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Friday, July 15, 2011

Points to Remember: Project Cost Management

Analogous Estimating is sometimes called “Top-Down Estimating”. Take a minute and think about why it would be called “top-down.” When you’re doing bottomup estimating, first you break it down into pieces, estimate each piece, and add them up. Analogous estimation is the opposite: you start with the whole project (without breaking it up at all), find other projects that were like it, and use those projects to come up with a new estimate.

Cost of Quality is how much money it takes to do the project right.

Benefit cost ratio (BCR): This is the amount of money a project is going to make versus how much it will cost to build it. Generally, if the benefit is higher than the cost, the project is a good investment.

Net present value (NPV): This is the actual value at a given time of the project minus all of the costs associated with it. This includes the time it takes to build it and labor as well as materials. People calculate this number to see if it’s worth doing a project. Money you’ll get in three years isn’t worth as much to you as money you’re getting today. NPV takes the “time value” of money into consideration, so you can pick the project with the best value in today’s dollars.

Just because you plan out a budget in your Cost Performance Baseline, that doesn’t mean your project is 100% guaranteed to fall inside that budget. It’s common for a company to have a standard policy for keeping a management reserve to cover unexpected, unplanned costs. When you need to get your project funded, that funding has to cover both the budget in your Cost Performance Baseline and the management reserve.

Parametric Estimation is used in Estimate Costs and Determine Budget.

Cost Aggregation is rolling up costs from the work package level to the control account level so that the numbers can be followed down through the WBS hierarchy.

Control Accounts are highlevel WBS items that are used to track cost estimates. They do not represent activities or work packages. They represent the cost of the work packages and activities that appear under them in the WBS

The main output of Estimate Costs is the Activity Cost Estimate and the Basis of Cost Estimate. The main output of Determine Budget is the Cost Performance Baseline and Project Funding Requirements.

You will get questions on the exam asking you to select between projects using Net Present Value (NPV) or Benefit Cost Ratio (BCR). Always choose the project with the biggest NPV or BCR!

Lifecycle Costing means estimating the money it will take to support your product or service when it has been released.

Rough Order of Magnitude Estimation is estimating with very little accuracy at the beginning of a project and then refining the estimate over time. It’s got a range of –50% to +50%.

If the SPI is below 1, then your project is behind schedule. But if you see a CPI under 1, your project is over budget! SPI and CPI are just ratios! If SPI is really close to 1, then SV will be really close to zero—and it means that my project is going as planned! And when your CPI is really close to 1, it means that every dollar your sponsor’s spending on the project is earning just about a dollar in value.

Points to Remember - Other Topics:

Introduction to Projects & Project Management
Relationship Between Knowledge Areas & Process Groups
Project Integration Management
Project Scope Management
Project Time Management
Project Quality Management
Human Resource Management
Project Communication Management
Project Risk Management
Project Procurement Management
Ethics & Professional Responsibility

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