1.

Discuss why many information technology professionals may overlook project

cost management and how this might affect completing projects within budget.
Many information technology professionals have a poor attitude toward project cost man
agement because they have had bad experiences in the past, they think it is a job for ac
countants, and they have not been trained on creating and adhering to cost estimates.
This negative attitude contributes to the poor track record of completing projects within b
udget.
2.Explain some of the basic principles of cost management, such as profits, life c
ycle costs, tangible and intangible costs and benefits, direct and indirect costs, r
eserves, and so on.
Definitions of all of these terms are provided in the text and list of key terms

3.Give examples of when you would prepare rough order of magnitude (ROM), bu
dgetary, and definitive cost estimates for an information technology project. Give
an example of using each of the following techniques for creating a cost estimate
: analogous, parametric, and bottom-up.
Answers will vary. A rough order of magnitude estimate for providing new laptops for 10
0 people might be $250,000. A budgetary estimate would break down the estimate to in
clude hardware, software, detailed assumptions (for example, if the estimate is just for t
he purchase cost or is for a 2 to 4 year project life), and so on. A definitive estimate wo
uld be much more detailed and accurate than a rough estimate or budgetary estimate a
nd would include vendor quotes.
Using the example of providing new laptops for 100 people, one possible response for
examples of each type of estimating techniques follows:
• Analogous estimate: You could research similar organizations that recently purc
hased about the same number and type of laptops.
• Parametric estimate: You could decide on key factors, such as the basic catego
ry of laptop required and other requirements, and estimate costs using those pa
rameters. For example, you might estimate that the laptops would cost about $2
,000 each and that another $500 per unit would be required for support costs.
• Bottom-
up estimate: You could determine detailed hardware and software requirements
, training, and support costs to create an estimate.
4.Explain what happens during the process to determine the project budget.
Project cost budgeting involves allocating the project cost estimate to individual work ite
ms over time to create a cost baseline. For example, you may need to break down cost
s into specific categories like travel, compensation, etc. for each month so funds can be
allocated and tracked.
5.Explain how earned value management (EVM) can be used to control costs and
measure project performance and speculate as to why it is not used more often.
What are some general rules of thumb for deciding if cost variance, schedule vari
ance, cost performance index, and schedule performance index numbers are goo
d or bad?
Earned value analysis is a project performance technique that integrates scope, time, a
nd cost data. It is the preferred method for measuring project performance because it in
cludes all three dimensions of the triple constraint. It is not used more often because it i
s difficult to create a good baseline for cost, time, and scope estimates, and it is difficult
to enter actual information (percentage of work complete and actual time and cost numb
ers) in a timely manner. Negative variance numbers are bad. For example, a cost varia
nce of -
$1000 means it cost more than planned. A performance index below 100 percent is ba
d. For example, a schedule performance index of 80 percent means the project or activi
ty is behind schedule.
6.What is project portfolio management? Can project managers use it with earned
value management?
Project portfolio management is when organizations collect and control an entire suite of
projects or investments as one set of interrelated activities. Yes, you can use earned v
alue management along with project portfolio management.
7.Describe several types of software that project managers can use to support pr
oject cost management.
Spreadsheet software is often used to develop cost estimates, budgets, and other cost
management information. There are also specialized financial applications software pa
ckages, project management software, and portfolio management software to assist wit
h project cost management.
Assignment Name: Schwalbe, Information Technology Project Management 6e, Chapter 7

The ________ is the additional percentage or dollar amount by which actual costs exceed estimates.
a. cost baseline

b. sunk cost
1

c. cost overrun

d. profit margin

Which of the following processes of project cost management involves allocating the overall cost estimate to individual work items to establish a baseline for measuring
performance?
a. cost estimating

b. cost control
2

c. cash flow analysis

d. cost budgeting

Which of the following processes of project cost management involves developing an approximation of the costs of the resources needed to complete a project?
a. cost control

b. cash flow analysis

3

c. cost budgeting

d. cost estimating

The main outputs of the ________ process are work performance measurements, budget forecasts, organizational process asset updates, change requests, project
management plan updates, and project document updates.
a. cost estimating

b. cost budgeting
4

c. cost control

d. cash flow analysis

To increase ________, a company can increase revenues, decrease expenses, or try to do both.
a. rate of performance

b. profits
5

c. cost baselines

d. reserves

6 A company might complete a project to develop and implement a new customer service system in one or two years, but the new system could be in place for ten years.
Project managers should create estimates of the costs and benefits of the project for ten years. This is an example of ________.
a. cash flow analysis
 b. cost budgeting

c. life cycle costing

d. parametric modeling

Avoid ________ when deciding what project to invest in or continue.

a. intangible costs

b. indirect costs
7

c. sunk costs

d. direct costs

________ for projects often include items like goodwill, prestige, and general statements of improved productivity that an organization cannot easily translate into dollar
amounts.
a. Sunk cost

b. Direct costs
8

c. Indirect costs

d. Intangible costs

________ are used for making many purchasing decisions for which accurate estimates are required and for estimating final project costs.
a. Budgetary estimates

b. Definitive estimates
9
c. Analogous estimates

d. Rough order of magnitude (ROM) estimates

Which type of estimate is done very early in a project or even before a project is officially started?
a. rough order of magnitude (ROM) estimate

b. definitive estimate
10
c. budgetary estimate

d. analogous estimate

The drawback with ________ is that they are usually time-intensive and therefore expensive to develop.
a. parametric modeling

b. definitive estimates
11

c. top-down estimates

d. bottom-up estimates

12 A ________ might provide an estimate of $50 per line of code for a software development project based on the programming language the project is using, the level of
expertise of the programmers, the size and complexity of the data involved, and so on.
 a. bottom-up estimate

b. parametric model

c. definitive estimate

d. top-down estimate

Which type of estimate uses the actual cost of a previous, similar project as the basis for estimating the cost of the current project?
a. definitive estimate

b. bottom-up estimate
13
c. parametric model

d. top-down estimate

A(n) ________ is a time-phased budget that project managers use to measure and monitor cost performance.
a. cost baseline

b. actual cost
14

c. baseline

d. cost performance index

The ________ is an estimate of the value of the physical work actually completed.
a. actual cost (AC)

b. rate of performance (RP)

15

c. planned value (PV)

d. earned value (EV)

Suppose a project included a summary activity of purchasing and installing a new Web server. Suppose further that, according to the plan, it would take one week and
cost a total of $10,000 for the labor hours, hardware, and software involved. The ________ for that activity that week is, therefore, $10,000.
a. planned value (PV)

b. rate of performance (RP)

16

c. actual cost (AC)

d. earned value (EV)

17 Which of the following is the earned value minus the actual cost?

a. schedule variance (SV)

b. cost variance (CV)

c. schedule performance index (SPI)

d. cost of performance index (CPI)

 Which of the following is the ratio of earned value to planned value and can be used to estimate the projected time to complete the project?
a. schedule performance index (SPI)

b. cost of performance index (CPI)

18
c. schedule variance (SV)

d. cost variance (CV)

Which of the following is the earned value minus the planned value?
a. cost of performance index (CPI)

b. schedule performance index (SPI)

19

c. cost variance (CV)

d. schedule variance (SV)

Which of the following is the ratio of earned value to actual cost and can be used to estimate the projected cost of completing the project?
a. cost of performance index (CPI)

b. cost variance (CV)

20

c. schedule performance index (SPI)

d. schedule variance (SV)