estimate used for?
To allocate money into an organization's budget (puts dollars in the budget plans); done early, 1–2 years out.
What is a definitive estimate used for?
It provides an accurate estimate, used for many purchasing decisions and for estimating final project costs; done later, less than 1 year out.
Name and define the three cost estimating tools.
Analogous (top-down): the actual cost of a previous, similar project. Bottom-up: estimate individual work items and sum them. Parametric modeling: project characteristics in a mathematical model.
What does determining the budget involve?
Allocating the project cost estimate to individual work items over time.
What is the main goal of cost budgeting, and what is a cost baseline?
To produce a cost baseline for measuring performance and funding requirements. A cost baseline is a time-phased budget used to measure and monitor cost performance.
What does project cost control include?
Monitoring cost performance; ensuring only appropriate changes are included in a revised cost baseline; informing stakeholders of authorized changes that affect costs.
What is earned value management (EVM)?
A project performance measurement technique that integrates scope, time, and cost data.
Define planned value (PV) and give its formula.
The portion of the approved total cost estimate planned to be spent on an activity during a given period (the budget). PV = BAC × % of work planned.
Define actual cost (AC).
The total of direct and indirect costs incurred in accomplishing work on an activity during a given period.
Define earned value (EV) and give its formulas.
An estimate of the value of the physical work actually completed. EV = original PV × RP, or EV = BAC × % of actual work completed.
What is the rate of performance (RP)?
The ratio of actual work completed to the percentage of work planned: RP = % of actual work completed / % of work planned.
How do you interpret cost variance and schedule variance?
CV = EV − AC: negative means the work cost more than planned. SV = EV − PV: negative means it took longer than planned.
How do you interpret the CPI?
CPI = EV / AC. Equal to 1: planned and actual costs equal; less than 1: over budget; greater than 1: under budget.
How do you interpret the SPI?
SPI = EV / PV. Equal to 1: on schedule; less than 1: behind schedule; greater than 1: ahead of schedule.
How are the estimate at completion and the estimated time to complete calculated?
EAC = BAC / CPI. Estimated time to complete = original time estimate / SPI.
On an earned value chart, what does an EAC point above and to the right of the BAC point mean?
The project is projected to cost more and take longer than planned.