Cost Management contains four processes: Plan Cost Management, Estimate Costs, Determine Budget, and Control Costs. Cost estimates come in three levels of accuracy. A Rough Order of Magnitude (ROM) estimate ranges from −50% to +100% and is used very early. A budget estimate ranges from −10% to +25%. A definitive estimate ranges from −5% to +10%. Analogous (top-down) estimating uses historical data from similar past projects, while parametric estimating uses a statistical relationship such as cost per unit multiplied by quantity. Bottom-up estimating estimates each work package or activity and rolls them up; it is the most accurate method but also the most time-consuming and expensive.
Three-point estimating, often called PERT or the beta distribution, uses \( TE = (O + 4M + P) / 6 \), where O is the optimistic estimate, M is the most likely, and P is the pessimistic. The standard deviation of this estimate is \( \sigma = (P - O) / 6 \), because the P − O range spans approximately six standard deviations. Cost aggregation sums costs by WBS element or activity, and the resulting time-phased, approved amount becomes the cost baseline, which is used to measure performance. The cost management plan specifies units of measure, precision, control thresholds, rules for measuring performance, and reporting formats. Funding limit reconciliation aligns planned expenditures against constraints such as fiscal-year disbursement limits, and a control account plan specifies the planned value (PV) of all work authorized for a given control account.
Earned Value Management compares three numbers. Planned Value (PV) is the authorized budget for work scheduled to be completed by a given point in time — what should have been earned. Earned Value (EV) is the value of work actually completed expressed in the budget for that work — what was physically earned. Actual Cost (AC) is the realized cost incurred for the work performed during a given period. The variances and indices derived from these are central to the exam: \[ CV = EV - AC \] (cost variance) and \[ SV = EV - PV \] (schedule variance). The indices are \[ CPI = EV / AC \] (cost performance index) and \[ SPI = EV / PV \] (schedule performance index). A CPI or SPI greater than 1.0 means performance is better than plan, equal to 1.0 means on plan, and less than 1.0 means worse.
Forecasting extends earned value to project completion. The Budget at Completion (BAC) is the original budget. The Estimate at Completion (EAC) is the forecast based on actual performance; the most common formula is \( EAC = BAC / CPI \), which extrapolates current cost efficiency to the end. The Estimate to Complete (ETC) is the remaining work, computed as \( ETC = EAC - AC \). Variance at Completion (VAC) is \( VAC = BAC - EAC \); a positive value means the project is forecast to finish under budget. The To-Complete Performance Index (TCPI) is the efficiency required to finish on budget, computed as \[ TCPI = (BAC - EV) / (BAC - AC) \]. A TCPI greater than 1.0 means the remaining work must be performed more efficiently than the work already done.