Podcast
Questions and Answers
What is the primary purpose of monitoring and controlling in a project?
What is the primary purpose of monitoring and controlling in a project?
The close phase of a project involves informal acceptance of the project deliverables.
The close phase of a project involves informal acceptance of the project deliverables.
False (B)
What does the close process of a project entail?
What does the close process of a project entail?
Formal acceptance of a product, service, or result.
During the monitoring and control phase, project managers __________ the project's progress.
During the monitoring and control phase, project managers __________ the project's progress.
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Which of the following is an example of fixed costs?
Which of the following is an example of fixed costs?
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Fixed costs vary based on the level of production output.
Fixed costs vary based on the level of production output.
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What type of costs are easiest to calculate in a business?
What type of costs are easiest to calculate in a business?
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The rent of a building is an example of a __________ cost.
The rent of a building is an example of a __________ cost.
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Match the following cost types with their descriptions:
Match the following cost types with their descriptions:
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Which of the following describes a sunk cost?
Which of the following describes a sunk cost?
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Labor costs and sales commissions are types of sunk costs.
Labor costs and sales commissions are types of sunk costs.
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What is the primary focus of Project Cost Management?
What is the primary focus of Project Cost Management?
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________ costs are costs that have already been incurred.
________ costs are costs that have already been incurred.
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Match the following terms related to Project Cost Management with their correct descriptions:
Match the following terms related to Project Cost Management with their correct descriptions:
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What does PERT stand for in project management?
What does PERT stand for in project management?
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The pessimistic estimate in PERT is always the lowest cost estimate.
The pessimistic estimate in PERT is always the lowest cost estimate.
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What are the three cost estimates used in PERT?
What are the three cost estimates used in PERT?
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In PERT, the pessimistic cost estimate is $11,000, and the optimistic cost estimate is $________.
In PERT, the pessimistic cost estimate is $11,000, and the optimistic cost estimate is $________.
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What is revenue commonly referred to as?
What is revenue commonly referred to as?
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Revenue is the total amount of money after deducting all expenses.
Revenue is the total amount of money after deducting all expenses.
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Define revenue in the context of project income.
Define revenue in the context of project income.
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Revenue is the total amount generated from selling goods or services before deducting any __________.
Revenue is the total amount generated from selling goods or services before deducting any __________.
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Match the terms related to revenue with their definitions:
Match the terms related to revenue with their definitions:
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What does positive cash flow indicate?
What does positive cash flow indicate?
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Negative cash flow signifies that income exceeds spending.
Negative cash flow signifies that income exceeds spending.
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What can result from consistent negative cash flow?
What can result from consistent negative cash flow?
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A company experiencing __________ cash flow is likely facing financial challenges.
A company experiencing __________ cash flow is likely facing financial challenges.
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Match the cash flow types with their definitions.
Match the cash flow types with their definitions.
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Study Notes
Project Cost Management
- Project cost management is crucial for avoiding wasted money and over-budget or out-of-budget projects.
- IT projects often experience cost overruns.
- A 2011 Harvard Business Review study reported an average cost overrun of 27%.
- Project Cost Management is the process of estimating, budgeting, and controlling costs throughout the project life cycle.
- The goal is to maintain costs within the approved budget.
- It can be broken down into Resource planning, Cost estimation, Cost budgeting, and Cost control.
Generic Project Life Cycle
- Initiate: Project scope/phases are defined and approved.
- Plan: Project objectives are defined, refined, and planning takes place.
- Execute: Project work is carried out.
- Monitor & Control: Progress is monitored and measures taken to make necessary corrections.
- Close: Formal acceptance of the product, service, or result.
Cost
- Cost is a resource sacrificed to achieve a specific objective or given up in exchange.
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Types of Costs:
- Direct costs: Associated with product creation including raw materials, labor, and distribution.
- Indirect costs: Expenses not directly related to production like lighting, heating, office space, and communal resources.
- Fixed costs: Expenses that don't change with production output, like rent.
- Variable costs: Expenses that change based on production, like labor costs or sales commissions.
- Sunk costs: Costs already incurred and not recoverable.
What Is Project Cost Management?
- It's a process for estimating, budgeting, and controlling costs throughout a project's life cycle.
- The objective is to maintain costs within the approved budget.
- Broken down into four areas:
- Resource planning
- Cost estimation
- Cost budgeting
- Cost control
Project Cost Management Processes
- Process Group: Planning, Monitoring, and Controlling
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Cost Management Process
- CP1: Planning Cost Management
- CP2: Estimating Costs
- CP3: Determining the Budget
- MC1: Controlling Costs
- Major Output: Cost Management Plan, Activity Cost Estimates, Cost Performance Baseline, Work Performance Measurements, and Budget Forecasts.
CP1: Planning Cost Management
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Project teams use expert judgment, analytical techniques, and meetings to develop the cost management plan.
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A cost management plan includes:
- Level of accuracy and units of measure
- Organizational procedure links
- Control thresholds
- Rules of performance measurement
- Reporting formats
- Process descriptions
CP2: Estimating Costs
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Project managers must take cost estimates seriously to achieve budget constraints.
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It’s important to know types of cost estimates, how cost estimates are prepared, and typical problems associated with IT cost estimates.
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Input: HR Plan, Project Schedule, Scope Baseline, Risk Register
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Tools/Techniques: Estimating Techniques, Cost of Quality, Reserve Analysis, PM Estimate Software, Expert Judgment
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Output: Activity cost estimates, Estimate bases, Updated documents.
Cost Estimation Techniques
- Expert Judgment: based on the known costs of past comparable projects. Useful when little information about the current project is available.
- Analogous Estimating: based on historical data and statistical modeling to assign dollar value to project costs. More accurate than analogous estimating but needs more historical data.
- Parametric Estimating: Based on historical data and statistical modeling to assign dollar value to project costs. More accurate but requires more initial data.
- Bottom-up Estimating: Break down projects into several components and estimate the cost of each component, then sum them up.
- Three Point Estimating (PERT): a technique involving determining optimistic estimates, pessimistic estimates, and most likely estimates from which an expected project estimate is calculated.
- Reserve Analysis: includes analyzing risks as a planned buffer for costs.
- Cost of Quality (Cost of Poor Quality): assesses the costs associated with producing poor quality work.
- Vendor Bid Analysis: analyzing bids provided by vendors to get the best price.
Typical Problems with IT Project Cost Estimates
- Estimates are often done too quickly.
- People lack estimating experience.
- Human beings tend to underestimate costs.
- Management desires accuracy.
CP3: Determining the Budget
- Cost budgeting involves allocating project cost estimates to individual work items over time.
- The work breakdown structure (WBS) is needed to define and allocate costs.
- Reserve Analysis: Includes addressing risks with contingency reserves (planned money/time for particular risks) and management reserves (for unforeseeable issues).
Example Project Cost Baseline
- (Data provided in a tabular format) This table shows example project costs.
Some Important Concepts
- Revenue: Total amount of money generated from selling goods/services.
- Cash Flow: Movement of money into and out of a project over time.
- Total Cost of Ownership (TCO): All costs associated with a project over its entire life cycle. Includes initial expenses, ongoing costs like maintenance.
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Profit: Difference between revenue and total expenses.
- Gross Profit: Revenue minus direct costs.
- Net Profit: Revenue minus all costs (direct and indirect).
- Profit Margin: Percentage of revenue remaining after all expenses.
- Return on Investment (ROI): Comparison of project gains and investment costs.
- Bootstrap Financing: Starting or operating a company using personal finances or operating revenue.
- Crowdfunding: Raising funds from a large number of people online.
- Venture Capital: Investment in start-ups in exchange for equity.
- Solvency: Ability of a company to meet its long-term debts and obligations.
- Break-Even Point: The point at which total revenue equals total costs.
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Description
Test your knowledge on project cost management principles, including fixed costs, sunk costs, and the close process of a project. This quiz covers essential terminology and concepts related to monitoring and controlling project expenses. Perfect for project managers and students alike.
