Project Cost Management Planning
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Questions and Answers

What is the average percentage of cost overrun reported in a 2011 study by Harvard Business Review?

  • 30 percent
  • 27 percent (correct)
  • 15 percent
  • 20 percent

    • What term describes a high-impact event in project management that is rare and unpredictable?

  • Unknown unknown
  • Risk factor
  • Black swan (correct)
  • Cost overrun

    • In project cost management, which of the following defines costs as a resource sacrificed to achieve an objective?

  • Cost estimation
  • Cost budget
  • Cost definition (correct)
  • Cost baseline

    • Which concept is NOT typically associated with planning project schedule and cost management in agile projects?

    <p>Cost baseline</p> Signup and view all the answers

    What can be a significant consequence of poor project cost management in IT projects?

    <p>Cost overrun</p> Signup and view all the answers

    What should a project manager do if the detailed cost estimate differs significantly from the initial budget?

    <p>Negotiate with the project sponsor regarding the budget or project scope.</p> Signup and view all the answers

    Which cost estimation technique involves using the costs of previous similar projects?

    <p>Analogous or top-down estimates</p> Signup and view all the answers

    What is the primary purpose of cost budgeting in project management?

    <p>To allocate the project cost estimate to activities over time.</p> Signup and view all the answers

    What is a cost baseline?

    <p>A time-phased budget for measuring cost performance.</p> Signup and view all the answers

    Which technique requires estimating individual activities and summing them to obtain the total project cost?

    <p>Bottom-up estimates</p> Signup and view all the answers

    What component significantly contributes to total project costs?

    <p>Labor costs</p> Signup and view all the answers

    Parametric modeling in cost estimation relies on what?

    <p>Mathematical models based on project characteristics.</p> Signup and view all the answers

    What does cost estimation typically precede in project management?

    <p>Cost budgeting</p> Signup and view all the answers

    What does project cost management primarily aim to achieve?

    <p>Ensure project completion within an approved budget</p> Signup and view all the answers

    Which of the following best describes life cycle costing?

    <p>Considering total cost of ownership including development and support costs</p> Signup and view all the answers

    What type of costs can be directly attributed to project activities?

    <p>Direct costs</p> Signup and view all the answers

    Why should sunk costs not be included in project investment decisions?

    <p>They cannot be recovered and do not affect future decisions</p> Signup and view all the answers

    What do contingency reserves account for in project cost management?

    <p>Known unknowns</p> Signup and view all the answers

    In terms of cost management, which describes intangible benefits?

    <p>Difficult to quantify in monetary terms</p> Signup and view all the answers

    Which financial term refers to the ratio of revenues to profits?

    <p>Profit margin</p> Signup and view all the answers

    What does cash flow analysis determine in project management?

    <p>Estimated annual costs and benefits of a project</p> Signup and view all the answers

    What is the primary focus of learning curve theory in the context of project costs?

    <p>Decreasing unit costs with repeated production</p> Signup and view all the answers

    Management reserves are used for which type of cost risk?

    <p>Unpredictable situations</p> Signup and view all the answers

    What is the purpose of comparing user stories to each other during estimation?

    <p>To establish a common understanding of estimates</p> Signup and view all the answers

    What does the term 'velocity' refer to in Agile practices?

    <p>The amount of work completed in a sprint by a team</p> Signup and view all the answers

    In planning poker, what happens if team members flip different cards?

    <p>A discussion is held before flipping the cards again</p> Signup and view all the answers

    What is the simplest form of the bucket system for estimating user stories?

    <p>Large, Uncertain, Small (LUS)</p> Signup and view all the answers

    During the affinity estimating process, what is the first step involving user stories?

    <p>Using sticky notes to position stories on a spectrum</p> Signup and view all the answers

    What category must the estimates of user stories not exceed in affinity estimating?

    <p>One size/number off</p> Signup and view all the answers

    Which method involves team members using a fixed set of cards for estimation?

    <p>Planning poker</p> Signup and view all the answers

    What should happen after team members edit the location of items on the affinity estimating wall?

    <p>Items are moved into more specific size categories</p> Signup and view all the answers

    What is a reason for the uneven funding requirements pattern in projects?

    <p>Projects often receive incremental funding that varies.</p> Signup and view all the answers

    Why is it important for a project team to document assumptions made during the development of the cost baseline?

    <p>To allow for easier updates as new information arises.</p> Signup and view all the answers

    What should be the focus of cost planning in agile projects?

    <p>Utilizing the skills and rates of dedicated team members.</p> Signup and view all the answers

    What is a characteristic of cost estimates in agile project management?

    <p>They often use relative estimates instead of specific amounts.</p> Signup and view all the answers

    What is necessary for organizations when funding agile projects?

    <p>Initial funding for the first sprint must be provided.</p> Signup and view all the answers

    How can the cost baseline be appropriately maintained throughout the project?

    <p>By continually updating it as new information becomes available.</p> Signup and view all the answers

    What challenge do project teams face when using relative estimates?

    <p>They are less accurate compared to detailed costs.</p> Signup and view all the answers

    In the context of agile projects, why is it important for Scrum team members to be fully dedicated?

    <p>It helps streamline cost planning based on their individual rates.</p> Signup and view all the answers

    Study Notes

    Project Cost Management Planning

    • Overrun is when actual costs exceed estimates.
    • Cost is a resource sacrificed or foregone to achieve a specific objective.
    • Project cost management includes processes to ensure project completion within the approved budget.
    • Executive boards understand financial terms, so project managers need to speak their language.
    • Profits are revenues minus expenditures.
    • Profit margin is the ratio of revenues to profits.
    • Life cycle costing considers total cost of ownership, including development and support costs.
    • Cash flow analysis determines estimated annual costs, benefits, and resulting cash flow.

    Types of Costs and Benefits

    • Tangible costs/benefits are easily measured in dollars.
    • Intangible costs/benefits are difficult to measure in monetary terms.
    • Direct costs are directly related to project products/services.
    • Indirect costs are not directly related to project products/services but indirectly related to project performance.
    • Sunk costs are past expenditures that should not be considered when deciding on future investments.

    More Basic Principles of Cost Management

    • Learning curve theory states unit cost decreases as more units are produced repetitively.
    • Reserves are dollars included in a cost estimate to mitigate cost risk.
    • Contingency reserves are for situations that are partially planned for, included in the project cost baseline.
    • Management reserves are for unpredictable future situations, not included in the project cost baseline.

    Traditional Cost Management Approaches

    • Cost estimates are prepared after the project manager and team are assigned.
    • If the estimate differs from the initial budget, the project manager needs to negotiate with the sponsor.
    • Supporting details should be provided for the basis of estimates.
    • Labor costs often constitute a significant percentage of total project costs.

    Cost Estimation Tools and Techniques

    • Analogous/top-down estimates use a previous similar project's cost as the basis for the current estimate.
    • Bottom-up estimates involve estimating individual work items and summing them for a project total.
    • Parametric modeling uses project characteristics in a mathematical model to estimate costs.

    Cost Budgeting

    • Project cost budgeting allocates the cost estimate to activities over time based on the work breakdown structure.
    • The goal of cost budgeting is to produce a cost baseline and project budget.
    • A cost baseline is a time-phased budget used to measure and monitor cost performance.

    Project Budget Components

    • Project budget components include direct costs, indirect costs, and reserves.

    Relationship Between Cost Baseline, Expenditures, and Funding Requirements

    • Funding requirements may not be equally distributed, resulting in an uneven step-like pattern in the budget.

    Agile Project Cost Management

    • Scrum team members should ideally be 100% dedicated to the project.
    • Cost planning is based on team member rates multiplied by iterations, along with overhead, materials, and third-party expenses.
    • There is no total project budget or detailed cost estimate for the entire project or various WBS items.
    • The organization must provide initial funding for sprints and additional funding as needed.

    Relative Estimates

    • Agile teams use relative estimates instead of discrete or ranged numbers for work packages.
    • User stories are compared to each other or grouped by difficulty (based on risk, complexity, and labor).
    • Team velocity determines how much work a team can complete in a sprint.
    • T-shirt sizing uses sizes like XS, S, M, L, XL, XXL to represent effort.
    • Planning poker uses playing cards with a number sequence to estimate effort.
    • The bucket system uses buckets based on a Fibonacci or modified Fibonacci sequence to prioritize user stories by size.
    • Affinity estimates involve three steps: silent relative sizing, editing based on discussion, and placing items into specific sizes.

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    Description

    This quiz covers essential concepts in project cost management, including cost overruns, the importance of financial language for project managers, and the types of costs and benefits. Understand how to manage a project within its budget and evaluate various cost categories. Ideal for those studying project management principles.

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