Cost Control and Budgeting Flashcards

What is the primary goal of cost control in project management?

Answer: To keep project costs within budget

The primary goal of cost control in project management is to monitor project expenditures, manage changes to the cost baseline, and ensure that project costs remain within the approved budget. This involves identifying variances from the plan and taking corrective actions to bring costs back into alignment. Effective cost control is crucial for project financial health and success.

Which budgeting method allocates funds based on prior period spending?

Answer: Historical budgeting

Historical budgeting is a method where the current budget is prepared by using past period's budget or actual performance as a baseline. Adjustments are then made for anticipated changes, such as inflation or new activities. While simple, it can perpetuate inefficiencies if not critically reviewed.

Which tool is commonly used to track project expenses against the budget?

Answer: Earned value management (EVM)

Earned Value Management (EVM) is a powerful project management methodology that integrates scope, schedule, and cost to objectively measure project performance. It allows project managers to track actual expenses against the planned budget and the value of work completed. EVM provides key metrics like Cost Variance and Cost Performance Index to assess financial health.

Which cost estimation technique relies on expert judgment and past project data?

Answer: Analogous estimating

Analogous estimating is a top-down cost estimation technique that uses the actual cost or duration of a previous, similar project as the basis for estimating the current project. It relies heavily on expert judgment and historical data, making it a quick but less precise method, often used in the early stages of a project when detailed information is scarce.

What is the primary purpose of a contingency reserve in budgeting?

Answer: To cover unforeseen project costs

A contingency reserve is an amount of money or time included in a project budget to cover unforeseen events or risks that may occur during the project lifecycle. These are known unknowns, meaning potential issues are identified but their exact impact or occurrence is uncertain. It provides a buffer against unexpected costs without impacting the project's baseline budget.

Which metric measures the cost efficiency of a project?

Answer: Cost performance index (CPI)

The Cost Performance Index (CPI) is a key Earned Value Management (EVM) metric that measures the cost efficiency of a project. It is calculated by dividing the Earned Value (EV) by the Actual Cost (AC). A CPI greater than 1 indicates the project is under budget, while a CPI less than 1 means it is over budget, providing a clear indicator of financial performance.