PMP Notes for Project Cost Managment

These are just notes I had during my PMP study sessions More can be said and examples given for all of these notes.

• Price – what customer is willing to pay; justify the cost
• Cost – resources consumed; spending –  time phased expenditures
• “50 – 50 rule” – 50% of the earned value is credited as earned value when the activity begines. The remaining 50% is not credited until all the work is done.
• Resource planning – affected by the nature of the project and organization.
• Life cycle costing – product/ service future committments (guaruntees, warrenties and ongoing services)
• Value engineering – creative approach used to optimize life cycle costs, save time, increase profits, improve quality, expand market share, solve problems, and/or use resources more effectively. It is used with life cycle costing to reduce cost and time, improve quality and performance and optimize the decision-making. A technique used in product analysis in the scope planning process.
• “Order of magnitude scheduling” – beginnning; -25% to +75%
• Budget scheduling  -10% to +25%
• Definitive estimate  -5% to +10%
• Bottom up scheduling – definitive; rolling up the items of the WBS, -5% to +10%; higher cost and longer time to get estimate
• Top Down scheduling – limited infomrmation; on single estimate; not very accurate
• Anallogous scheduling – top downl; use of experts; for example, a 1000 sq foot house costs $50 for each foot in the past, now a 1000 new one should have the same cost and a 3000 sq foot one should cost 3 times more.
• Parametric – top down; use parameters; statistical relationsips; most likely to be reliable when 1) historical information used to develop the model is accurate; 2) the parameters used in the model are readily quantifiable; 3) the model is scalable (i.e. it works well for a very large project as well as a very small project). For example, a 1000 sq ft house costs $50 for each foot in the past and the new house has 3000 sq ft so the new cost should be 3000*$50.
• Cost budgeting – allocating; include cost of risk reponses; contigency plans and management reserve for unidentified risks.
• Variances many have differt impact over project phases. Earlier variances are more significant.
• Earned Value – approved cost estimates for activities completed during a given period. IT usually comes from the budget unit cost with actual units.
• Cost performance index (CPI) = Earned Value (EV) / Actual cost (AC), the amount of work accomplished per dollar spend.
• Cost variance (CV) = EV – AC
• Schedule Performance index (SPI) =  EV – Present Value (PV)
• Critical ration = CPI * SPI
• Estimate at completion (EAC) can be calculated different ways; When it is based on project performace and risk quatificaiton, current variances are typical. EAC = BAC/CPI or EAC = AC + (BAC-EV/(CPI * SPI)
• A more optimistic calculation when current variances are atypical and similar variances are not likely to occur in the future: EAC = AC + BAC – EV
• The estimate to complete (ETC) = EAC – EV = BAC/CPI – EV = BAC/EV*AC – EV
• Estimated time to complete is the budgeted tome to complete / SPI
• Variance at completion (VAC) = EAC – BAC
• Project completed, EV = PV. All values available to e earned have been earned
• Level of effort costs – AC = EV, earned on passage of time
• Spending variance = Present value (PV) – Actual value (AC)
• Project physical progress valued by schedule variance EV – PV. You are ahead of if this calculation is >0.
• If a project is over budget 25% during project phases, the project wil be completed with an iver budget condition greater than 25%
• Economic Value Added (EVA) – net profit compensates for cost of assets
• Sum of hte year’s digits method – 5 year, total is 5+4+3+2+1=15, first year 5/15, second year 4/15, third yeat 3/15…
• Double declining balances – 50% off the book value each year
• The total project budget contains the operating project budget or baseline, the contingency reserve and the management reserve. The projet baseline is increased by the amount of risk although the total project budget stays the same.