Pmp - Cost Management (Crowe / Mulcahy)

Front 1

What is the philosophy behind Cost Management?

Back 1

Costs should be planned, quanitified, and measured. The project manager should tie costs to activities and resources and build the estimates from the bottom up.

Front 2

What is Life-Cycle Costing?

Back 2

It looks at the total cost of ownership from purchase or creation, through operations, and finally to disposal (TCO).

Front 3

What is Value Engineering?

Back 3

It is the practice of trying to get more out of the project in every possible way. It tries to increase the bottom line, decreases costs, improve quality, shorten the schedule, and generally squeeze more benefit & value out of each aspect of the project.

Front 4

What are the Processes & Related Process Groups in Cost Management?

Back 4

• Plan Cost Management (Planning)
  
• Estimate Costs (Planning)
• Determine Budget (Planning)
• Control Costs (Monitoring & Controlling)

Front 5

What is the Plan Cost Management Process?

Back 5

It is the process that creates the plan that will guide & direct activities in the other three cost management processes.

Front 6

Why is the Plan Cost Management Process Important?

Back 6

It gives guidance to the other cost management processes.

Front 7

When is the Plan Cost Management process performed?

Back 7

After scope activities, time & schedule activities are completed.

Front 8

What are the inputs to the Plan Cost Management process?

Back 8

• Project Management Plan
• Project Charter
• Enterprise Environmental Factors
• Organizational Process Assets
  

Front 9

What tools & techniques are used in Plan Cost Management?

Back 9

• Expert Judgement
• Analytical Techniques
• Meetings

Front 10

What is ROI?

Back 10

Return on Investment - A technique to measure the potential profitability of an investment by calculating the benefits received in relation to cost.

Front 11

What is Discounted Cash Flow?

Back 11

A technique to estimate the attractiveness of an investment by predicting how much money will be received in the future & discounting it to its current value.

Front 12

What are the outputs of Plan Cost Management?

Back 12

Cost Management Plan

Front 13

What is the Cost Management Plan?

Back 13

Also known as the Budget Management Plan or Budget Plan - it requires thinking in advance about how you will manage costs.

Front 14

What are other terms for Cost Management Plan?

Back 14

• Budget Management Plan
  
• Budget Plan
  

Front 15

What is the Estimate Costs process?

Back 15

It is the process that evaluates the activity time estimates & the resource estimates associated with them to produce a cost estimate.

Front 16

Why is Estimate Costs important?

Back 16

You gain a detailed understanding of the costs involved in performing the project.

Front 17

When is Estimate Costs performed?

Back 17

After the project's schedule is created. May be performed over & over again throughout the project.

Front 18

What are the three types of estimating?

Back 18

• Rough Order of Magnitude Estimate
• Budget Estimate
• Definitive Estimate

Front 19

What is a Rough Order of Magnitude Estimate?

Back 19

Typically made during project initiating.

Ranges from -25% to +75%

Front 20

What is a Budget Estimate?

Back 20

Typically made during planning.

Ranges from -10% to +25%

Front 21

What is a Definitive Estimate?

Back 21

Typically refined as the project progresses.

Can range from -10% or -5% to +10%

Front 22

What are the Inputs to Estimate Costs?

Back 22

• Cost Management Plan
• Human Resource Management Plan
• Scope Baseline
• Project Schedule
• Risk Register
• Enterprise Environmental Factors
• Organizational Process Assets

Front 23

What are the Tools used in Estimate Costs?

Back 23

• Expert Judgement
• Analogous Estimating
• Parametric Estimating
• Bottom-Up Estimating
• Three-Point Estimating
• Reserve Analysis
• Cost of Quality (COQ)
• Project Management Software
• Vendor Bid Analysis
• Group Decision-Making Techniques

Front 24

What is Analogous Estimating?

Back 24

It uses the actual results of projects that have been performed by your organization as the estimates for your activities.

Typically easier to use but their accuracy depends on how similar the two projects actually are.

Front 25

What is Parametric Estimating?

Back 25

It is often used for projects with a high degree of historical information & works best for linear, scalable projects (i.e. if it costs $4M to build 1 mile of road then it costs $32M to build 8 miles)

Front 26

What is Bottom-Up Estimating?

Back 26

Produces a separate estimate for each activity and then aggregates all the activities up to summary nodes on the WBS.

Front 27

What is Three-Point Estimating?

Back 27

It's the same process used in Estimate Activity Durations.

Front 28

What is Reserve Analysis?

Back 28

The process of analyzing the reserve amounts (contingency) to ensure the amount of reserve being planned properly reflects the risk associated with the project.

Front 29

What is Cost of Quality (COQ)?

Back 29

Looking at all the costs that will be realized in order to achieve quality.

Front 30

What are the costs that should be estimated?

Back 30

• Cost of quality efforts
• Cost of risk efforts
• Cost of the Project Manager's time
• Costs of project management activities
• Costs directly associated with the project, including labor, materials, training for the project, computers, etc.
• Expenses for physical office spaces used directly for the project
• Profit, when applicable
• Overhead costs, such as management salaries & general office expenses

Front 31

What are the types of costs?

Back 31

• Variable or Fixed
• Direct or Indirect

Front 32

What are Variable Costs?

Back 32

These costs change with the amount of production or the amount of work. Examples: material, supplies, wages.

Front 33

What are Fixed Costs?

Back 33

These costs do not change as production changes. Examples: set-up, rent, utilities, etc.

Front 34

What are Direct Costs?

Back 34

These costs are directly attributable to the work on the project. Examples: team travel, team wages, recognition, costs of material used on the project.

Front 35

What are Indirect Costs?

Back 35

They are overhead items or costs incurred for the benefit of more than one project. Examples: taxes, fringe benefits, janitorial services

Front 36

What are the Outputs of Estimate Costs?

Back 36

• Activity Cost Estimates
• Basis of Estimates
• Project Documents Updates

Front 37

What is the Determine Budget Process?

Back 37

It is the process of putting the estimated costs into time-phases so that the performing organization will know how to plan for cash flow & likely expenditures.

It calculates the total cost of the project in order to determine the amount of funds the organization needs to have available for the project.

Front 38

Why is the Determine Budget Process important?

Back 38

A good baseline will help the organization plan its expenditures appropriately and will prevent the organization from tying up too much money throughout the life of the project.

Front 39

When is Determine Budget performed?

Back 39

Should be performed after Define Activities, Estimate Activity Durations, Estimate Activity Resources, Develop Schedule, and Estimate Costs have been performed.

Front 40

What are the Inputs to Determine Budget?

Back 40

• Cost Management Plan
• Scope Baseline
• Activity Cost Estimates
• Basis of Estimates
• Project Schedule
• Resource Calendars
• Risk Register
• Agreements
• Organizational Process Assets

Front 41

What are the Tools & Techniques used in Determine Budget?

Back 41

• Cost Aggregation

• Reserve Analysis

• Expert Judgement

• Historical Relationships

• Funding Limit Reconciliation

Front 42

What are the different pieces that make up the Cost Budget & Cost Baseline?

Back 42

1. Activity Estimates -> rolls up to...
   
2. Work Package Estimates -> rolls up to...
   
3. Control Account Estimates -> rolls up to...
4. Project Estimates -> added to...
5. Contingency Reserves -> to create the...
6. Cost Baseline -> added to...
7. Management Reserves -> to create the...
8. Cost Budget

Front 43

What are the Outputs from Determine Budget?

Back 43

• Cost Baseline
• Project Funding Requirements
• Project Documents Updates

Front 44

What is the Control Costs Process?

Back 44

To monitor & address cost variance.

Front 45

What are the two most important things to remember about controlling costs?

Back 45

1. Monitoring & Controlling is proactive.
2. Controlling processes measure what was executed against what was planned.

Front 46

Why is the Control Costs Process important?

Back 46

It is an essential process for ensuring that costs are carefully monitored & controlled.

Front 47

When is Control Costs performed?

Back 47

Throughout the project, typically beginning as soon as project costs are incurred.

Front 48

What are the Inputs to Control Costs?

Back 48

• Project Management Plan
• Project Funding Requirements
• Work Performance Data
• Organizational Process Assets

Front 49

What are the Tools & Techniques used in Control Costs?

Back 49

• Earned Value Management
• Forecasting
• TCPI (To Complete Performance Index)
• Performance Reviews
• Project Management Software
• Reserve Analysis

Front 50

What is Reserve Analysis?

Back 50

It is analyzing whether the contingency reserves are still necessary or whether new reserves are required.

Front 51

What is TCPI?

Back 51

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

Front 52

What is PV (in Controlling Costs)?

Back 52

Planned Value

Front 53

What does PV tell you?

Back 53

As of today, what is the estimated value of the work planned to be done?

Front 54

What is EV?

Back 54

Earned Value

Front 55

What does EV tell you?

Back 55

As of today, what is the estimated value of the work actually accomplished?

Front 56

What is AC?

Back 56

Actual Cost (Total Cost)

Front 57

What does AC tell you?

Back 57

As of today, what is the actual cost incurred for the work accomplished?

Front 58

What is BAC?

Back 58

Budget at Completion (the budget)

Front 59

What does BAC tell you?

Back 59

How much did we BUDGET for the TOTAL project effort?

Front 60

What is EAC?

Back 60

Estimate at Completion?

Front 61

What does EAC tell you?

Back 61

What do we current expect the TOTAL project to cost (a forecast)?

Front 62

What is ETC?

Back 62

Estimate to Complete

Front 63

What does ETC tell you?

Back 63

From this point on, how much MORE do we expect it to cost to finish the project (a forecast)?

Front 64

What is VAC?

Back 64

Variance at Completion

Front 65

What does VAC tell you?

Back 65

As of today, how much over or under budget do we expect to be at the end of the project?

Front 66

What is CV?

Back 66

Cost Variance

Front 67

What is the formula for CV?

Back 67

EV - AC

Front 68

What does CV tell you (positive / negative)?

Back 68

NEGATIVE is over budget

POSITIVE is under budget

Front 69

What is SV?

Back 69

Schedule Variance

Front 70

What is the formula for SV?

Back 70

EV - PV

Front 71

What does SV tell you (positive & negative)?

Back 71

NEGATIVE is behind schedule

POSITIVE is ahead of schedule

Front 72

What is CPI?

Back 72

Cost Performance Index

Front 73

What is the formula for CPI?

Back 73

EV / AC

Front 74

What does CPI tell you?

Back 74

We are getting $___ worth of work out of every $1 spent.

MORE than 1 is good

LESS than one is bad

Front 75

What is SPI?

Back 75

Schedule Performance Input

Front 76

What is the formula for SPI?

Back 76

EV / PV

Front 77

What does SPI tell you?

Back 77

We are (only) progressing at ____ % of the rate originally planned.

MORE than 1 is good

LESS than 1 is bad

Front 78

What is EAC?

Back 78

Estimate at Completion

Front 79

What does EAC tell you?

Back 79

As of now, how much do we expect the total project to cost (in $)

Front 80

What formula should you use for EAC when the original estimate was fundamentally flawed?

Back 80

AC + Bottom-Up ETC

Actual Costs to date plus the new estimate for the remaining work.

Front 81

What formula should you use for EAC if no variances from the BAC have occurred or you will continue at the same rate of spending?

Back 81

BAC / CPI^C

Front 82

What formula should you use for EAC if the current variances are thought to be atypical of the future?

Back 82

AC + (BAC - EV)

Essentially it's Actual Costs + the remaining value of work to perform

Front 83

What formula should you use for EAC if the current variances are thought to be typical of the future & when the project schedule constraints will influence the completion of the remaining effort?

Back 83

AC + ((BAC - EV) / (CPI^C x SPI^C)

Calculates actual to date plus the remaining budget modified by performance.

Front 84

What is TCPI?

Back 84

What is To-Complete Performance Index

Front 85

What does TCPI tell you?

Back 85

It answers the question: "In order to stay within budget, what rate must we meet for the remaining work?"

Front 86

What is the formula for TCPI?

Back 86

(BAC - EV) / (BAC - AC)

Divides the work remaining to be done by the money remaining to fund it.

Front 87

What does TCPI tell you (positive / negative)?

Back 87

GREATER than 1 is bad

LESS than 1 is good

Front 88

What is ETC?

Back 88

Estimate to Complete

Front 89

What does ETC tell you?

Back 89

How much more will the project cost?

Front 90

What is the formula for ETC?

Back 90

EAC - AC

Front 91

What is another way to determine ETC (without the formula)?

Back 91

Re-estimate the remaining work from the bottom up.

Front 92

What is VAC?

Back 92

Variance at Completion

Front 93

What is the formula for VAC?

Back 93

BAC - EAC

Front 94

What does VAC tell you?

Back 94

How much over or under budget will we be at the end of the project?

Front 95

What are the KEY things to know about CV, SV, CPI, SPI?

Back 95

• EV comes first in each of these formulas
  
• If it is a variance, the formula is EV minus something
• If it is an index, the formula is EV divided by something
• If the formula relates to cost, the formula uses AC
• If the formula relates to schedule, the formula uses PV
• For variance interpretation: negative is bad, positive is good
• For indices interpretation: greater than one is good, less than one is bad

Front 96

What are the Outputs of Control Costs?

Back 96

• Work Performance Information
  
• Cost Forecasts
  
• Change Requests
  
• Project Management Plan Updates
  
• Project Documents Updates
  
• Organizational Process Assets Updates
  

Front 97

What is the formula for PV?

Back 97

Planned % Complete x BAC