FREE Product Management: Cost Estimation Questions and Answers
Claims that when a large number of products are manufactured repeatedly, their unit costs decline in a predictable manner as more units are created.
"Learning Curve Theory" states that as the production or repetition of a task increases, the unit cost of producing those items decreases in a predictable and regular pattern. This reduction in unit cost is attributed to the increase in efficiency and skill gained through experience, practice, and learning over time.
The excess percentage or quantity in terms of money by which actual expenses surpass projections
"Overrun" is a term commonly used in project management and cost estimation. It refers to the additional percentage or dollar amount by which the actual costs of a project exceed the initial cost estimates or budget. Overruns indicate that the project's actual expenses have gone beyond what was originally planned or expected.
Amounts included in a cost estimate to reduce expense risk by accounting for difficult-to-predict future events
Contingency reserves are dollars included in a cost estimate to account for potential future situations or risks that are difficult to predict or quantify accurately. These reserves provide a cushion to address unforeseen circumstances that might impact the project's cost or schedule.
Costs that may be directly tied to providing the project's goods and services
"Direct Costs" are expenses that can be specifically and directly attributed to the production, creation, or execution of a particular product, service, or project. These costs are directly associated with the activities or resources used in delivering the end result.
Allow for potential future events that may only be partially anticipated and taken into account in the project baseline.
"Estimating Costs" refers to the process of developing an approximation or estimate of the costs associated with the resources required to complete a project. It's a critical aspect of project management that helps in budgeting, financial planning, and decision-making.
Costs or advantages that are challenging to quantify in money
"Intangible Costs or Benefits" refer to costs or benefits that are challenging to measure or quantify in monetary terms. These are factors that impact a project, product, or organization's overall value but are not easily expressed in concrete financial figures.
Expenses minus revenues
"Profits" refer to the financial gain that remains after deducting total expenditures (including costs and expenses) from total revenues. It's a measure of the surplus or net income generated by a business or individual after accounting for all the costs associated with their operations.
Money that has already been spent
"Sunk Cost" refers to money or resources that have been expended in the past and cannot be recovered. These costs are irrelevant to future decision-making because they cannot be changed, regardless of any choices made moving forward.
The procedures needed to make sure a project team finishes a project within a budget that has been approved
"Project Cost Management" refers to the collection of processes and activities involved in planning, estimating, budgeting, monitoring, controlling, and managing costs to ensure that a project is completed within an approved budget. It's one of the ten knowledge areas defined in the Project Management Body of Knowledge (PMBOK) by the Project Management Institute (PMI).
Calculating a rough estimate of the expenses of the resources required to finish a project
"Estimating Costs" refers to the process of developing an approximation or estimate of the costs associated with the resources required to complete a project. It's a critical aspect of project management that helps in budgeting, financial planning, and decision-making.
Used to add funds to a budget for a company
A "Budgetary Estimate" is an early-stage cost estimation used to allocate funds or resources within an organization's budget for a particular project, initiative, or activity. It provides a preliminary, high-level estimate of the potential costs associated with the planned endeavor.
Benefits or costs that may be easily measured in dollars by an organization
"Tangible Costs or Benefits" refer to costs or benefits that can be quantified and measured in monetary terms. These are factors that have a clear, measurable, and direct impact on the organization's financial performance and can be easily expressed in dollars.
Costs that are indirectly tied to the project's performance but not directly related to the goods or services it produces or provides
"Indirect Costs" (also known as "Overhead Costs") are expenses that are not directly tied to the production or creation of a specific product or service, but they are incurred as a result of conducting the project or running the business. These costs are necessary for the overall operation and management of the organization or project, even though they don't have a direct relationship with the end product.
A comprehensive analysis of a project's life cycle costs
"Life Cycle Costing" is a comprehensive approach to evaluating the total cost of a project, product, or asset over its entire life cycle, from inception and design through production, operation, maintenance, and disposal. It takes into account both the initial costs and the ongoing costs associated with the entire life span of the project or asset.
Recognize that future events may be unpredictable.
"Management Reserves (Unknown Unknowns)" refer to the allocation of extra time, resources, or funds beyond the project's budget or schedule to account for unforeseeable future situations or risks that are completely unpredictable. These reserves are set aside to address uncertainties that were not identified or planned for during the project's initial planning stages.
Gives a rough cost estimate for a project.
A "Rough Order of Magnitude (ROM) Estimate" provides a preliminary, high-level estimate of the potential cost, effort, or duration of a project. It is typically provided early in the project planning phase when limited information is available. ROM estimates are often broad and can have a wide range of accuracy.