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Questions and Answers

Which type of cost is easily measurable and directly related to a specific project activity?

  • Investment costs
  • Intangible costs
  • Direct costs (correct)
  • Indirect costs

What kind of benefits are hard to quantify in monetary terms?

  • Tangible benefits
  • Investment benefits
  • Direct benefits
  • Intangible benefits (correct)

Which of the following is an example of indirect costs?

  • Taxes and insurance (correct)
  • Equipment procurement
  • Materials for the project
  • Salaries for project staff

Which cost is specifically characterized as the capital required to start a project?

<p>Investment cost (D)</p> Signup and view all the answers

Which cost remains unchanged despite variations in the project's activity level?

<p>Fixed cost (D)</p> Signup and view all the answers

What type of costs includes charges that are not billed to the project but are necessary for research?

<p>Intangible costs (B)</p> Signup and view all the answers

Which statement accurately describes project costs?

<p>They can consist of both direct and indirect costs. (D)</p> Signup and view all the answers

What differentiates fixed costs from variable costs?

<p>Fixed costs do not fluctuate with activity levels. (A)</p> Signup and view all the answers

What are variable costs associated with?

<p>Costs that vary with the quantity of output (B)</p> Signup and view all the answers

Incremental costs are incurred when?

<p>Increasing the output of a system by one or more units (D)</p> Signup and view all the answers

Which of the following best describes sunk costs?

<p>Costs that are unrecoverable and occurred in the past (C)</p> Signup and view all the answers

Opportunity costs are best defined as?

<p>The costs of the next best alternative forgone (A)</p> Signup and view all the answers

Which of the following scenarios exemplifies sunk costs?

<p>A non-refundable deposit made for a reservation (C)</p> Signup and view all the answers

What is a primary consideration when estimating project costs?

<p>Classifying individual project components (C)</p> Signup and view all the answers

How should opportunity costs be viewed in project planning?

<p>As potential income lost from alternative uses of resources (A)</p> Signup and view all the answers

Which type of cost results from changing product lines or increasing output?

<p>Incremental costs (A)</p> Signup and view all the answers

What is the primary purpose of engaging a financial analyst in project cost estimation?

<p>To offer detailed financial analysis (A)</p> Signup and view all the answers

Which project estimation approach is best used early in the estimating process?

<p>Top-down approach (D)</p> Signup and view all the answers

What does the bottom-up approach primarily focus on?

<p>Breaking down the project into smaller units for detailed cost estimation (A)</p> Signup and view all the answers

What is one of the components of an integrated approach to project estimation?

<p>Work breakdown structure (WBS) (B)</p> Signup and view all the answers

In project cost estimation, which of the following is NOT a factor considered when using a top-down approach?

<p>Staffing requirements (B)</p> Signup and view all the answers

How does the top-down approach utilize historical data for project estimation?

<p>By modifying data from similar projects for current conditions (D)</p> Signup and view all the answers

When does the bottom-up approach work best in project estimation?

<p>When project details are well-defined and clarified (B)</p> Signup and view all the answers

Which factor would likely NOT influence the cost estimation in a top-down approach?

<p>Total number of staff involved (C)</p> Signup and view all the answers

What is the purpose of a work breakdown structure (WBS)?

<p>To define tasks and deliverables needed for a project (B)</p> Signup and view all the answers

What does the 100% Rule indicate in project management?

<p>All project scope must be accounted for (A)</p> Signup and view all the answers

In a Phase-Based WBS, how is work organized?

<p>By dividing tasks by individual project phases (C)</p> Signup and view all the answers

Which technique is used to break down Level 2 deliverables in a WBS?

<p>Decomposition (B)</p> Signup and view all the answers

During project estimation, what is typically employed to predict future costs?

<p>Mathematical models (B)</p> Signup and view all the answers

What is a deliverable-based WBS primarily focused on?

<p>Outcomes and deliverables needed for the project (C)</p> Signup and view all the answers

What should be ensured when breaking down work in a WBS?

<p>All elements are managed by a single individual or organization (B)</p> Signup and view all the answers

Why is there a need for estimating techniques in project cost analysis?

<p>To forecast costs and revenues accurately (D)</p> Signup and view all the answers

What is the purpose of creating a WBS Dictionary?

<p>To provide a detailed description of work covered in each WBS element. (D)</p> Signup and view all the answers

At what level of the WBS are Work Packages found?

<p>At the lowest level of the WBS. (A)</p> Signup and view all the answers

What is the main benefit of a Gantt chart in project management?

<p>It provides a visual representation of tasks scheduled over time. (A)</p> Signup and view all the answers

Which of the following is NOT included in the WBS Dictionary descriptions?

<p>Profit margins (A)</p> Signup and view all the answers

What do direct costs refer to in the Cost Structure?

<p>Costs of employees’ time spent on project-related activities. (C)</p> Signup and view all the answers

How is the Cost Structure beneficial in project planning?

<p>It provides a checklist to prevent overlooking important cost categories. (D)</p> Signup and view all the answers

What role does technical familiarity play in the Cost Structure?

<p>It is essential for ensuring the completeness of the structure. (D)</p> Signup and view all the answers

Which of the following is a type of cost that arises from purchasing materials for a project?

<p>Material costs (B)</p> Signup and view all the answers

What is the typical accuracy range for order-of-magnitude estimates?

<p>±30 to 50% (A)</p> Signup and view all the answers

In which stage of a project are definitive estimates primarily used?

<p>Detailed engineering/construction stage (A)</p> Signup and view all the answers

What is the accuracy of semi-detailed or budget estimates?

<p>±15% (C)</p> Signup and view all the answers

Which method is commonly used to develop order-of-magnitude estimates?

<p>Semiformal methods such as conferences and questionnaires (D)</p> Signup and view all the answers

At what level of the Work Breakdown Structure (WBS) are definitive estimates typically conducted?

<p>Level 3 and successive levels (A)</p> Signup and view all the answers

What was the average cost of residential building estimated per square meter for the first quarter of 2017?

<p>PHP 9,605 (A)</p> Signup and view all the answers

What do definitive estimates provide for the project?

<p>Basis for bids and detailed design decisions (D)</p> Signup and view all the answers

Which type of estimate is used to support preliminary design efforts?

<p>Semi-detailed or budget estimates (A)</p> Signup and view all the answers

Flashcards

Cash Flow Analysis

Estimating a project's annual costs and benefits, and the resulting cash flow.

Tangible Costs/Benefits

Costs or benefits that can be measured in dollars.

Intangible Costs/Benefits

Costs or benefits hard to put into money.

Project Cost

All the money needed to complete a project.

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Direct Costs

Costs directly linked to a specific project output.

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Indirect Costs

Costs hard to allocate to a specific project output.

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Investment Cost

Initial capital needed to start a project.

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Fixed Costs

Costs that don't change with project activity.

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Variable Cost

Costs that change with the level of production or activity.

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Incremental Cost

Additional cost from producing one more unit.

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Sunk Cost

Past costs that can't be recovered and are irrelevant to future decisions.

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Opportunity Cost

The benefit lost from choosing one option over another.

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Project Cost Estimation

The process of determining the total cost required to complete a project.

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Identify Project Components

Breaking down a project into smaller, manageable parts.

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Schedule Construction

Creating a timetable for the project's physical building or development.

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Classify Project Components

Grouping tasks to better manage project resources and costs.

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Top-down Approach

Project estimation using historical data from similar projects, adjusted for factors like inflation and size.

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Bottom-up Approach

Project estimation by breaking down the project into smaller units and estimating the cost of each unit and adding them together.

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Work Breakdown Structure (WBS)

A tool that divides a project into smaller work elements.

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Project Cost Estimation

Process of figuring out the total amount needed to complete a project.

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Financial Analyst

Expert in financial analysis who provides details for financial aspects of project costs.

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Engaging Economist

Provides cost details needed for economic analysis of a project.

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Cost Estimator

Professional in charge of estimating the cost of a project.

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Design-to-Cost approach

A method used early in the estimation process—when alternatives are being planned

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Work Breakdown Structure (WBS)

A structured breakdown of all project tasks, organized into levels and displayed visually; a key element in project planning.

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Deliverable-Based WBS

A type of WBS that organizes project tasks based on the deliverables produced at each stage; useful for focusing on outputs.

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Phase-Based WBS

A WBS structure dividing the project into phases, where each phase contains related tasks.

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Cost and Revenue Estimation

The process of predicting the financial aspects (costs and revenues) of a project, based on its various tasks and resources.

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Estimating Techniques

Mathematical models that predict cost and revenue over the project timeline/budget.

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Level 1 Element

The highest-level division in WBS hierarchy, often the major phases or milestones of a project

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Decomposition

Breaking down a large task into smaller, more manageable sub-tasks.

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100% Rule

Ensuring that the WBS thoroughly encompasses all aspects of the project scope; no gaps or overlaps exist.

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WBS Dictionary

A detailed description of each element in the Work Breakdown Structure (WBS), including work packages, boundaries, milestones, risks, and owners.

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Work Package

The lowest level element in the WBS, with sufficient detail in the WBS Dictionary to cover 100% of project scope.

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Gantt Chart

A visual representation of project tasks scheduled over time using bars to show the duration and timeline of each task.

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Cost Structure

A table or checklist used to identify and categorize project costs, crucial for avoiding cost oversights.

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Labor Costs

Direct costs associated with employee time spent on project services or manufacturing, often paid at specific rates or as fixed costs per item/unit.

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Material Costs

Costs of raw materials, parts, and supplies used in or for the project.

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Work Breakdown Structure (WBS)

A hierarchical decomposition of a project into smaller, progressively more detailed work elements.

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Project Decomposition

The process of breaking a project down into smaller, more manageable parts or elements.

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Order-of-magnitude estimates

Rough cost estimations, typically accurate within ±30-50%, used early in project planning.

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Semi-detailed estimates

More precise cost estimations (usually ±15%) used during preliminary project design.

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Definitive estimates

Detailed cost estimations with high accuracy (±5%) used in the detailed project engineering stage.

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Unit technique

Estimating cost by multiplying the unit cost by the number of units.

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Residential building cost

Average cost of constructing a residential building.

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accuracy range

The tolerance or permissible deviation in a calculated estimate.

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planning stage

The initial phase of project development.

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preliminary design

A stage in project development before detailed design.

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Study Notes

Estimation of Detailed Costs and Benefits of Engineering Projects

  • Estimating detailed costs and benefits is essential for any engineering project.
  • This presentation is about estimating the costs and benefits of engineering projects.
  • The presenters are Engr. John Paulo M. Perido, MSc and Engr. Kelvin Michael A. Crystal, MSc.
  • The course is ENSC31.

Project

  • A project is a collaborative venture, often involving research or design, carefully planned to achieve a specific goal or solve a problem.
  • A project is temporary, with a defined beginning and end, scope, and resources.
  • A project is unique, not a routine operation, but a specific set of operations tailored to a singular goal.

Recall Past Projects

  • Reflect on prior projects from past subjects.
  • Consider planning, intended goals, initiation, termination, costs, and derived benefits.

Examples of Projects

  • Development of a prototype hydropower windpump.
  • Construction of wooden worktables for students.
  • Development of software for attendance checking.
  • Feasibility study of commercial buildings.
  • Purchase of agricultural machinery.
  • Construction of housing for broilers.
  • Construction of irrigation systems for farms.
  • Reblocking of farm-to-market roads.

Cash Flow Analysis

  • Determines the estimated annual costs and benefits of a project, along with the resulting annual cash flow.

Tangible Costs or Benefits

  • Costs or benefits that can be easily measured in monetary terms (dollars).

Intangible Costs or Benefits

  • Costs or benefits that are challenging to quantify in monetary terms.
    • Costs: Resources used in research of the project that are not normally billed to the project.
    • Benefits: Goodwill, improved prestige, and productivity.

Project Cost

  • An amount of money needed to compensate for acquiring a service or good.
  • Includes any expenditures made or estimated to be incurred to complete the project.
  • These costs are listed in a project baseline.

Cost Terminology

  • Cost estimates are typically categorized into direct costs and indirect costs.

Direct Costs

  • Costs that are directly associated with a specific product or activity.
  • Examples include salaries for project staff and materials required for the project.

Indirect Costs

  • Costs that are difficult to allocate to a specific output or work activity.
  • Examples include management, insurance, taxes, and maintenance costs.

Investment Cost

  • The initial capital required to start a project.
  • Example: acquiring land, designing, materials, labor, construction, and other services.

Fixed Costs

  • Costs that remain constant regardless of production, activity, or level.
  • Examples: Insurance and property taxes on facilities, general and administrative salaries, license fees, and interest on borrowed capital.

Variable Costs

  • Costs that fluctuate depending on the level of production or activity.
  • Example: Costs of materials and labor for output production.

Incremental Costs

  • Costs associated with an increase in output or the addition of units to a system.
  • Examples: Expanding a product line, changing output level, acquiring new materials, adding personnel.

Sunk Costs

  • Past costs that are irrelevant for decision-making.
  • These are costs that have already been incurred and cannot be recovered.
  • They should not be considered in future decision-making.
  • Example: Down payment on a computer set.

Opportunity Costs

  • The value of the next best alternative forgone when a particular choice is made.
  • These costs represent the value lost by choosing a certain course of action.
  • Example: Vacating warehouse space, and the potential lost income from alternative use of the area.

Cost Terminology (continued)

  • Costs, estimates are typically divided into Direct Cost, Indirect Costs.

Cost Estimation Approaches

  • Top-down approach (design-to-cost): Uses historical data from similar projects to estimate costs.
  • Bottom-up approach: Breaks projects down into smaller units for estimations and summation.
  • Integrated Approach: Uses a combination of approaches with a WBS.

Components of Integrated Approach

  • Work Breakdown Structure (WBS): A visual hierarchical representation of project tasks, facilitating resource allocation.
  • Cost and Revenue Structures: Provides categorization for estimations of future costs and revenues.
  • Estimating (models) techniques: Mathematical models use to obtain estimates.

WBS Examples

  • Construction of a House.
  • Harvest Festival Grand Opening.
  • Project Ventilate.
  • Book / Risk Management
  • Personal Computer.
  • Sample project example.

Phase-Based WBS

  • Dividing work associated with multiple elements into work unique to each Level 1 element.

Cost Structure elements

  • Tangible costs
  • Intangible benefits
  • Fixed costs
  • Variable costs
  • Labor costs
  • Material costs
  • Overhead Costs
  • Subcontracting costs
  • Logistics costs
  • Investment costs

Estimating techniques and considerations

  • Order of magnitude estimates: Provide ±30-50% accuracy in project planning, selecting alternatives, etc.
  • Semi-detailed estimates (budgets): Used in preliminary or conceptual design stage to support design effort and decision-making, accuracy in ±15%
  • Definitive (detailed) estimates: Detailed estimates, engineering and construction stage, used for bids, deciding on design decisions, accuracy ±5%
  • Itemized cost: Lists all projected costs: equipment, parts, supplies, labor, financing, fees, etc.

Gantt Charts

  • Visual representation of tasks scheduled over time.
  • Shows dependencies between tasks, providing a project timetable.

Estimate Considerations

  • Project size, length and location
  • Time of year, labor pool, and specialized equipment
  • Project quality, and other market conditions

Estimating Techniques

  • Level of detail and accuracy depends on available time/effort, item difficulty, estimator qualifications, sensitivity of results to factors or estimates, and the methods used.

Additional Notes

  • Importance of project team member identification.
  • WBS Dictionary definition, including descriptions of deliverables.
  • Relevant project documentation such as cost documents and schedules.
  • The need to practice estimating for improvement.

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