Project Cost Management

Project Cost Management is a group of processes required to ensure the project is completed within the approved budget.
Processes
There are following processes which are part of Project Cost Management.
  • Plan Cost Management
  • Estimate Costs
  • Determine Budget
  • Control Costs
  • Few Important points

    You can expect five to ten questions related to Earned Value Management.
    Planned Value (PV) refers to what the project should be worth at this point in the schedule. It is also referred as BCWS (Budgeted Cost of Work Scheduled).
    Earned Value (EV) is the physical work completed to date and the authorized budget for that. It is also referred as BCWP (Budgeted Cost of Work Performed).
    Actual Cost (AC) is the actual amount of money spent so far. It is also referred as ACWP (Actual Cost of Work Performed).
    Estimate At Completion (EAC) refers to the estimated total cost of the project at completion.

    CPI refers to Cost Performance Index. It is defined as
    CPI = EV/AC

    If CPI is less than 1, this means that the project is over budget.
    BAC refers to Budget at Completion. It is related to EAC.
    EAC = BAC/CPI

    ETC refers to Estimate to Completion. It is defined as
    ETC = EAC - AC

    CV refers to Cost Variance. It is defined as
    CV = EV - AC

    SV refers to Schedule Variance. It is defined as
    SV = EV - PV

    Negative cost or schedule variance means that project is behind in cost or schedule.
    SPI refers to Schedule Performance Index. It is defined as
    SPI = EV/PV

    VAC refers to Variance At Completion. It is defined as
    VAC = BAC - EAC


    1.Plan Cost Management


    2. Estimate Costs


    3. Determine Budget


    4. Control Costs


    These questions are randomly taken from TechFAQ360 PMP success kit


    Question - 19

    You have two possible projects to manage, but you can only choose one. Project MKTG is worth $23,000, while Project SALESPTR is worth $25,000. Management elects to choose Project SALESPTR. Which one of the following is the opportunity cost of this choice?
    1.$23,000
    2.$27,000
    3.$50,000
    4.$4000

    Correct Answers are : 1
    Explanation :
    A is the correct answer.

    The opportunity cost is the amount of the project that was not chosen.

    Question - 38

    You are a project manager of a project. Till today you have actually completed $34,000 of work, but based on the cost plan it should be $50,000. What is percentage Schedule Variance (SV) in this case?
    1.-32%
    2.-16%
    3.32%
    4.None of the above

    Correct Answers are : 4
    Explanation :
    D is the correct answer.

    Schedule Variance (SV): Any difference between the scheduled completion of an activity and the actual completion of that activity. SV % = (EV - PV) / PV SV % = ($34,000 - $50,000) / $50,000 = -32%

    Question - 43

    Your project has a budget of $10,000 and is expect to last for 1 year, with the work and budget spread evenly across all months. Right now CPI is 0.8. What is Variance at Completion in this case?
    1.-$2,500
    2.$10,000
    3.$12,500
    4.$12,000

    Correct Answers are : 1
    Explanation :
    A is the correct answer.

    Variance at Completion = BAC - EAC Estimate at Completion (EAC) = BAC / CPI = $10,000 / .8 = $12,500 Variance at Completion = $10,000 - $12,500 = -$2,500



    Question - 44

    Your project has a budget of $12,000 and is expect to last for 1 year, with the work and budget spread evenly across all months. The project is now in the fourth month, but till now total spending for this project is $5,000. What is Variance at Completion in this case?
    1.-$3,000
    2.-$5,000
    3.$12,000
    4.$13,000

    Correct Answers are : 1
    Explanation :
    A is the correct answer.

    Earn Value = total cost * percentage of work actually completed = $12,000 * (4/12)= $4,000 Variance at Completion = BAC - EAC CPI = EV (Earned Value) / AC (Actual Cost) = $4000/$5000 = .8 Estimate at Completion (EAC) = BAC/CPI = $12,000 / .8 = $1500 Variance at Completion = $12,000 - $15,000 = -$3,000



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