Cost Estimating, Budgeting, and Earned Value Management
What the exam tests
Cost management covers estimate quality, budget composition, and earned value interpretation. You must distinguish estimates from the approved baseline and choose the right EVM formula.
Core rules
- Analogous estimating uses historical similarity; parametric uses a unit rate; bottom-up sums detailed estimates; three-point uses optimistic, most likely, and pessimistic values.
- The cost baseline is the approved, time-phased budget used to measure performance. Contingency reserves cover known unknowns and sit in the baseline; management reserve covers unknown unknowns and sits above it.
- EVM: PV is planned value, EV is earned value, AC is actual cost. CV=EV−AC; SV=EV−PV; CPI=EV/AC; SPI=EV/PV. EAC=BAC/CPI when current cost performance continues; ETC=EAC−AC; VAC=BAC−EAC.
- TCPI=(BAC−EV)/(BAC−AC) shows the cost performance needed to finish within BAC.
Worked example
BAC=$200k; PV=$80k; EV=$70k; AC=$90k. CV=$70k−$90k=−$20k (over budget); SV=$70k−$80k=−$10k (behind schedule); CPI=0.875; SPI=0.875. If performance continues, EAC=$200k/0.875=$228.6k, so VAC=$200k−$228.6k=−$28.6k. Reasoning: spending more than earned value lowers CPI; EAC extrapolates that rate, not wishful recovery.
Traps
- Mixing up PV and AC, or reversing variance signs.
- Including management reserve in the cost baseline.
- Using an EAC formula that assumes recovery without evidence.
- Reporting SPI as schedule health when critical-path work is late.