Cost Estimation & Budgeting Flashcards

In a three-point estimate, if the optimistic estimate is $80,000, pessimistic is $140,000, and most likely is $100,000, what is the PERT weighted average?

Answer: $101,667

PERT = (O + 4M + P) / 6 = ($80,000 + 4×$100,000 + $140,000) / 6 = $610,000 / 6 = $101,667.

Which type of cost is directly traceable to a specific cost object such as a product or project?

Answer: Direct cost

Direct costs are those that can be specifically identified with and traced to a particular cost object without allocation.

What does the term 'cost normalization' refer to in cost estimating?

Answer: Adjusting historical costs to a common time period using indices

Cost normalization adjusts historical cost data to a common base year using escalation indices to enable valid comparisons.

A project budget shows $300,000 for materials, $150,000 for labor, and $50,000 for equipment. If overhead is applied at 25% of direct labor, what is the total project budget?

Answer: $537,500

Overhead = 25% × $150,000 = $37,500; Total = $300,000 + $150,000 + $50,000 + $37,500 = $537,500.

Which scheduling technique creates a time-phased budget by spreading cost estimates across the project schedule?

Answer: Cost loading

Cost loading distributes estimated costs across the project schedule to create a time-phased expenditure plan.

What is the key distinction between a budget and a forecast in project cost management?

Answer: A budget is the approved plan; a forecast predicts future cost performance

The budget represents the approved cost baseline, while a forecast is a prediction of the final cost based on current performance data.

In capital cost estimating for process plants, what does the 'battery limits' boundary define?

Answer: The physical boundary of the process unit excluding offsite facilities

Battery limits define the geographic boundary of a process unit, separating inside battery limit (ISBL) costs from outside battery limit (OSBL) costs.