PMP Exam Quiz 22

Project Cost Management processes:
1. Plan Cost Management
2. Estimate Costs
3. Determine Budget
4. Control Costs

Project Cost Management should consider the stakeholder requirements for managing costs. Different stakeholders will measure project costs in different ways and at different times. Project Cost Management is primarily concerned with the cost of the resources needed to complete project activities. Project Cost Management should also consider the effect of project decisions on the subsequent recurring cost of using, maintaining, and supporting the product, service, or result of the project.

Plan Cost Management is the process that establishes the policies, procedures, and documentation for planning, managing, expending, and controlling project costs. The key benefit of this process is that it provides guidance and direction on how the project costs will be managed throughout the project.

Plan Cost Management is the process that establishes the policies, procedures, and documentation for planning, managing, expending, and controlling project costs. The key benefit of this process is that it provides guidance and direction on how the project costs will be managed throughout the project. The cost management processes and their associated tools and techniques are documented in the cost management plan. The cost management plan is a component of the project management plan.

Plan Cost Management: Inputs
1. Project Management Plan
2. Project Charter
3. Enterprise Environmental Factors
4. Organizational Process Assets

The enterprise environmental factors that influence the Plan Cost Management process include:
• Organizational culture and structure
• Market conditions
• Currency exchange rates for project costs sourced from more than one country
• Published commercial information
• Project management information system, which provides alternative possibilities for managing cost

The organizational process assets that influence the Plan Cost Management process include:
• Financial controls procedures
• Historical information and lessons learned knowledge bases
• Financial databases
• Existing formal and informal cost estimating and budgeting-related policies, procedures, and guidelines

Plan Cost Management: Tools and Techniques
1. Expert Judgment
2. Analytical Techniques
3. Meetings

The cost management plan is a component of the project management plan and describes how the project costs will be planned, structured, and controlled. The cost management processes and their associated tools and techniques are documented in the cost management plan.

The cost management plan can establish the following:
• Units of measure
• Level of precision
• Level of accuracy
• Organizational procedures links
• Control thresholds
• Rules of performance measurement
• Reporting formats
• Process descriptions

Estimate Costs is the process of developing an approximation of the monetary resources needed to complete project activities. The key benefit of this process is that it determines the amount of cost required to complete project work.

Estimate Costs is the process of developing an approximation of the monetary resources needed to complete project activities. The key benefit of this process is that it determines the amount of cost required to complete project work. Cost estimates are a prediction that is based on the information known at a given point in time. Cost estimates include the identification and consideration of costing alternatives to initiate and complete the project.

Cost estimates are a prediction that is based on the information known at a given point in time. Cost estimates include the identification and consideration of costing alternatives to initiate and complete the project. Cost estimates should be reviewed and refined during the course of the project to reflect additional detail as it becomes available and assumptions are tested. The accuracy of a project estimate will increase as the project progresses through the project life cycle. A cost estimate is a quantitative assessment of the likely costs for resources required to complete the activity. Cost estimates may be presented at the activity level or in summary form.

Estimate Costs: Inputs
1. Cost Management Plan
2. Human Resource Management Plan
3. Scope Baseline
4. Project Schedule
5. Risk Register
6. Enterprise Environmental Factors
7. Organizational Process Assets

Estimate Costs: Tools and Techniques
1. Expert Judgment
2. Analogous Estimating
3. Parametric Estimating
4. Bottom-Up Estimating
5. Three-Point Estimating
6. Reserve Analysis
7. Cost of Quality

Contingency reserves are the budget within the cost baseline that is allocated for identified risks, which are accepted and for which contingent or mitigating responses are developed. Contingency reserves are often viewed as the part of the budget intended to address the “known-unknowns” that can affect a project.

Contingency reserves are the budget within the cost baseline that is allocated for identified risks, which are accepted and for which contingent or mitigating responses are developed. Contingency reserves are often viewed as the part of the budget intended to address the “known-unknowns” that can affect a project. Contingency reserves can provide for a specific activity, for the whole project, or both. As more precise information about the project becomes available, the contingency reserve may be used, reduced, or eliminated. Contingency should be clearly identified in cost documentation.

Management reserves are an amount of the project budget withheld for management control purposes and are reserved for unforeseen work that is within scope of the project. Management reserves are intended to address the “unknown unknowns” that can affect a project.

Management reserves are an amount of the project budget withheld for management control purposes and are reserved for unforeseen work that is within scope of the project. Management reserves are intended to address the “unknown unknowns” that can affect a project. The management reserve is not included in the cost baseline but is part of the overall project budget and funding requirements. When an amount of management reserves is used to fund unforeseen work, the amount of management reserve used is added to the cost baseline, thus requiring an approved change to the cost baseline.

Analogous cost estimating uses the values such as scope, cost, budget, and duration or measures of scale such as size, weight, and complexity from a previous, similar project as the basis for estimating the same parameter or measurement for a current project. When estimating costs, this technique relies on the actual cost of previous, similar projects as the basis for estimating the cost of the current project. It is a gross value estimating approach, sometimes adjusted for known differences in project complexity.

Analogous cost estimating uses the values such as scope, cost, budget, and duration or measures of scale such as size, weight, and complexity from a previous, similar project as the basis for estimating the same parameter or measurement for a current project. When estimating costs, this technique relies on the actual cost of previous, similar projects as the basis for estimating the cost of the current project. It is a gross value estimating approach, sometimes adjusted for known differences in project complexity. Analogous cost estimating is frequently used to estimate a value when there is a limited amount of detailed information about the project, for example, in the early phases of a project. Analogous cost estimating uses historical information and expert judgment.

Three-Point Estimating
The accuracy of single-point activity cost estimates may be improved by considering estimation uncertainty and risk and using three estimates to define an approximate range for an activity’s cost:
• Most likely (cM). The cost of the activity, based on realistic effort assessment for the required work and any predicted expenses.
• Optimistic (cO). The activity cost based on analysis of the best-case scenario for the activity.
• Pessimistic (cP). The activity cost based on analysis of the worst-case scenario for the activity.

Most likely (cM)
The cost of the activity, based on realistic effort assessment for the required work and any predicted expenses.

Pessimistic (cP)
The activity cost based on analysis of the worst-case scenario for the activity.

Optimistic (cO)
The activity cost based on analysis of the best-case scenario for the activity.

Estimate Costs: Outputs
1. Activity Cost Estimates
2. Basis of Estimates
3. Project Documents Updates

Activity cost estimates are quantitative assessments of the probable costs required to complete project work. Cost estimates can be presented in summary form or in detail. Costs are estimated for all resources that are applied to the activity cost estimate.

Determine Budget is the process of aggregating the estimated costs of individual activities or work packages to establish an authorized cost baseline. The key benefit of this process is that it determines the cost baseline against which project performance can be monitored and controlled.

Determine Budget is the process of aggregating the estimated costs of individual activities or work packages to establish an authorized cost baseline. The key benefit of this process is that it determines the cost baseline against which project performance can be monitored and controlled. A project budget includes all the funds authorized to execute the project. The cost baseline is the approved version of the time-phased project budget, but excludes management reserves.

Determine Budget: Inputs
1. Cost Management Plan
2. Scope Baseline
3. Activity Cost Estimates
4. Basis of Estimates
5. Project Schedule
6. Resource Calendars
7. Risk Register
8. Agreements
9. Organizational Process Assets