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1. What are the processes (discussed in class) involved in project cost / budget management. The processes involves in the management of cost and budget are the; identification of the plan. There are 4 processes for project cost management:  Planning cost management :determining the policies, procedures, and documentation that will be used for planning, executing, and controlling project cost.  Estimating costs: developing an approximation or estimate of the costs of the resources needed to complete a project  Determining the budget: allocating the overall cost estimate to individual work items to establish a baseline for measuring performance  Controlling costs: controlling changes to the project budget 2. Why is it important for a PM to understand financial terms? Define the following financial terms: profit, profit margin, life cycle costing and cash flow analysis. The PM is the main person who regulates the projects after getting the complete information. It is essential for the PM to understand each and every term related with the project to execute the project according to his full knowledge. These are the few financial terms that may help the PM to understand the project: Profit: Profit calculation is revenues minus expenditures. Profit margins: These are the ratios of revenues to profits. Life cycle costing: This cycle is a clearer picture of the cost invested in a projected throughout the life of the project. It also reveals the cost and benefits associated with the life cycle. Cash flow analysis: This analysis enables the manager to evaluate the cash projected in the project and benefit from the project in terms of cash. Along with that it also depicts the rough draft of in and out of cash related with a specific project. 3. What are costs? What are benefits? What tangible cost and benefits? What are in intangible cost and benefits? What direct and indirect cost? Costs are the monetary value projected by a company to achieve some benefit. Benefits are the expected outcome related with specific expense or associated with a cost such as purchase of building or machinery etc. Tangible costs or benefits are those terms that can be calculated or evaluated by the organization in monetary terms. Intangible costs or benefits are those that are difficult to measure in monetary terms such as goodwill calculation, prestige etc. Direct costs are costs that can be directly related to producing the products and services of the project. Indirect costs are those that are not directly related to the products or services of the project, but are indirectly related to performing the project. 4. What is earned value (EV)? Explain how earned value management can be used to control costs and measure project performance. The earned value is also known as the budgeted cost of work performed, is an estimation of the physically completed work related with a project. It is based on the original planned costs for the project or activity and the rate at which the team is completing work on the project or activity to date. A baseline is the figure in the original project plan plus approved changes. With the assistance of the cost performance baseline, the PM and their teams can evaluate the project meeting scope, time and cost goals by entering actual information and then comparing it to the baseline. 5. Given the following information for a one year (12 months) project: PV = $23,000 EV = $20,000 AC = $25,000 BAC = $120,000 Answer the following questions: a. What is the cost variance (CV), schedule variance (SV), cost performance index (CPI) and schedule performance index (SPI) for the project? Cost variance (CV) = earned valued (EV) - actual cost (AC): 20,000 - 25000 = -$5000 Schedule variance (SV) is the earned value (EV) - planned value (PV): 20000 - 23000 = -$3000 Cost performance index (CPI) = ratio of EV to AC: 20000/25000 = .8, or 80% Schedule performance index = ratio of EV to PV: 20000/23000=.87 or 87% b. How is the project doing? Is it ahead of schedule, on schedule or behind schedule? Is it under budget, on budget or over budget? The project is behind schedule and a over budget. c. Use the CPI to calculate the estimate at completion (EAC) for this project. Is the project performing better than planned, as planned as or worse than planned? EAC = BAC / CPI: 120000/.8 = $150,000 The project is performing worse than planned, because it’s expensive d. Use the SPI to estimate how long it will take to complete the project.Time to completion = original time estimate/SPI: 12/.87 = 13.79 months 6. In assignment 4 & 5 you developed the scope and schedule for a new Self-checkout Point of Sale (cash register) system in TU’s University Store. That project required at least 4 summary tasks and 12 primary tasks. Using the Excel template (attached in BB) create a Project Cost Estimate (like the sample below) for you Self-checkout project. Be sure to include the cost for each primary task. Provide summary task totals and percentage of total project cost. Copy and paste the Project Cost Estimate worksheet into your word document (make sure it fits page and is readable) and answer the questions below: Sample Project Cost Estimate a. What is the total cost of the project? $49.795 b. What is the cost of each summary task (level 1 of your WBS - 1., 2., 3., etc. )? Level 1 = $1050 Level2= $15.395 Level3=$32.550 Level4=$800 c. What summary task for the project is the most costly? Executing and costing $32.550
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