Budgeting and Cost Control
Cost management covers planning, estimating, budgeting, and controlling costs. Candidates should know cost estimating techniques (analogous, parametric, bottom-up, three-point), the cost baseline, contingency reserves (for identified risks) versus management reserves (for unknown-unknowns), and earned value management (EVM) formulas. Master the core EVM metrics: planned value (PV), earned value (EV), actual cost (AC), cost variance (CV = EV − AC), schedule variance (SV = EV − PV), cost performance index (CPI = EV/AC), schedule performance index (SPI = EV/PV), estimate at completion (EAC), and variance at completion (VAC).
Traps: sign confusion - positive CV and SV are favorable; negative are unfavorable. Index values above 1.0 are favorable. Questions often test whether reserves are part of the baseline: contingency reserves are typically in the cost baseline; management reserves sit above it and require sponsor approval to use. Another trap is using SPI to predict cost; schedule variance is expressed in cost terms but reflects schedule performance.
Rule of thumb: CPI below 1.0 means spending more than planned for work performed; EAC = BAC/CPI is a common forecast when current performance is expected to continue.
Worked example: BAC = 100,000; EV = 40,000; AC = 50,000; PV = 45,000. CPI = 0.80 (over budget), SPI = 0.89 (behind schedule), CV = −10,000, SV = −5,000, EAC = 100,000/0.80 = 125,000.