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Additional PM Information
Cost Management & Earned Value

"Customers pay only for what is of use to them and gives them value. Nothing else constitutes quality…"
Peter F. Drucker

PMP Module 7 + PMBOK® Guide Chapter 7 

These notes are supplementary information that expand on the core information contained in Mosaic's PMP Exam Prep courses. Whilst not central the the PMP exam requirements the materials are intended to add value to our course notes and increase the overall richness of the materials as a project management reference resource. Topics planned for this page include:

Earned Value Management
 
- PMI Practice Standard for Earned Value Management is available free of charge to PMI members as a non-printing PDF
     For instructions on downloading the PDF see: http://www.mosaicprojects.com.au/Books.html
 
Our How To Implement Earned Value Business Management workshop is designed to teach the skills needed to use EV in a business setting [view workshop details].
 
- White Paper: Earned Value Formulae
- Blog (Nov. 2008): CPI Stability Myth
- Blog (Nov. 2008): Earned Schedule
- Blog (Jan. 2009): Earned Value Confusion = No Value   
 
- Paper: Earned Value - An Introduction to the Basic Principals
- Paper: Earned Value Business Management

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Cost Estimating
   
Cost Uncertainty There is no such thing as a 100% accurate estimate. What is important is understanding the degree of error likely in any estimate.  The primary driver of uncertainty is the degree of technical uncertainty in the project, what we don't know about the how the work will be accomplished and how long the work will actually take to do.  There are also inherent errors in the cost estimating process, including variability in the price paid for goods and services in the future and the estimating process itself.

PMI expects every estimate to be accompanied by a range indicator of some form.  The important effect of cognitive biases on the way estimates are developed is discussed in WP1069.
The basic managment framework for developing a cost estimate is outlined in WP1051

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Cost Budgeting & Control
   
Notes on Effective Project Cost Control By Alan Stretton, PhD.  The notes briefly discuss the percentage completed problem; the evaluation of current performance and forecasting final costs and variances; focus of control on negative and positive variances; commitment costing; control by self control; project change control; and formal and informal project control.
 
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Finance and Accounting

Financial Ratios are used to assess the viability of a business some of the key assessments are:

  -  The 'Quick Ratio' measures liquidity (availability of cash) a ratio of 1:1 is acceptable.
     Quick Ratio = (Cash + Government Securities + Receivables) / Total Current Liabilities

  -  The 'Current Ratio' measures financial strength a ratio of 2:1 is acceptable.
     Current Ratio = Total Current Assets / Total Current Liabilities

  -  'Working Capital' measures cash flow. a positive value is acceptable.
      Working Capital =
Total Current Assets - Total Current Liabilities
   

   
Depreciation is discussed in WP1063, including the 'double declining balance' and the 'sum-of-the-years'-digits' methods.

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