Product Management: Cost Estimation Flashcards
7 cards from real Product Management practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
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A PM uses a cost estimation technique that relies on statistical relationships between historical data and project variables. Which technique is this?
Answer: Parametric estimating
Parametric estimating uses statistical relationships between historical data and project variables (e.g., cost per unit) to calculate estimates.
What does the term 'cost baseline' refer to in product management?
Answer: The approved time-phased budget used to measure project performance
The cost baseline is the approved, time-phased budget against which project cost performance is measured and monitored.
A product team is estimating a new feature with high uncertainty. They use optimistic (O), pessimistic (P), and most likely (M) estimates. Which formula gives the PERT expected value?
Answer: (O + 4M + P) / 6
The PERT formula weights the most likely estimate four times more than the optimistic and pessimistic estimates: (O + 4M + P) / 6.
Sunk costs should generally be ignored when making future product investment decisions. Why?
Answer: They are already spent and cannot be recovered regardless of future decisions
Sunk costs are irrecoverable past expenditures that should not influence future decisions, which should be based on expected future costs and benefits.
Which cost estimation approach involves estimating each individual work package and rolling them up to get the total project cost?
Answer: Bottom-up estimating
Bottom-up estimating breaks work into the smallest components, estimates each one individually, then aggregates them for the total estimate.
A PM calculates a Cost Performance Index (CPI) of 0.85. What does this indicate?
Answer: For every dollar spent, only 85 cents of value is being delivered
A CPI below 1.0 means the project is over budget — only $0.85 of earned value is produced for every $1.00 actually spent.
What is 'reserve analysis' in the context of product cost estimation?
Answer: Setting aside contingency funds for identified risks and management reserves for unknown risks
Reserve analysis involves adding contingency reserves for known risks and management reserves for unknown risks to protect the overall budget.