Introducing Project Cost Management - Estimating the Project Costs

19 important questions on Introducing Project Cost Management - Estimating the Project Costs

What is the difference between cost estimating and pricing?

A cost estimate is the cost of a resource required to complete the project work. Pricing, however, includes a profit margin.
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What categories of costs should be considered for human resources?

  • Direct costs - attributed direct to the project work
  • Indirect costs - representative for more than one project
  • Variable costs
  • Fixed costs - costs that remain constant
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What is good approach to find less costly ways to complete the same work?

Value engineering, a systematic approach, e.g. to pick the best resource to complete the work the fastest.
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Which three elements do you revise as part of using the scope baseline?

  • The scope baseline
  • The WBS
  • The WBS dictionary
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How are code of accounts used with the WBS?

Estimates within the project are mapped to the correct code of account so that the organizational ledgers reflect the actual work performed, the cost of the work performed and any billing that was charged to the customer for the completed work.
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How does the schedule management plan help in cost management?

  • Estimate how much the resources will cost the project
  • When the funds will be used to employ or consume resources
  • Identify cost impacts if resources miss deadlines
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How do Present Value and Future Value help to determine whether a project is worth financing?

To compare t the Future Value of the money the project will earn against the present value.
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What are other ways that resources can cost money if deadlines are missed?

Penalties can be given for missing deadlines, costs could be for materials with seasonal demands and fines and penalties could be given for failing to adhere to scheduled regulations.
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What do we mean with risk contingency reserve?

That based on risk analysis, the project manager creates a special budget just for the impact of project risks. You need the risk register to determine how much cash is needed to offset the risk events as part of the cost estimates.
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What do we mean with 'unknown unknowns'?

Risks that are lurking within the project but that haven't been specifically identified by name, source or probability. Contingency reserves could also be created to deal with these unknown unknowns.
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How are enterprise environmental factors input to cost estimating?

  • Since the enterprise environmental factors are the processes and rules defining how the project manager will estimate the costs within the organization.
  • They could also be the market conditions influencing procurement processes and costs for vendors
  • Or they could be access to commercial databases for pricing information
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How should organizational process assets be used for cost estimating?

They provide historical information where the sources could be:
  • Project files
  • Commercial cost-estimating databases
  • Team members (should be considered as advice and input)
  • Lessons learned
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What approaches do we recognize for cost estimating?

  • Using analogous estimating
  • Using parametric estimating
  • Using bottom-up estimating
  • Creating a three-point estimate
  • Using computer software
  • Analyzing vendor bids
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Parametric estimating - what does it consist of?

It starts with a complex parameter (e.g. cost per unit) and then adds adjustment factors based upon the conditions of the project.
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What are two important considerations for parametric modelling?

  • The factors upon which the model is based must be accurate
  • The model must be scalable between projects
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Which types of parametric modelling do we recognize?

  • Regression analysis - predict future values based on historical values
  • Learning curve - the costs per unit decrease the more units are completed by workers
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What is the most accurate approach for cost estimating?

The bottom up estimating methods
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What do we mean with cE, cM, cO and cP

cE = expected costs (either via three point estimate or PERT)
cM = most likely costs
cO = optimistic costs
cP = pessimistic costs
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What is beta distribution?

The traditional PERT formula (CO + 4CM + CP / 6)
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