Cost Estimation & Budget Control Flashcards

A project's EAC is calculated as AC + (BAC - EV). This formula assumes:

Answer: The remaining work will be completed at the originally planned rate

EAC = AC + (BAC - EV) assumes all remaining work will be performed exactly as planned (at budget), ignoring past cost performance.

Which cost component is typically NOT included in the project cost baseline?

Answer: Management reserve

Management reserve is held outside the cost baseline for unknown unknowns and is not part of the time-phased budget.

In a fixed-price contract, who bears the cost risk if actual project costs exceed the contract price?

Answer: The seller

In a fixed-price contract, the seller assumes cost risk because they must deliver at the agreed price regardless of actual costs.

What is life cycle costing in project management?

Answer: Considering total costs from inception through disposal when making decisions

Life cycle costing evaluates all costs over a product or asset's entire life — from acquisition through operations and disposal — for informed decision-making.

A project has a BAC of $200,000, EV of $80,000, and AC of $100,000. What is the Estimate to Complete (ETC) using the typical CPI-based EAC?

Answer: $150,000

CPI = 80/100 = 0.8; EAC = 200,000/0.8 = $250,000; ETC = EAC - AC = $250,000 - $100,000 = $150,000.

Which type of cost is directly traceable to a specific project deliverable or work package?

Answer: Direct cost

Direct costs can be directly attributed to a specific project activity or deliverable, such as labor or materials specific to that work.

Value Engineering (VE) is primarily used in cost management to:

Answer: Identify ways to reduce costs while maintaining required functionality

Value Engineering analyzes project functions to find the least-cost way to achieve required performance without sacrificing quality.