Mis 448-Exam 3

Front 1

Cost Overrun

Back 1

The additional percentage or dollar amount by which actual costs exceed estimates.

Front 2

What is Cost?

Back 2

-something Given up in exchange
-measured in monetary amounts that must be paid to acquire goods and services.

Front 3

Percieved reasons for cost overruns

Back 3

1) unrealistic cost estimates that are based on unclear project requirements.

2) Many projects involve new technology or business processes.

Front 4

Project cost management

Back 4

The processes required to ensure that a project team completes a project within an approved budget.

Front 5

crucial phases of Project cost management

Back 5

-projects must be well defined, have accurate time, and cost estimates, and have a realistic budget.

Front 6

Three project cost management processes

Back 6

Estimating costs
Deteriing the budge
controlling costs

Front 7

Project cost management processes:
Estimating costs

Back 7

-Develop estimate of the costs of resources to complete the project.
-part of integration
-includes
-level accuracy of estimates
-variance thresholds for
monitoring cost performance
-Reporting formats, etc

Front 8

Project cost management processes:
Estimating costs (OUTPUTS)

Back 8

-Activity cost estimates
-basis of estimates,
-project document updates

Front 9

Project cost management processes:
Determining Budget

Back 9

-allocate the overall cost estimate to individual work items to establish a baseline for measuring performance.

Front 10

Project cost management processes:
Determining Budget (OUTPUTS)

Back 10

--cost performance baseline
-project funding requirements
-project document updates

Front 11

Project cost management processes:
Controlling

Back 11

involves controlling changes to the project budget.

Front 12

Project cost management processes:
Controlling (OUTPUT)

Back 12

-work performance measurements
-budget forecasts
-organizational process asset updates
-change requests
-project management plan updates

Front 13

Profits

Back 13

-Revenues minus expenditures
-increase profits by decreasing expenses or increasing revenues or both.

Front 14

Profit Margin

Back 14

the ratio of revenues to profit

Front 15

Life Cycle Costing

Back 15

creates a big picture view of the cost of a project throughout its lifecycle.
=accurate projection of a projects financial costs and benefits.

-considers the total cost of ownership/development plus support costs for a project.

Front 16

Costs that are usually forgotten when determining costs

Back 16

-cost of downtime
Includes, cost to bring the system back up, staff cost to make up for lost work in projection and direct and indirect lost revenue.

-not spending enough money in early phases of the projects lifecycle which affects the total cost of ownership.

Front 17

Cash Flow Analysis

Back 17

A method for determining the estmated annual costs and benefits for a project and the resulting annual cash flow.

Front 18

Reasons for cash flow analysis

Back 18

-to determinee the net present value
-helps to determine which projects to invest in so that they do not do too many projects at once so taht they can be supported.
-the year that estmates are based must be clearly defined.

Front 19

Tangible costs or benefits

Back 19

the costs or benefits that an organization can easily measure in dollars.

Front 20

Intangible costs or benefits

Back 20

costs or benefits that are difficult to measure in monetary terms.

-since intangible costs/benefits are hard to quantify, they are also harder to justify.

Front 21

Examples of intangible costs

Back 21

-Goodwill
-Prestige
-statements of improved productivity

Front 22

Direct Costs

Back 22

Costs that can be directly related to producing the products, and services of the project.

-eg wages that are directly attributed to a certain project

Front 23

Indirect Costs

Back 23

costs that are not directly related to the products or services of the project but are indirectly related to performing the project.

-eg paper towels

Front 24

Sunk Cost

Back 24

-Money that has been spent in the past
-do not consider sunk costs when determining whether or not to invest or continue a project.

-eg. keep funding a project htat is not making money.

Front 25

Learning curve theory

Back 25

when many items are produced repetitively, the unit cost of those items decreases in a regular pattern as more units are produced.

-helps estimate costs of project with large quanitites of items.

-also applies to the amount of timeto complete some tasks.

Front 26

Reserves

Back 26

the dollars included in a cost estimate to mitigate cost risk by allowing for future situations that are difficult to predict.

Front 27

Contingency reserves

Back 27

Money that is set aside to allow for future situations that may be partially planned for (known unknowns) and are included in the project cost baseline.

Front 28

Management reserves

Back 28

allow for future situations that arer unpredictable (unknown unknowns)

-eg a project manager calls in sick for two weeks.

Front 29

types of cost estimates (3 types)

Back 29

-rough order of magnitude (ROM) Estimate
-Budgetary estimate
-definitive estimate

Front 30

Rough Order of Magnitude (ROM) Estimate

Back 30

-provides and estimate of what a project will cost.
=AKA Ballpark estimate
-done early in a project or before its started.

-Provides estimate of cost for selection decisions

-used to help make project selection decisions

-Time frame=3+ years before project completion

-accuracy= -50% to +100% (50% below actual costs or 100% above)
for IT projects the difference is usually double.

Front 31

Budgetary Estimates

Back 31

Used to allocate money into an orgnaizations budget.

-Puts dollars in the budget plans

-usually developed at least 2 years into the future

-completed 1 to 2 years prior to project completion.

-accuracy=-10% to +25%

Front 32

Definative Estimate

Back 32

-Provides an accurate measure of project costs.

-provides details for purchases, estimates actual costs.

-used for making purchase decisions that require accurate estimates and for estimating final project costs.

-made 1 year or less prior to project completion

-most accurate of cost estimates

-accuracy=-5% to +10%

Front 33

Cost Estimates

Back 33

-usually done at various stages of a project and should become more accurate as time progresses.

-the number and type of cost estimates vary by application area.

-important to include supporting details for the estimates.

Front 34

what to include in supporting details for cost estimates

Back 34

-ground rules and assumptions
-descritpion of the project (scope, wbs,etc)
-details on teh cost estimation tools andd techniques used to create the estimate.

Front 35

cost management plan

Back 35

describes how the organization will manage cost variances on the project. (how it will respond to costs that are higher or lower than the estimates).

-part part of the overall project management plan

Front 36

Cost estimation tools and techniques

Back 36

-Analogous estimates (top-down estimates)
-bottom up estimates
-Parametric modeling
-cost of quality
-project management software
-vendor bid analysis
-reserve analysis

Front 37

analogous estimates (top down estimates)

Back 37

use the actual cost of a previous, similar project as the basis for estimating the cost of the current project.

-requres expert judgement

-less expensive

-least accurate

-groups preparing these must have expertise to determine whether certain parts of the proect will be more or less expensievethan analogous projects.

Front 38

bottom up estimates

Back 38

estimating individual work items or activiies and summing them to get a project total.

-activity based costing

-size of the individual owrk items and experience of estimators drive the accuracy

-smaller work items increased accuracy

-usually time intensive and more expensive to develop.

Front 39

Parametric modleing

Back 39

uses project characteristics (parameters) in a mathematical model to estimate project costs.

-most reliable when the historical information used to create the model is accurate, parameters are readily quantifiable and teh model is flexible intemrs of hte size of hte project.

Front 40

Other considerations when preparing cost estimates

Back 40

-how much to include in reserves
-cost of quality
-other cost estimating methods

Front 41

Problems with IT cost estimates

Back 41

-Estimates are done too quickly

-Lack of estimating experience

-Human Beings are biased toward underestimating

-Management desires accuracy

Front 42

why make sure estimates are accurate?

Back 42

management doesnt forget first estimate

never remembers how approved changes affect the estimate

neverending process to keep management informed about revised cost estimates.

it should be a formal process.

Front 43

Creating a cost estimate

Back 43

-gather as much information as possible.

-ask how the organization plans to use the estimate. if the basis for contract awards and performance reporting it should be a definitive estimate

-clarify the ground rules and assumptions for the estimate

-develop a cost model using the infomration in the assumptions.

-after approval then team can allocate costs for each month basedo nte hproject schedule and when the costs will be incurred. may also require that costs be itemized into budget categories.

Front 44

Determining the budget (developing the cost bugeting process)

Back 44

involves allocating the project cost estimate into individual work items over time

-based on activities in teh WBS

-Goal: produce a cost baseline for measuring project performance and project funding requirements. May result in project document updates eg modification of the scope statement

Front 45

Inputs of a budget

Back 45

-cost estimates
-basis of estimates
-scope of baseline
-project schedule
-resource calendars
-contracts
-organizational process assets

Front 46

Why understand the budget categories?

Back 46

Need to be able to collect data according to the categories

costs are tracked according to this information-accross this project and others and is used as a way to reduce costs. can also be used for legal and tax purposes.

Front 47

Cost baseline

Back 47

time phased budget taht managers use to measure and monitor cost performance.

Front 48

results of cost budgeting (OUTPUTS)

Back 48

-may result in updates to the cost management plan

-provides information for project funding requirements.

Front 49

Controlling project (includes)

Back 49

-monitoring cost performance

-ensuring that only appropriate project changes are included in a revised cost baseline

-informing stakeholders of authorized changes to the project taht will affect costs.


-part of the integrative change control process

Front 50

Controlling Project (INPUTS)

Back 50

-project management plan

-project funding requirements

-work performance data

-organizational process assets

Front 51

Controlling project (OUTPUTS)

Back 51

-work performance measurements

-budget forecasts,

-organizational process asset updates

-change requests

-project maanagement plan updates

-product document updates

Front 52

Performance review meetings

Back 52

-help to control costs because people are more likely to perform better when they must report them.

Front 53

Earned Value Management

Back 53

a project performance measurement technique that integrates scope, time, and cost data.

Front 54

What can managers measure with a performance baseline

Back 54

-how well the project is meeting scope, time, and cost goals.

-Enter the actual informaiton and then compare to the baseline

Front 55

Baseline

Back 55

the original project plan plus approved changes.

Front 56

Planned Value (PV)

Back 56

(Called the budget)-the portion of the approved total cost estimate planned to be spent on an activity during a given period.

Front 57

Actual Cost (AC)

Back 57

the total direct and indirect costs incurred in accomplishing work on an activity during a given period.

(the total cost of the project that was actually incurred)

Front 58

Earned Value (EV)

Back 58

An estimate of teh value of the physical work actually completed. Based on the original planed costs fo the project or activity to date.

Front 59

Rate of Performance (RP)

Back 59

an estimate of the value of the physical work actually completed. Based on hte original planned costs for the project or activity and the rate at with the team is completing the work on hte project to date.

(EG if 1/.2 of work is complete then RP =50%/100

Front 60

Calculation: EV

Back 60

EV=PV to date * RP

Front 61

Calculation: CV

Back 61

CV=EV - PV

Front 62

Calculation: Scheduled Variance (SV)

Back 62

SV=EV-PV

Front 63

Calculation: Cost Performance Index (CPI)

Back 63

CPI=EV/AC

Front 64

Calculation: Schedule performance index (SPI)

Back 64

SPI=EV/AC

Front 65

Calculation: Estimate at completion (EAC)

Back 65

EAC=BAC/CPI

Front 66

Calculation: Estimated time to complete

Back 66

Original time estimate/SPI

Front 67

Cost Variance:

Back 67

the earned value minus the actual cost.

-if (-) then cost of work is more than planned.

-if (+) then cost of work is less than planned.

Front 68

Schedule Variance

Back 68

the earned value minus the planned value.

- (-) means that it took longer than planned to perform the work.

-(+) means that it less time than planned to perform the work

Front 69

Cost Performance Index (SPI)

Back 69

the ratioof earned value to actual cost and can be used to estimate the projected cost of completing the project.

-1 to 100%, then planned and actual costs are as budgeted

-less than one or less than 100 % then it is over budget (PROBLEMS)

-over one or more than 100% then under budget

Front 70

Scheduled performance index (SPI)

Back 70

the ratio of earned value to planned value can be used to estimate teh projected time to complete the project.

-At 1 or 100% then at scheduled time

-Less than 1 or 100% then running behind schedule (PROBLEMS)

-Above 1 or 100% then running ahead of schedule.

Front 71

Estimate at completion (EAC)

Back 71

An estimate of what it will cost to cmplete the project based on perfromance to date.

Front 72

Budget at completion (BAC)

Back 72

the original total budget forhte project

Front 73

Why is earned value management used?

Back 73

its focus on tracking actual performance versus planned performance

the importance of percentage completion data in making calculations.

-tracking costs may be cumbersome
-Estimating % completion of tasks may produce misleading information.

Front 74

levels of portfolio management (5)

Back 74

1. Put all your projects in one database

2. Prioritize the prjects in your database

3. Divide your projects into two or three projects based on type of investment

4. Aautomate the repository

5. Apply modern portfoio theory, including risk-return tools that map project risk on a curve

Front 75

Benefits of Project Portfolio Management Software

Back 75

-Improved annual averaage project timeliness
-reduced IT mgt tiem spent on project status reporting
-Reduced IT mgt time spent on IT labor capitalization reporting
-Decreased time to achieve financial sign off for new IT projects.

Front 76

How are reserves used?

Back 76

They are funds that are set aside in case something happens and you have costs that you did not include in your original estimate.

Front 77

Learning curve theory

Back 77

states that when many items are produced repetitively, the unit cost of those items decreases in a regular pattern as more units are produced