Cost estimating and budget control
Cost estimating and budget control
This domain tests estimating methods, contingency, and earned value management.
Core rules
- Estimating methods: analogous (top-down, historical), parametric (unit rates), bottom-up (WBS-based), three-point (optimistic, most likely, pessimistic).
- Budget = cost baseline + contingency for identified risks + management reserve for unknown unknowns, controlled by the sponsor.
- Earned value: PV is planned value, EV is earned value, AC is actual cost. CV = EV - AC; SV = EV - PV; CPI = EV/AC; SPI = EV/PV.
- Forecast EAC = BAC/CPI when current performance continues; ETC = EAC - AC.
- Control changes to the cost baseline through change control.
Worked example
BAC is 100k. At month 4, PV = 40k, EV = 36k and AC = 39k. CV = -3k, so over budget; SV = -4k, so behind schedule; CPI = 0.923; SPI = 0.9. EAC = 100/0.923 = 108.3k. Reasoning: negative variances show poor performance, and EAC assumes the same efficiency continues. Management reserve is not used unless the sponsor approves.
Traps
- Mixing contingency and management reserve, or letting the project manager spend reserve freely.
- Using SPI on a critical-path activity as if it predicts completion.
- Forgetting that EV must be based on accepted deliverables, not effort.
- Re-baselining without authority to hide overruns.
- Ignoring escalation and currency in estimates.