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AIC AO: Budgeting, Costs, and Cost Control

AIC AO · Work through your exam, one topic at a time.

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Budgeting, Costs, and Cost Control

Budgeting, Costs, and Cost Control tests how the project budget is built, tracked, and forecast. Expect cost codes, commitments, actual costs, earned value, variances, productivity, cash flow, and change control.

Core rules

  • The budget is the approved allocation of cost by cost code; the estimate is the pre-bid prediction. Commitments are executed subcontracts and purchase orders, not yet necessarily paid.
  • Earned value uses PV (planned value), EV (earned value), and AC (actual cost). CV = EV - AC; SV = EV - PV; CPI = EV/AC; SPI = EV/PV.
  • EAC forecasts final cost. If current efficiency continues, EAC = BAC/CPI. ETC = EAC - AC.
  • Contingency covers identified risk; it is not profit and should be managed separately.
  • Change control requires written authorization, pricing, and budget revision before work proceeds.

Worked example. BAC = $500,000; PV = $200,000; EV = $180,000; AC = $210,000. CV = -$30,000 (over budget); SV = -$20,000 (behind schedule); CPI = 0.857; SPI = 0.90. At the current cost efficiency, EAC = $500,000 / 0.857 = $583,333. The project needs a recovery plan or a revised forecast, not just a lower contingency.

Traps

  • Using actual cost as a substitute for earned value.
  • Ignoring committed costs when forecasting.
  • Inverting CPI or SPI formulas.
  • Treating contingency as available profit.
  • Approving changes without revising the budget.