Project Cost Management Chapter 5
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Questions and Answers

What is cost?

  • Something given up in exchange. (correct)
  • A resource sacrificed or foregone to achieve a specific objective. (correct)
  • Measured in monetary amounts, such as RM, that must be paid to acquire goods and services. (correct)
  • 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?

    <p>Allowing for future situations that may be partially planned for.</p> Signup and view all the answers

    What is the labor rate suggested for the project manager?

    <p>$100/hour</p> Signup and view all the answers

    What is the labor rate suggested for each team member?

    <p>$75/hour</p> Signup and view all the answers

    How many handheld devices are estimated by the contractor?

    <p>100 devices</p> Signup and view all the answers

    How many servers are estimated at $4,000 each?

    <p>Four servers</p> Signup and view all the answers

    How will software license costs be negotiated?

    <p>License costs will be negotiated with each supplier</p> Signup and view all the answers

    What cost per handheld device will be used for licensed software?

    <p>$200</p> Signup and view all the answers

    How is testing estimated based on the project costs?

    <p>10% of the total hardware and software cost</p> Signup and view all the answers

    What is the estimated cost per trainee for training?

    <p>$500</p> Signup and view all the answers

    Match the following inputs for determining the budget with their respective sources:

    <p>Scope baseline = Activities in the work breakdown structure Activity cost estimates = Determining the budget Risk register = Inputs for determining the budget Cost management plan = Produce a cost baseline</p> Signup and view all the answers

    A cost baseline is used by project managers to measure and monitor cost performance.

    <p>True</p> Signup and view all the answers

    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.

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