Podcast
Questions and Answers
What is cost?
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.
Direct costs can be indirectly related to creating the products and services of the project.
False (B)
Management reserves allow for future situations that are ______________.
Management reserves allow for future situations that are ______________.
unpredictable
What is the purpose of contingency reserves in cost estimation?
What is the purpose of contingency reserves in cost estimation?
What is the labor rate suggested for the project manager?
What is the labor rate suggested for the project manager?
What is the labor rate suggested for each team member?
What is the labor rate suggested for each team member?
How many handheld devices are estimated by the contractor?
How many handheld devices are estimated by the contractor?
How many servers are estimated at $4,000 each?
How many servers are estimated at $4,000 each?
How will software license costs be negotiated?
How will software license costs be negotiated?
What cost per handheld device will be used for licensed software?
What cost per handheld device will be used for licensed software?
How is testing estimated based on the project costs?
How is testing estimated based on the project costs?
What is the estimated cost per trainee for training?
What is the estimated cost per trainee for training?
Match the following inputs for determining the budget with their respective sources:
Match the following inputs for determining the budget with their respective sources:
A cost baseline is used by project managers to measure and monitor cost performance.
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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