5 Cost

Front 1

Is it better to work from bottom up or top down when performing cost mgt?

Back 1

"bottom up. Adjustmusts to the project scope, the budget, or the schedule are much easire to justify by working up from a detailed level instead of top down. Although summary budgets are often the frist thing created in the real world, when it comes to detailed planning, the overall approach advocated here is scope first, schedule second, and budget third."

Front 2

Life cycle costing

Back 2

"Instead of simply asking ""how much will this product cost to develop"", life cycle costing looks at the total cost of ownership from purchase or creation, through operations and finally to disposal. It encourages making decisions based on the bigger picture of ownership costs. For example, it may be less expensive for the project to use generic servers to develop a software porduct; however, if the org will have to maiintain those servers, and if that org has existing service contracts with IBM servers, then the project may be making a short sighted decision with adverse effects downstream"

Front 3

Value Engineering

Back 3

"The practice of trying to get more out of the project in every possible way. It tries to increase the bottom line, decrease costs, imporve quality, shorten the schedule, and generally squeeze more benefit and value out of each aspect of the project. The key to value engineering is that the scope of the work is not reduced by these other efforts."

Front 4

List the 3 processes of Cost Mgt as well as their main outputs

Back 4

"- Estimate Cost/output: Activity cost estimates; - Determine Budget/output: Cost Perf Baseline, Funding Requirements; - Control Costs/output: Work Perf Measures, Budget Forecasts"

Front 5

What is done during Estimating Costs process (within Cost Mgt)

Back 5

"Each schedule activity is analyzed to evaluate the activity time estimates and the resource estimates associated with them, and a cost estimate is produced."

Front 6

When is Estimating Costs process performed (within Cost Mgt)

Back 6

"Costs are estimated against schedule activities, so the project's schedule has to created first. Define Scope>Create WBS>Define Activities>Estimate Activity Resources>Estimate Activity Durations>Estimate Costs"

Front 7

Is the Estimating Costs process performed only once?

Back 7

"No. This process, like many others, may be performed over and over again throughout the budget."

Front 8

List the 5 Estimate types and their ranges

Back 8

Order of Magnitude Estimate: -50% to +100%; - Conceptual Estimate: -30% to +50%; Preliminary Estimate: -20% to +30%; Definitive Estimate: -15% to +20%; Control Estimate: -10% to +15%

Front 9

When is it common to use the the Order of Magnitude Estimate

Back 9

"Range -50% to +100%; Initiation of project. Typically, the closer in time you actually get to spending money for an activity, the more precise you want the activity's estimate to be. Order from least detail to most detailed: Order of Mag, Conceptual, Preliminary, Definitive, Control Estimate"

Front 10

List the inputs to the Estimate Costs process (w/in Cost Mgt)

Back 10

Scope Baseline; - Project Schedule; - Human Resource Plan; - Risk Register; - Enterprise Environmental Factors; Organizational Process Assets

Front 11

Significance of Scope Baseline as an input for the Estimate costs process

Back 11

"The project scope statement, created earlier in the Define Scope, ties each element of the scope back to the underlying need it was designed to address. Also, the project scope statement provides info on contraints and assumptions related to the scope, and these can dramatically affect the cost estimates."

Front 12

Which document can you find constraints and assumptions?

Back 12

Project Scope Statement; These can dramatically affect the cost estimates

Front 13

Significance of Project Schedule as an input for the Estimate costs process

Back 13

"Cost estimates are largely a function of activty duration and resources required. The schedule contains all of the activities, but there may be additional ways in which the schedule can affect cost estimates. For example, certain types of seasonal materials or labor may be more expensive at some times than others, and the schedule can help the project team anticipate that impact."

Front 14

Significance of Human Resource Plan as an input for the Estimate Costs process.

Back 14

"Information on why types of resources will need and how the project will be procuring them can affect the cost estimates. For example, if the organization is required to staff project reources from a particular vendor, that will have a direct impact on the associated activity costs."

Front 15

List the tools used for the Estimate Costs process

Back 15

Analogous Estimating; Parametric Estimating; Bottom-Up Estimating; Three-Point Estimates; Reserve Analysis; Cost of Quality; Project Management Estimating Software; Vendor Bid Analysis

Front 16

Significance of Analogous Estimating as a tool for the Estimate Costs process

Back 16

"It uses the actual results of projects that have been performed by your org as the estimates for your activities. Analogous estimates are typically easier to use, and their accuracy depend on how similar the two projects actually are."

Front 17

What types of project often use Parametric estimating as a tool for estimating costs?

Back 17

"Projects with a high degree of historical info, and it works best for linear, scalable projects. Example, if you knew it cost 4mil to build a mile of roadway, then you would estimate that it would cost 32 mil to build 8 miles of road."

Front 18

What are the pros and cons of using bottom up estimating as a tool for estimating costs process?

Back 18

Pros: highly accurate; Cons: time consuming and labor intensive

Front 19

Significance of Bottom up Estimating as a tool for the Estimate Costs process

Back 19

It produces a separate estimate for each scheduled activity. These individual estimates are then aggregated up to summary nodes on the WBS. Pros: highly accurate; Cons: time consuming and labor intensive

Front 20

Significance of Reserve Analysis as a tool for the Estimate Costs process

Back 20

"It is normal for the cost estimates that will be produced as a result of this process to include reserve amounts, also called contingency. This is simply a buffer against slippage on the project. The reserve amounts should be analyzed as part of the Estimate Costs process simply to ensure that the amount of reserve being planned properly reflects the risk associated with the project."

Front 21

Significance of Cost of Quality as a tool for the Estimate Costs process

Back 21

"The technique of evaluating the COQ, looks at all of the costs that will be realized in order to achieve qualtiy. This tools is also used in the Quality Planning process. The costs of items that are not conformant to quality standards are known as cost of poor quality, COpQ"

Front 22

List the outputs of the Estimate Costs process

Back 22

Activity Cost Estimates; - Basis of Estimates; - Project Document Updates

Front 23

Significance of Basis of Estimate as a output for the Estimate Costs process

Back 23

You can never have too much supporting detail. It is important to include enough info on how you derived the activity cost estimates.

Front 24

"What is a budget, and what does it do?"

Back 24

"A budget, aka cost performance baseline, takes the estimated project expenditures and maps them back to dates on the calendar. In other words, the Determine Budget process time phases the the costs so that the performing org will know how to plan for cash flow and likely expenditures."

Front 25

Why is a good cost performance baseline important?

Back 25

"Aka budget. It will help the org plan their expenditures appropriately and will prevent the org from tying up too much money throughtout the life of the project. For instance, a construction project may have relatively low costs early on, but these costs may rise dramatically in the construction phase. The cost performance baseline will reflect this, thus helping the org to plan accordingly."

Front 26

When is the Determine Budget process performed?

Back 26

"b/c the budget typically maps back to schedule activities, it should be performed after Define Activities, Estimate Durations, and Estimate Resources. Additionall, because the cost performance baseline is time pahsed, it should be performed after Develop schedule, and since it is based on the activity cost estimates, it should be performed after the process of estimate costs."

Front 27

List the inputs for the Determine Budget process?

Back 27

"Activity Cost Estimates, Basis for Estimates, Scope Baseline, Project Schedule, Resource Calendars, Contracts, Organizational Process Assets"

Front 28

Significance of Scope Baseline as an input for the Determine Budget process.

Back 28

"The scope baseline contains the project scope statement, the WBS, and the WBS dictionary. All of these comprise the info on why the scope was set where it was, what its limits are, and what other scope-related constraints exist. For instance, certain elements of the scope may be nonnegotiable since they are required by contract, while other requirements may be easily changed. As the project's budget is bing created, the scope should be carefully considered. Also, the budget is not only mapped back to the schedule(that is time phased), but costs are also tied back to a node on the WBS, and the WBS dictionary will provide expanded attributes, info, and details on each of the work packages."

Front 29

Significance of Project Schedule as an input for the Determine Budget process.

Back 29

The performance cost baseline is time phased. The schedule helps tie these costs back to periods of time for planning processes.

Front 30

Significance of Contracts as an input for the Determine Budget process.

Back 30

"The contracts should provide info on what costs the project is contractually obiged to occur. For instance, the contract may specify that only a specific brand of computer server may be used in a data cnter, or that the project is obligated to use at least five of these servers. Any contractaul info that affects the cost should be factored inot the Determine budget process."

Front 31

List the tools used for the Determine Budget process.

Back 31

"Cost Aggregation, Reserve Analysis, Expert Judgment, Historical Relationships, Funding Limit Reconciliation."

Front 32

Significance of Cost Aggregation as a tool for the Determine Budget process.

Back 32

"Even though costs are estimated at an activity level, these cost estimates should be aggregated to the work package level where they will be measured, managed, and controlled during the project."

Front 33

Significance of Reserve Analysis as a tool for the Determine Budget process.

Back 33

"This tool is related to risk. Almost all projects maintain a finacial reserve to protect them against cost overrun. How much they keep, and how they track it vary from project to project. These buffers go by various names such as management reserve and contingency reserve. For instance, one project may decide to pad each activity cost estimate by 10% across the board, while another project may only pad the activities that are considered to be at highest risk for cost overrun. Still another project may add a total cost buffer of 20% as a lump sump to the entire project cost baseline"

Front 34

Significance of Expert Judgement as a tool for the Determine Budget process.

Back 34

"Good estimates should alwasys have some expert judgement applied. In most scenarios, the person doing the work or responsible for the activity should be consulted for input."

Front 35

Significance of Funding Limit Reconciliation as a tool for the Determine Budget process.

Back 35

"b/c companies typically operate on fiscal years, they are required to budget for projects long before the actual scope is known, and a single project may span several fiscal years. b/c of that, it is normal for a project to receive a funding limit or constraint as it begins. It is important for the project to reconcile planned spedning with these funding limit. For instance, the org may specify that they will only be able to provide $200,000 in the first month of a project, but $450K in the second moth. The project's cost baseline ultimately needs to be compatible with these limitations."

Front 36

List the outputs of the Determine Budget process.

Back 36

"Cost Performance Baseline, Project Funding Requirements, Project Document Updates"

Front 37

Significance of Cost Performance Baseline as an output of the Determine Budget process

Back 37

"aka budget. It not only species what costs will be incurred, but when it will be incured. Larger projects may be divided into multimple cost bselines. For instance, once cost baseline may track domestic labor costs, another may track international labor costs. In traditional projects, the funding forms an S curve, meaning that the costs start off slowly, accelerate throughout construction phase of the project, and begin to slow down during testing and closure. When analyzed cumatively, it forms a S pattern."

Front 38

What is typical of large project budgets.

Back 38

"Larger projects may be divided into multimple cost bselines. For instance, once cost baseline may track domestic labor costs, another may track international labor costs."

Front 39

What is the shape of the cost performance baseline in traditional projecs.

Back 39

"n traditional projects, the funding forms an S curve, meaning that the costs start off slowly, accelerate throughout construction phase of the project, and begin to slow down during testing and closure. When analyzed cumatively, it forms a S pattern."

Front 40

Significance of Project Funding Requirements as an output of the Determine Budget process

Back 40

"It would be impractical for most projects to petition mgt for authorization on each individual cost, so instead the project determines funding requirements. The cost baseline is used to determine the project funding requirements. The funding requirements are almost always related to the planned expenditures, but they are not identical to them. For instance, a project may request may request $20K per month througout the life of the project, or may require a large portion early on in order to purchase equipment or incur other fixed costs."

Front 41

What is the Control Costs process primarily concerned with?

Back 41

Cost Variance. Cost variances are either described as either being positive (good) or negative (bad). It is important to understand that even a positive cost variance needs to be understood and the paln must be adjusted. Accurate planning is paramount.

Front 42

Why is the control costs process important?

Back 42

It ensures that the cost stay on track and that change is detected whenever it occurs.

Front 43

What are two important things to keep in mind about controlling processes:

Back 43

"1. They are proactive. They don’t wait for changes to occur. They try to influence the facotrs that lead to change. 2. Controlling processes measure what was executred against what was planned. If the results of what was executed to not match the cost baseline, then appropriate steps are taken to bring the two back in line. This could either mean changing future plans or changing the way the work is being performed."

Front 44

When is the Control Costs process performed?

Back 44

"It is performed regularly throughout the project, typically beginning as soon as project costs are incured. Cost Control are usually performed with more frequency as project costs increase. For instance, many projects will perform Control Costs monthly during planning phases and weekly during construction phases, where costs typically peak."

Front 45

List the inputs of the Control Cost process?

Back 45

"Project Mgt plan, Project Funding Requirements, Work Performance Info, Organizational Process Assets"

Front 46

Significance of the Project Mgt Plan as an input for the Controlling Costs process.

Back 46

The cost performance baseline is the most important component of the pm plan used in control costs. A baseline is the original plan plus all approved changeds. The cost perf baseline (budget) shows what costs are projected and when they are projected to be incurred. The cost perf baseline is the plan against whciht eh actual costs are measured. Another important component of the pm plan is the cost mgt plan. This plan lays how how costs will be managed throughout the life of the project.

Front 47

Significance of the Project Funding Requirments as an input for the Controlling Costs process.

Back 47

"Like the pm plan which contains the cost baseline, this is also part of the plan which the actual funding is measured. Positive or negative variances from the planned funding requirements will be evaluated so that corrective action may be taken if necessary."

Front 48

List the tools used for the Control Costs Process.

Back 48

"Earned Value Measurement; Forecasting, TCPI, Performance Reviews, Variance Analysis, PM Software"

Front 49

Significance of the Earned Value Measurement as a tool for the Controlling Costs process.

Back 49

Earned Vlue is a method of measuring actual performance against the original plan. It can help identify areas where the project is differently than the plan. It would identify variances(scuh as CV) as well as trends (such as CPI) that directly influence the Control Costs process

Front 50

Significance of the Forecasting as a tool for the Controlling Costs process.

Back 50

It uses current and previous cost information to predic future costs. This focuses on the concepts of Estimate at Completion(EAC) and Estimate to Completion(ETC)

Front 51

Significance of the TCPI as a tool for the Controlling Costs process.

Back 51

It is an earned value concept that focuses on the performance needed in order to achieve your earned value targets.

Front 52

Significance of the Variance Analysis as a tool for the Controlling Costs process.

Back 52

"How will you handle variances is determined in the cost mgt plan (part of the overal pm plan). Positive variance is good, negative variance is bad, but even positive variances need to be analyzed and managed, and the cost baseline should be adjusteed to accurately reflect anticipated costs."

Front 53

List the outputs of Control Costs process

Back 53

"Work Performance Measurements, Budget Forecasts, Organizational Process Updates, Change Requests, Project Mgt plan updates, Project Document Updates."

Front 54

Significance of the Work Performance Measuremens as an output for the Controlling Costs process.

Back 54

"Work Performance Measurements show how the project is performing against the plan. For the process of Control Costs, the performance measurements of CV,SV, CPI, SPI, and CPIC are especially applicable, since they help show variances and trends on how the project is performing against the plan."

Front 55

Significance of the Budget Forecasts as an output for the Controlling Costs process.

Back 55

Budget forecasts are your projections for how much funding wil be needed and when it will be needed from this point forward in the project. The two values tha trelate most closely to completion are Estimate At Completion (EAC) and Estimate to Completion (ETC). These numbers are used to help forecast a likely completion for the project.

Front 56

Another way to help understand earned value.

Back 56

"Think of the concept of debits and credits. Foer every debit to one account, there is a corresponding credit to another account. Earned value is similar in that if you spend a dollar on labor for your project, that dollar doesn't evaporrate, you are earning that dollar's value back into your project."

Front 57

"You are the pm for the construction of 20 miles of sidewalk. According to your plan, the cost of construction will be $15K per mile and will take 8 weeks to complete. 2 weeks into the project, you have spent $55K and competed 4 miles of the sidewak, and you want to report performance and determine how much time and cost remain. Find the BAC"

Back 57

"Budget at Completion means ""how much we originally expected the project to cost. 20 miles * 15K = $300,000 = BAC"

Front 58

"You are the pm for the construction of 20 miles of sidewalk. According to your plan, the cost of construction will be $15K per mile and will take 8 weeks to complete. 2 weeks into the project, you have spent $55K and competed 4 miles of the sidewak, and you want to report performance and determine how much time and cost remain. Find the PV"

Back 58

"Planned Value aka Budgeted Cost of Work Schedule (BCWS) is how much work was planned for this point in time. PV = Planned % complete * BAC. BAC = $300K. 2 weks out of an 8 week schedule is 25%. (25% * $300K) = $75K = PV, we had planned to spend $75K after two weeks."

Front 59

BCWS

Back 59

aka PV ; Budgeted Cost of Work Scheduled

Front 60

BCWP

Back 60

aka EV; Budgeted Cost of Work Performed

Front 61

ACWP

Back 61

aka AC; Actual Cost of Work Performed

Front 62

"You are the pm for the construction of 20 miles of sidewalk. According to your plan, the cost of construction will be $15K per mile and will take 8 weeks to complete. 2 weeks into the project, you have spent $55K and competed 4 miles of the sidewak, and you want to report performance and determine how much time and cost remain. Find the EV"

Back 62

"Earned Value, aka (BCWP=budgeted cost of work performed) is how much work was actually completed during a given period of time. EV = Actual % Conmplete * BAC. We have completed 4 miles out of 20 which is 20%. $300K * 20% = $60K worth of work= EV. We have earned $60K of value for the project."

Front 63

"You are the pm for the construction of 20 miles of sidewalk. According to your plan, the cost of construction will be $15K per mile and will take 8 weeks to complete. 2 weeks into the project, you have spent $55K and competed 4 miles of the sidewak, and you want to report performance and determine how much time and cost remain. Find the AC"

Back 63

"Actual Cost, aka (ACWP=Actual Cost of work performed), is the amount of cost you have incurred at this point and we are told we have spendt $55K to date. AC= $55K."

Front 64

"You are the pm for the construction of 20 miles of sidewalk. According to your plan, the cost of construction will be $15K per mile and will take 8 weeks to complete. 2 weeks into the project, you have spent $55K and competed 4 miles of the sidewak, and you want to report performance and determine how much time and cost remain. Find the CV"

Back 64

"Cost Variance is how much actual costs differ from planned costs. CV=EV-AC. EV of $60K - AC of $55K = CV of $5K. A positive variance refelcts that the project is doing better on cost than expected. Conversely, a negative CV indicates that costs are running higher than planned."

Front 65

What does a negative CV mean

Back 65

Costs are running highter than planned.

Front 66

"You are the pm for the construction of 20 miles of sidewalk. According to your plan, the cost of construction will be $15K per mile and will take 8 weeks to complete. 2 weeks into the project, you have spent $55K and competed 4 miles of the sidewak, and you want to report performance and determine how much time and cost remain. Find the SV"

Back 66

Scheduled Variance is how much our schedule differs from our plan. This is expressed in dollars. SV = EV-PV. EV of $60K - PV of $75K = SV of -$15K. A negative variance reflects that we are not performing as well as we had hoped in terms of schedule. A positvie SV would indicate that the project is ahead of schedule.

Front 67

What does a positve SV mean?

Back 67

the project is ahead of schedule. SV=EV-PV

Front 68

"You are the pm for the construction of 20 miles of sidewalk. According to your plan, the cost of construction will be $15K per mile and will take 8 weeks to complete. 2 weeks into the project, you have spent $55K and competed 4 miles of the sidewak, and you want to report performance and determine how much time and cost remain. Find the CPI"

Back 68

"The cost performance index gives us an indicator as to how much we are getting for every dollar. It is derived by dividing Earned Value by the Actual Cost. CPI = EV/AC . EV=$60K and AC= $55K. 60/55=1.09=CPI. This tells us that we are getting $1.09 worth of performance for every $1 we expected. A CPI of 1 indicates that the project is exactly on track. values of 1 or greater are good, values of less than one are undesireable."

Front 69

"What does the CPI of 1 or greater mean, and what about less than one."

Back 69

"A CPI of 1 indicates that the project is exactly on track. values of 1 or greater are good, values of less than one are undesireable. CPI=EV/AC"

Front 70

"You are the pm for the construction of 20 miles of sidewalk. According to your plan, the cost of construction will be $15K per mile and will take 8 weeks to complete. 2 weeks into the project, you have spent $55K and competed 4 miles of the sidewak, and you want to report performance and determine how much time and cost remain. Find the SPI."

Back 70

"The schedule performance index tells us how fast the project is progressing compared to the project plan. It is derived by diving earned value by the planned value. SPI=EV/PV , $60K/$75K=SPI of 0.8. this tells us that the project is progressing at 80% of the pace that we expected it to. We had expected to lay 20 miles of sidewalk in 8 weeks. At that rate, after 2 weeks, we should have 5 miles done, but instead we have 4. That equates to 4/5 performance, which is 80%. Like CPI, values of 1 or greater are good, less than 1 are bad."

Front 71

"What does the SPI of 1 or greater mean, and what about less than one."

Back 71

"A SPI of 1 indicates that the project is exactly on track. values of 1 or greater are good, values of less than one are undesireable. SPI=EV/PV"

Front 72

What is a common way to track CPI and SPI

Back 72

Track it over time on a graph.

Front 73

"You are the pm for the construction of 20 miles of sidewalk. According to your plan, the cost of construction will be $15K per mile and will take 8 weeks to complete. 2 weeks into the project, you have spent $55K and competed 4 miles of the sidewak, and you want to report performance and determine how much time and cost remain. Find the EAC"

Back 73

"Estimate at Completion is the amount we expect the project to cost, based on where we are relative to cost and schedule. If you know that you are half way through the project, and you are currently 20% over budget, the the estimate at completion factors that variance out to the end of the project. EAC=BAC/CPI=$300K/1.09=275,229.36"

Front 74

"You are the pm for the construction of 20 miles of sidewalk. According to your plan, the cost of construction will be $15K per mile and will take 8 weeks to complete. 2 weeks into the project, you have spent $55K and competed 4 miles of the sidewak, and you want to report performance and determine how much time and cost remain. Find the ETC"

Back 74

"Estimate to completion is simply how much more we expect to spend from this point forward based on what we've done so far. It can be easily backed into by taking our estimate at complete (what we expect to spend) and subtracting what we have spent so far (Actual Cost). EAC of 275,229.36-AC of $55K = $220,229.36. This tell us that we expect to spend $220,229.36 more, given our performance so far. ETC=EAC-AC"

Front 75

"You are the pm for the construction of 20 miles of sidewalk. According to your plan, the cost of construction will be $15K per mile and will take 8 weeks to complete. 2 weeks into the project, you have spent $55K and competed 4 miles of the sidewak, and you want to report performance and determine how much time and cost remain. Find the VAC"

Back 75

"Variance at completion is the difference between what we originally budgeted and what we expect to spend. A positive variance indicates that we are doing better than budgeted, and a negative variance indicates that we expect the project to run over on costs. VAC=BAC-EAC=$300K-$275,229.36=$24,770.64"

Front 76

CPIc

Back 76

"Cumilative cost performance index. Recall that the regular CPI is simply EV/AC, the efficiency indicator of performance during a given period of time. The CPIc is simply all of the periodic earned value calculations added together (Evc) and divided by all of the periodic actual cost calculations added together. (ACc). CPIc=EVc/ACc. The monthly CPI only provides a snaphsot of your earned value performance at a point in time, but the cumulative CPI can show a number that factors in performance efficiency in all months up to a point in time. The cumulative CPI has been shown to be a good predictor of performance at completion, even when used very early in the project."

Front 77

Differnece between CPI vs CPIc

Back 77

" Recall that the regular CPI is simply EV/AC, the efficiency indicator of performance during a given period of time. The CPIc is simply all of the periodic earned value calculations added together (Evc) and divided by all of the periodic actual cost calculations added together. (ACc). CPIc=EVc/ACc. The monthly CPI only provides a snaphsot of your earned value performance at a point in time, but the cumulative CPI can show a number that factors in performance efficiency in all months up to a point in time. The cumulative CPI has been shown to be a good predictor of performance at completion, even when used very early in the project."

Front 78

TCPI (also expressed as TCPIc)

Back 78

"The To-Complete Performance Index is the performance is the performance which must be achieved on all remaining work in order to meet either financial or schedule goods. TCPI can come in two varieties: TCPIc for cost and TCPIs for schedule. TCPIc=(BAC-EV)/Remaining Funds. An important note, this breaks the general rule that an index of 1 is good and less than 1 is bad. Since this is looking at the performance of the project would need to achieve to end on target, a lower index is good, since it means that you cold underperform and still meet your target, while an index of greater than one is bad since you are essentially saying that you need to overperform against the plan in order to meet your estimates."

Front 79

Fixed Costs

Back 79

"Costs that stay the same throughout the life of a project. Example, heavy equipment such as a bulldozer"

Front 80

Variable Cost

Back 80

"Costs that vary on a project. Examples are hourly labor, and fuel for the bulldozer."

Front 81

Direct Costs

Back 81

Expenses that are billed directly to the project. An example is the material used to construct a building

Front 82

Indirect Costs

Back 82

"Costs that are shared and allocated among several or all projects. An example could be a manager's salary. His people might be direct costs on a project, but his salary is overhead and would be considered an indirect cost."

Front 83

Sunk Costs

Back 83

"Costs that have been invested into or expeneded upon the project. Sunk costs are like spilt miltk. If they are unrecoverable, they are to be treated as if they are irrelevant. ""we've spent over 10million dollars on this project and we're not turning back now"" is not good decision making if the costs are unrecoverable or ""sunk"""

Front 84

"1. Your schedule projected that you would reach 50% completion today on a road construction project that is paving 32 miles of new highway. Every 4 miles is scheduled to cost $5mil. Today, in your status meeting, you announced that you had completed 20 miles of the highway at a cost of $18mil. What is your planned value? A. $12.8 mil B. $18mil C. $20mil D. $40mil"

Back 84

"C. Planned value is calculated by multiplying the BAC by planned % complete. Our cost per mile is planned at $1,250,000($5mil/4miles), and our BAC is 32miles*$1,250,000/mile = $40mil. We plan to be 50% complete, therefore $40mil*.50=$20mil"

Front 85

"2. If the CPI is 0.1, this indicates: A. The project is performing extremely poorly on cost. B. The project is costing 10% over what was expected. C. The project is only costing 90% of what was expected. D. The project is performing extremely well on cost."

Back 85

A. The terrible cost performance index indicaes that we are getting 10 cents of value for every dollar we spent; thus the project is doing very poorly on cost performance.

Front 86

3. Activity cost estimates are used as an input into what process? A. Estimate Costs. B. Determine Budget. C. Analyze Costs. D. Control Costs.

Back 86

"B. Determine Budget takes the activity cost estimates and uses them(along with other inputs) to create a budget. 'A' is incorrect because Estimate Costs is the process that creates the activity costs, so it stands to reason that they should be an output and not an input. 'C' soundls like a deent guess, but it is not a real process. 'D' is incorrect becasue the process of Control Costs is not concerned with just the individual activity cost estimates. Instead, it uses inputs of the cost baseline."

Front 87

"4. Based on the following Benefit Cost Ratios, which project would be the best one to select? A. BCR= -1. B. BCR = 0 C. BCR =1 D. BCR =2"

Back 87

"D. With Benefit Cost Ratios, the bigger the better. BCR = benefit/cost, so the more the benefit, the less the cost, the higher the number."

Front 88

"5. The difference betwenn present value and net present value is: A. Present value is expressed as an interest rate, while net present value is expressed as a dollar figure. B. Present value is a measure of the actual present value, while net present value measures expected present value. C. Present value does not factor in costs. D. Present value is more accurate."

Back 88

"C. PV tells the expected value of the project in today's dollars. NPV is the same thing, but it subtracts the costs after calculating the PV."

Front 89

"6. your best cost estimate for an activity is $200K, but the estimate you document has a ranage of $100K to $400K. This ranged estimate represents a(n): A. Cost estimate; B. Budget estimate; C. Order of magnitude estimate. D. Variable Estimate."

Back 89

"C. Order of magnitude estimates are -50% to +100%. In this example, $100K and $400K are -50% to +100% of $200K."

Front 90

"7. Which of the following sequences is correct? A. Create WBS, tehn Determine Budget, then Estimate Costs. B. Create WBS, then Estimate Costs, then Determine Budget. C. Determine Budget, then Estimate Costs, then Create WBS. D. Estimate Costs, then Budget Costs, then Create WBS."

Back 90

"B. This is about inputs and outputs. Create WBS is performed first out of the three processes, and the output is WBS. The WBS is used as an input for the enxt process of the three, Estimate Costs, where the costs of the activities are estimated and aggregated back to theWBS. Fincally, the output of that process, the Activity Cost Estimates, is used as an input into Cost budgeting, which occurs last out of the three processes listed."

Front 91

8. One of your team members makes a change to the budget with your approval. In what process is he engaged? A. Plan Costs. B. Estimate Costs. C. Cost Mgt. D. Control Costs

Back 91

"D. The main clue here is ""change"". If they are making approved changes, they are in a control process. 'A' is not a real process. 'B' is incorrect since Estimate Costs is the process where the original estimates are developed anot not where they are updated. 'C' is the knowlege area"

Front 92

"9. After measuring expected project benefits, mgt has four projects from which to choose. Project 1 has a net present value of $100K and will cost $50K. Project 2 has a net present value of $200K and will cost $75K. Project 3 has a net present value of $500K and will cost $400K. Project 4 has a net present value of $125K and will cost $25K. Which project would be best? A. Project 1 B. Project 2 C. Project 3 D. Project 4."

Back 92

"C. NPV already has costs factored in, so they can be ignored here. The NPV is the only value you need to consider, and the bigger is better."

Front 93

"10. Your project office has purchased a site license for a computerized tool that assists in the task of cost estimating on a very large construction project for a downtown skscraper. This tools asks you for specific charactericstics about the project and then provides estimating guidance based on materials, construction techniques, historical info, and industry practices. This tool is an example of: A. Bottom up estimating. B. Paramentric modeling. C. Analogous estimating. D. Acivity duration estimating"

Back 93

"B. Parametric modeling is common in some industries, where you can describe a project in detail, and the modeling tool will help provide estimates based on historical info, industry standards, et."

Front 94

11. You are managing a project that is part of a large construction program. During the execution of your prject you are alerted that the construction of a foundation is expected to experience a serious cost overrun. What would be your FIRST course of action? A. Evaluate the cause and size of the overrun. B. Halt execution until the problem is solved. C. Contact the program manager to see fi additioanl funds may be relesed. D. Determin if you have sufficient budget reserves to cover the cost overrun.

Back 94

A. Your job as a pm is almost always to evaluate and understand first. Know what you are dealing with before you take action and don't accept anyone's word for it. Verify the info yourself.

Front 95

"12. If earned value=$10K, planned value = $8K and actual cost is $3K, what is the schedule variance? A. -$2K B. $2K C. $5K D. $-5K"

Back 95

B. Schedule Variance is calculated as EV-PV. $10K-$8K=$2K

Front 96

"13. Estimate to complete indicates: A. The total projected amount that will be spent, based on past performance. B. The projected remaining amount that wil be spent, based on past performance. C. The difference between what was budgeted and what is expected to be spent. D. The original planned completion cost minus the costs incurred to date."

Back 96

"B. The estimate to complete is what we expect to spend from this point forward, based on our performance thus far."

Front 97

"14. If a project has a CPI of .95 and an SPI of 1.01, this indicates: A. The project is progressing slower and costing more than planned. B. The proejct is progressing slower and costing less than planned. C. The project is progressing faster and costing more than planned. D. The project is progressing faster and costing less than planned."

Back 97

C. A schedule performance indext greater than 1 means that the project is progressing faster than planned. A cost performance index that is less than 1 means that the project is costing more than planned.

Front 98

"15. Project A would yield $100K in benefit. Project B would yield $250K in benefit. Because of limited resoureces, you company can perform only one of these. They elect to perfrorm Project B because of the higher benefit. What is the opportunity cost of performing Project B? A. -$150K B. $150K C. -$100K D. $100K"

Back 98

"D. Opportunity cost is simply how much benefit you are passing up. In this case, by choosing project B, you are forgoing $100K in expected benefit from project A, and that $100K represents the opportunity cost."

Front 99

"16. As a project manager, your BEST use fo the project cost baseline would be to: A. Meaure and monitor cost performance on the project. B. Track approved changes. C. Calculate team performance bonuses. D. Measure and report on variable project costs."

Back 99

A. The cost baseline is used to tract cost performance based on the orginal plan plus approved changes.

Front 100

17. The value of all work that has been completed so far is: A. Earned value B. Estimate at complete. C. Actual cost. D. Planned value

Back 100

A. Earned value is defined as the value of all work completed to this point.

Front 101

"18. If you have a schedule variance of $500, this would indicate: A. Planned value is less than earned vaue. B. Earned value is less than the estimate at complete. C. Actual cost is less than earned value D. The ratio of earned value to planned value is 5:1"

Back 101

"A. Schedule variance is calculated as earned value-planned value. In this case, schedule variance could only be positive if earned value is greater than planned value."

Front 102

"19. If budgeted at complete = $500, estimate to complete = $400, earned value = $100, and actual cost = $100, what is the estimate at complete? A. $0 B. $150 C. $350 D. $500"

Back 102

"D. The estimate at complete is what we expect to hae spent at the end of the project. I t is calculated by taking our budgeted at complete and divig it by our cost performance index. Stp 1 is to calculate our cost performance index. It is earned value/actual cost, and in this case, it equals 1. BAC is $500, and $500/1=$500. D is correct, indicating we are progressing exactly as planned. Note there are other ways to calculate EAC, and not all of them agree perfectly. Another way is EAC=AC +ETC, which yields $500 as well."

Front 103

"20. You have spent $322, 168 on your project to date. The program manager wants to know why costs have been running so high. You explain that the resource cost has been greater than expected and should level out over the next six months. What does the $322,168 represent to the program manager? A. Earned value B. Actual cost C. Planned value D. Cost Performance index"

Back 103

"B. Look at the first sentence "" you have spent $322,168.."" Actual cost is what you have spent to date on the project."