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Questions and Answers
What is cost?
Direct costs can be indirectly related to creating the products and services of the project.
False
Management reserves allow for future situations that are ______________.
unpredictable
What is the purpose of contingency reserves in cost estimation?
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What is the labor rate suggested for the project manager?
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What is the labor rate suggested for each team member?
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How many handheld devices are estimated by the contractor?
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How many servers are estimated at $4,000 each?
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How will software license costs be negotiated?
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What cost per handheld device will be used for licensed software?
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How is testing estimated based on the project costs?
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What is the estimated cost per trainee for training?
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Match the following inputs for determining the budget with their respective sources:
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A cost baseline is used by project managers to measure and monitor cost performance.
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Study Notes
Cost Management Planning
- Cost: a resource sacrificed or foregone to achieve a specific objective, measured in monetary amounts.
- Basic Principles of Cost Management:
- Profits = revenues - expenditures
- Profit margin = ratio of profits to revenues
- Cash flow analysis: method for determining estimated annual costs and benefits for a project
- Tangible costs/benefits: easy to measure in dollars
- Intangible costs/benefits: difficult to measure in dollars
- Direct costs: directly related to project products/services
- Indirect costs: not directly related to project products/services
- Sunk cost: money spent in the past, should not be considered in project selection decisions
- Learning curve theory: unit cost decreases as more units are produced repetitively
- Reserves: contingency funds to mitigate cost risk
Planning Cost Management
- Cost management plan includes:
- Level of accuracy
- Units of measure
- Organizational procedures links
- Control thresholds
- Rules of performance measurement
- Reporting formats
- Process descriptions
- Purpose of cost management plan: to establish guidelines for managing and controlling project costs
Estimating Costs
- Types of cost estimates:
- Rough Order of Magnitude (ROM) estimate: early estimate for project selection decisions
- Budgetary estimate: used for budget allocation
- Definitive estimate: accurate estimate for project costs
- Cost estimation tools and techniques:
- Analogous estimation
- Bottom-up estimation
- Parametric estimation
- Problems with cost estimation:
- Estimates done too quickly
- Lack of experience
- Human bias towards underestimation
- Management desires accuracy
Developing Cost Estimation
- Ground rules and assumptions for cost estimation:
- Clarify project scope and objectives
- Identify resources and labor costs
- Establish labor rates and hours
- Estimate hardware and software costs
- Consider risks and reserves
- Case study: The Surveyor Pro project
- Developed cost estimation based on WBS categories
- Estimated costs by month and labor hours
- Included reserves for risks and uncertainties
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Description
This quiz covers the basics of project cost management, including understanding cost, profits, and profit margins. Learn how to increase profits by managing revenues and expenses.
