Cost Estimation & Budgeting Flashcards
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Read the first 7 Cost Estimation & Budgeting flashcards as text
When preparing a cash flow forecast, which component represents the timing difference between when costs are incurred and when payments are made?
Answer: Payment lag
Payment lag is the delay between incurring a cost and actually disbursing payment, which affects the timing of cash outflows.
A definitive estimate for a construction project typically has an accuracy range of:
Answer: -5% to +10%
A definitive (Class 1) estimate is the most accurate, prepared from complete design documents, with a typical accuracy of -5% to +10%.
What is the difference between 'cost of work' and 'value of work done' in progress measurement?
Answer: Cost of work is actual expenditure; value of work done is the budgeted cost of completed work
Cost of work (actual cost) measures what was spent, while value of work done (earned value) measures the budgeted cost of physically completed work.
Which cost estimating technique is best suited when a new project is similar to a previously completed project but with known differences in scope or size?
Answer: Analogous estimating with adjustments
Analogous estimating with adjustments uses historical data from a similar project and modifies it to account for known differences.
In project budgeting, 'management reserve' differs from 'contingency reserve' primarily because:
Answer: Management reserve is for unknown unknowns; contingency reserve is for known unknowns
Management reserve covers unforeseeable events (unknown unknowns), while contingency reserve covers identified risks (known unknowns) that may or may not occur.
What is the purpose of a cost risk analysis (Monte Carlo simulation) in estimating?
Answer: To quantify the probability of completing the project within a given budget
Monte Carlo simulation runs thousands of iterations with random variable values to produce a probability distribution of possible cost outcomes.
Which document formally authorizes a project team to incur costs against a specific work package or control account?
Answer: Work authorization document
A work authorization document (WAD) formally authorizes the performer to begin work and charge costs to a specific control account.