Project Management Exam 2 Chapter 7 Budgeting In order to develop a budget, the PM must forecast: the resources required, when resources will be needed, and the cost of the resources. (All of the above) A work element whose cost is fully developed would include direct costs plus overhead and G&A charges. If projects include repetitive tasks with significant human input, the learning rate should be factored into the cost estimate. Project budgeting aggregates income and expenditures by project or program, often in addition to aggregation by organizational unit or activity. Direct costs vary with output Indirect costs are not associated with any specific product or class of products and are typically charged as a fixed percentage of some direct cost Unless the project manager is familiar with the firm’s accounting system it will be very difficult to exercise budget control Research suggests that lower level managers and project team members believe that senior managers have a strong bias towards under estimating cost. The bottom-up budgeting form of budgeting has the advantage of using individuals closer to the work to provide estimates of resource requirements A possible reason for the poor record of project cost overruns is: scope creep, project managers use optimistic cost estimates, project managers are unaware of some costs. ( All of the above) The authors identify random and systematic estimation errors as the two types of generic estimation errors The pattern of deviations in cost and usage used for exception reporting to management is called variances. An easy method of evaluating risk in certain situations by modifying project parameters and evaluating the corresponding changes is Monte Carlo simulations When we do a Monte Carlo simulation, we put a probability distribution on which of the following?
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