Chapter 6 Budget Planning

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Questions and Answers

What is the first step in the budget planning process?

Estimate indirect costs

Create the Cost Estimates (correct)

Create the Detailed Budget

Refine the Project Charter

Which estimating approach involves using the actual cost of a previous project as a basis?

Analogous estimating (correct)

Direct cost estimation

Bottom-up estimates

Parametric modeling

What is the purpose of refining the overall budget during the Planning Phase?

To increase project costs

To add more stakeholders

To finalize the project schedule

To achieve more accurate estimates (correct)

In which phase is the overall budget for the project documented in the Project Charter?

Initiating Phase Signup and view all the answers

Which estimating technique involves estimating individual work items and summing them for a total?

Bottom-up estimates Signup and view all the answers

What does parametric modeling consider to estimate project costs?

Project characteristics or parameters Signup and view all the answers

Which type of costs are considered indirect costs?

Building rent Signup and view all the answers

During which phase do costs get refined and re-estimated?

Planning Phase Signup and view all the answers

What key question drives the budget planning process?

How much will the project cost? Signup and view all the answers

Which of the following models uses a mathematical calculation to estimate costs based on project characteristics?

Parametric modeling Signup and view all the answers

What is the primary approach used by Sophie for estimating project costs?

Bottom-up estimation Signup and view all the answers

Which of the following describes the purpose of parametric modeling in cost estimation?

Factoring project characteristics into a mathematical model Signup and view all the answers

What does the additional amount of $3,480 represent in Sophie's cost estimation?

Amount under the defined budget Signup and view all the answers

Which factor is commonly identified as a problem with cost estimates?

Underestimation bias Signup and view all the answers

How did Sophie categorize costs in her Detailed Budget?

By project phase and then by cost type Signup and view all the answers

Which estimation technique involves the actual cost of a previous project as a basis for a new estimate?

Analogous estimation Signup and view all the answers

What type of costs does Sophie need to combine with the cost information to create a detailed budget?

Schedule information Signup and view all the answers

What is a common reason cost estimates are often inaccurate?

Rushed estimating processes Signup and view all the answers

Study Notes

Project Costing

Project budgets are documented in the Project Charter during the Initiating Phase and refined in the Planning Phase.
Project costs can be direct (e.g., labor) or indirect (e.g., rent).
Cost estimation approaches include:
- Analogous: Using previous similar project costs as a basis.
- Parametric: Using project characteristics in a mathematical model to estimate costs.
- Bottom-up: Estimating individual items and summing them for a project total.
Cost Estimations can be problematic due to:
- Rushing the process.
- Lack of experience.
- Underestimation bias.
Management desires accuracy in estimations, even though they are estimates.

Detailed Budget

Detailed budgets are created by combining cost estimates with the project schedule.
The detailed budget includes HR costs and other costs, organized by project phase.
Detailed budgets are often broken down by week.
Detailed budget breakdowns can vary according to project size and budget.

Benefits of a Detailed Budget

The detailed budget provides a clear picture of project costs and helps track progress.

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Description

This quiz covers the fundamental concepts of project costing, including budgeting processes, direct and indirect costs, and various cost estimation approaches. You will explore how to create detailed budgets and the challenges associated with accurate cost estimations. Test your knowledge on project management principles related to financial planning.