| Process Group | PMBOK | Knowledge Area Process | Why? (inputs) | How? (tools and techniques) | What? (outputs) |
| Planning | 7.1 | Resource Planning |
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| Planning | 7.2 | Cost Estimating |
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| Planning | 7.3 | Cost Budgeting |
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| Controlling | 7.4 | Cost Control |
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1. Cost Estimating = Assembling and predicting project costs
2. Cost = cash value of project activity
3. BCWS = Planned Cost
4. ACWP = Actual Cost
5. BCWP = Budgeted Cost of Work Performed or EARNED VALUE )+( how much work is done)
6. Budget @ Completion (BAC) is what the total job is supposed to cost.
7. Estimates @ Completion (EAC) is what you expect the job to cost after some portion of the work has been completed.; EAC = (ACWP/BCWP) * BAC
8. Percent Completion = BCWP divided by BAC
9. Variance @ Completion (VAC) = BAC – EAC
10. Schedule Variance (SV) = BCWP – BCWS (negative is behind schedule)
11. SV % + (SV / BCWS) * 100 or [(BCWP – BCWS) / BCWS] * 100
12. BAC = Budget @ Completion or what job is supposed to cost or total budget
13. Cost Variance = over run CV = BCWP – ACWP
14. CV % = [CV / BCWP] * 100
15. Percent Over (positive) / under (negative) = [(ACWP – BCWP) / BCWP] * 100
16. Process Analysis = Development of performance indices = CPI and SPI
17. CPI = BCWP / ACWP ( means that $1 spent will generate)
18. SPI = BCWP / BCWS ( more than 1 is good)
19. Future Value (FV) = PV(1+r)n
20. Discount rate (DR) = 1 divided by (1 + Interest)
21. Break Even = Fixed Cost divided by contribution margin
22. Order of Magnitude = -25% to +75%
23. Budget Estimate = -10% to +25%
24. Definitive Estimate = -5% to +10%
25. Simple Interest I = P * R * T
26. ROI = (Net income + interest expense) – Average Assets
27. Straight Line Depreciation = (asset – residual) divided by life
28. Life Cycle cost = develop, procurement, and operational/maintenance
29. Material Cost = Transportation, storage, and shortages
30. Cost estimates can best be described as the process of assembling and predicaction costs of a project over its life cycle.
31. Cost forecasting can be best described as the process of developing the future trends along with the assessment of probabilities, uncertainties, and inflation that could occur during the project.
32. Cost budgeting is the process of establishing budgets, standards, and a monitoring system by which the investment cost of the project can be measured and managed.
33. Cost control is the process of gathering, accumulating, analyzing, monitoring, reporting and managing the costs of an on-going basis.
34. The WBS purpose is to describe the total program as a summation of the subdivided elements of the project.
35. Which type of cost estimate is the most accurate? Definitive estimate
36. What is an example of direct project cost? Cost of project materials.
37. Which of the following is not a tradeoff decision that must be made in the development of the project plan? The amount of profit vendors should make versus the profit other vendors have received in the past
38. Productivity is defined as the measurement of labor efficiency when compared to a baseline and the measure of the effectiveness of equipment.
39. Key factors that govern how an estimate is prepared are end use of the estimate, tools available, times available, and information available.
40. The purpose of the contingency money in the cost estimate is to provide funds to cover the uncertainties in the estimate within the defined scope and schedule and to cover unforeseen natural disasters.
41. The reason that cost management is so difficult is that many activities have never been done in the same manner and under the same environment or with the same project team members.
42. If the variable cost of producing a unit equals $100 per unit and all fixed costs are equal to $2500, what is the cost of producing ten extra units? $1,000
43. The project manager’s responsibilities for Cost Management include: evaluating the economic feasibility of a project establishing project budgets and cost tracking mechanisms, monitoring/managing costs as the project progress and reporting the project’s actual cost performance to management.
44. ROI is and economic evaluator that represents value added to the shareholder’s wealth.
45. Know how to indentify variable cost.
46. On what should project budget be based? Use the WBS to identify all project activities. Obtain the expected value cost estimates provided by the functional managers, costs that can be measured, tracked, and managed, use historical data from analogous projects.
47. Costs elements not typically found in a project’s budget include; capital equipment depreciation expenses.
48. A time-phased budget is useful for determining if an activity will complete on time and meet its budget. It is also useful for determining if a project will complete on time and meet the budget.
49. Variance analysis is used to interpret time phased budget/actual date.
50. Sunken costs are those costs already invested in the project that are not recoverable. It is usually not relevant to making financial decisions.
51. Accelerated forms of deprecation are double declining balance and sum of the years.
52. Cost management includes those processes that are required to maintain financial control of a project’s: economic evaluation, cost estimating and cost forecasting.
53. The techniques that can be used to determine the total income of a project compared to the total funds spent at any period in time are: ROI, NPV, and discounted cash flow.
54. Life cycle costing includes all costs within the total life of a project. These include: development, procurement, and operation/maintenance.
55. Managerial reserves are funds that are allocated and maintained for contingency reasons.
56. Benefit cost analysis is used as a project selection technique and to decide whether to end a project or continue with it.
57. Present value (PV) = the value in terms of today’s future cash flow.
58. Parametric Costs = using a statistical model to assist in preparing cost estimates.
59. Cost management must look at future cost projections, and the controls exercised over the estimates. There are these different cost estimates: Order of Magnitude, budgetary, and definitive, in order of increasing accuracy.
60. The reserve for cost variances from the plan due to inaccurate estimates or pricing and cost overruns is handled from the management reserves.
61. The reserve to accommodate cost for project work that was not included in the plan through error or oversight is the contingency allowance.
62. A cost control system is established by matching the needs to the work package. The direct mapping of the work package is accomplished via the establishing a Code of Accounts.
63. As the project nears completion and no large expenditures have been spent, the remaining contingency allowance dollars should be reduced to a percentage of remaining work.
64. Historical records are the best source of project information for costs, planning, etc.
65. In the earned value system, the status of the project is reported as BCWS = 100, ACWP = 110,
BCWP =95. The project is “behind schedule and overspent”.
66. The tool that best facilitates the pricing of a project by a structured decomposition of the total into individual elements of labor, material and equipment is the WBS.
67. The project manager has the best control of costs such as labor, materials, and equipment.
68. A method of encouraging early payment of invoices is to offer a discount for payment within a few days. The method”2/10, net 30” means that if the invoice is paid within 10 days, there is a two percent discount, if not, pay the invoice in full within 30 days. A $1,000 invoice if paid within two days, would save $20.
69. A financial audit is used to determine if a project is visible. A computer system is not an area that would be audited. The first audit is conducted at the end of the planning phase.
70. Cost increases are an important aspect of budgeting. The areas that usually have budget escalations are labor rates, materials, and interest rates.
71. Know and understand the cumulative cost curve.
72. Variance = Planned – Actuals
73. Opportunity costs = costs of not pursuing a course of action.
74. Control is the process whereby the project manager determines the degree to which the project plan is being met with a focus on schedule, budget, and resources. In reality, managing the specifications, project variances and customer satisfaction.
COST FORMULAS QUICK REFERENCE SHEET
1. Simple interest rate calculations; Interest = Principal * Rate * Time
2. Compound Interest Rate Calculation: Future Value = Deposit (1 + rate)n where n is the number of time periods
3. Present Value PV = FV / (1 + r) n
Asset Value When Purchased – Salvage Value
4. Annual Depreciation = ___________________________
Total Number of Depreciation Periods
5. Straight line Deprecation: Use Formula #4 above to calculate annual depreciation rate, apply the same annual depreciation rate equally for number of years for the asset’s value until the Salvage Value is reached.
6. Double Declining Balance: Utilize twice the rate of the straight-line Depreciation method and apply as in the straight-line Depreciation method.
7. Sum of the Years Depreciation: Add the number of years for the life expectancy, e.g., if 3 years 3+2+1 = 6. Use this sum, 6, as the denominator and each year 3,2,1 as the numerator. Multiply this value times the asset’s value, e.g., in year 1, 3/6 * asset’s value. Repeat the procedures using the next fraction of 2/6 * the same asset value. Reiterate until the last year for depreciation is used. Subtract the accumulated sum of the calculated years of depreciation from the total initial asset’s value to obtain the Salvage Value.
8. Budget Cost of Work Schedules (BCWS)
9. Actual Cost of Work Performed (ACWP)
10. Budgeted Cost of Work Performed (BCWP) = EARNED VALUE
11. Cost Variance (CV) = BCWP – ACWP
12. Schedule Variance (SV) = BCWP – BCWS
13. SV% = (SV/BCWS) * 100 or [(BCWP – BCWS)/BCWS] * 100
14. CV% = (CV/BCWP) * 100 or [(BCWP –ACWP) / BCWP] * 100
15. Cost Performance Index (CPI) = BCWP /ACWP
16. Schedule Performance Index (SPI) = BCWP /BCWS
17. Budgeted at Completion (BAC) = å of All the budgets (BCWS)
18. Estimate at Completion (EAC) = [(ACWP / BCWP) * BAC]
19. Variance at Completion (VAC) = BAC – EAC
20. Earned value question 96 This is a reference to Project Management by Dr. Harold Kerzner about SV and CV on pages: 811-812.
If the CV is positive and the SV is negative, either the task has not started or it has started and not enough resources have been applied.
If the CV is negative and the SV is negative the costs are overrun and the schedule is slipping
If the CV is negative and the SV is positive, this indicates that money was spent to crash the schedule.
If the CV is positive and the SV is positive the project is under budget and ahead of schedule. (Like it should be if you are good.)