The Secret

CHAPTER 7

Project Cost Management

DISCUSSION QUESTIONS

1. Explain some of the basic principles of cost management, such as profits, life cycle costs, tangible and intangible costs and benefits, direct and indirect costs, and reserves.

Definitions of all of these terms are provided in the text and list of key terms.

2 What is meant by a sunk cost? Give examples of typical sunk costs for an IT project as well as examples from your personal life. Why is it difficult for people to ignore them when they should?

A sunk cost is money that has been spent in the past. It is difficult to ignore them because people tend to include them in decisions about the future when they should not. That money is gone and will never come back.

3 Give examples of when you would prepare rough order of magnitude, budgetary, and definitive cost estimates for a project providing 100 new laptops for students to borrow on campus.

A rough order of magnitude estimate for providing new laptops for 100 people might be $250,000. A budgetary estimate would break down the estimate to include hardware, software, detailed assumptions (for example, if the estimate is just for the purchase cost or is for a 2 to 4 year project life), and so on. A definitive estimate would be much more detailed and accurate than a rough estimate or budgetary estimate and would include vendor quotes.

4 Explain how earned value management (EVM) can be used to control costs and measure project performance and speculate as to why it is not used more often. What are some general rules of thumb for deciding if cost variance, schedule variance, cost performance index, and schedule performance index numbers are good or bad?

Earned value analysis is a project performance technique that integrates scope, time, and cost data. It is the preferred method for measuring project performance because it includes all three dimensions of the triple constraint. It is not used more often because it is difficult to create...