1. When estimating activity costs, one must include variable costs, fixed costs, overhead costs, raw material costs, labor costs, utility costs, transportation costs, taxes, and other expenses. Key terms like TBC, CBC, CAC, CEV, CPI, and CV were defined along with formulas to calculate each.
2. Examples were provided to demonstrate how to calculate CBC at different weeks, CAC using CEV and CPI, and CV.
3. Risk management on projects should be done from the beginning, using a risk assessment matrix to help identify, prioritize, and plan mitigation strategies for potential risks. This process needs to be revisited as projects progress since risks can change over
1. List and describe items that should be included when estimating a.pdf
1. 1. List and describe items that should be included when estimating activity costs.
2. Define the following: TBC, CBC, CAC, CEV, CPI, CV, and FCAC. How is each calculated?
3a. Refer to the table below. What is the cumulative budgeted cost at the end of week
b. Below is a table of actual costs. What is the cumulative actual cost at the end of week 6?
Determine whether there is a cost overrun or underrun. What is causing it?
c. Below is a table of the cumulative percentages of work completed by the end of week 6. What
is the cumulative earned value of the project at the end of week 6? Is it good?
d. What is the CPI at the end of week 6? What is the CV?
e. Calculate the FCAC using the first two methods described.
Method 2 – Perform the remainder of the work according to budget.
4. Describe what needs to be done to manage risk on a project. When should this be done? How
can a risk assessment matrix help in this process?
5. From your experience working on projects, list and categorize three risks. Was the response
plan for those projects adequate to mitigate these risks? How would you respond to these risks
now?
6. What risks for a project have the highest priority? Does the priority for a risk change as the
project progresses?
7. How does project risk change as a project progresses? What changes are made to the risk
assessment matrix as the changes occur?
Solution
1. When making an estimate of the costs for activities, the following items must be included:
Variable cost, fixed cost, overhead costs, factory overhead costs, sales and administration costs,
2. cost of raw materials, cost of manufacturing, cost of labor, cost of utility bills like power, water,
gas, fuel, transports, advertisement costs, corporate tax, and other petty cash expenses
Variable costs include costs that will keep varying every month - like bonuses, performance
allowances, sales volume commission – one month the sales man sells more and gets more
commission bit next month she sells less and gets less commission – hence it varies
But fixed costs are fixed and do not vary significantly. Assets like building costs, capital budgets,
heavy machineries purchased etc includes fixed cost.
And also there are few types of cost estimating like
2. Total Budget Cost = TBC:
Definitions:
CBC Citation: Project estimation process
CBC: Cumulative Budget Cost is a way to spread out the TBC for each module of task. We
prepare a budget based on time. Say a project to develop an accounting software called My Own
Business (MYOB) is estimated to take 6 months and $60,000.-
Month
Amount to be spent $
Cumulative Budget
% of total budget spent
1
5000
5000
6/60 = 31.25%
2
20,000
20,000+5000 = 25000
25/60 = 41.67 %
3
10,000
25000+10000 = 35000
35/60 = 60%
4
5,000
40000
40/60=66.67%
5
3,000
3. 43000
43/60 = 71.67 %
6
17,000
43000+17000 = 60,000
60/60 = 100%
Another example:
Task = Assemble 40 computers
Total Budgeted cost = $40,000
Pro rata = $1000 per computer
The tasks have been carried out for a week by now, and we had spent about $10,000 so far
We had managed to build (or assemble) just 7 computers (instead of the 10 computers as per the
plan) – we are falling short of 3 computers on the productivity plan.
Earned Value (EV) = Total Budget * Numbers assembled/total number of computers = 40,000 (
7/40 = 40,000 * 0.175 = $7,000
But we had spent $10,000 – hence we had expended 10,000-7000 = $3,000 more than the Earned
Value – in lay man’s terms, we are not cost effective or we are over spending and exceeding the
allotted budget
CAC: Cumulative ACTUAL COST: This is sometimes referred to as the Actual cost of the Work
performed (ACWP)
CAC formula = Cumulative Earned Value (CEV) / Cost Performance Index (CPI)
CEV = Cumulative Earned Value
CPI = Cost Performance Index
CV = Cost variance = CEV – CAC;
Example:
We made a budget of $60,000 to assemble 60 computers
But we over spent; we actually spent $70,000 (= CAC) and assembled just 35 computers (very
pathetic performance!) So the Earned value is just = total budget * num made / num total =
60,000 * 35/60 = $35,000
EV = 35,000
CEV = 70,000 * 35/60 = 40,833.33
CPI = CEV / CAC = 40,833.33 / 70,000 = 0.58
CV = CEV – CAC
= 40,833.33 – 70,000 = -$29,166.67
Formula to calculate each was given above.
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