2. 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, reserves, and so on. Cost management involves the process to ensure a project team completes a project within an approved budget. Profits, which are revenues after subtracting expenses. The life cycle costs, includes total cost of ownership or development, plus project support costs. Costs or benefits are tangible, when they are easily measured in dollars. The intangible costs and benefits are difficult to quantify in monetary terms, such as goodwill, prestige, or statements of improved productivity. Direct costs are directly related to producing the products and services of the project at hand, while indirect costs are indirectly related to performing of the project, such as electricity, and paper towels. Reserves are dollars included in a cost estimate to provide a cushion for future situations that are difficult to predict.
3. 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 cost that has already been incurred and thus cannot be recovered. The example of a sunk cost from my personal life would be when I bought a new computer and tried to sell it three years later, I cannot make up what money I lost. A typical sunk cost for an IT project would be the cost of getting new software than a month later the software is cheaper than before. Many people fall into the trap of continuing to spend money on a failing project because so much money has been spent on it already.
4. Give examples of when you would prepare rough order of magnitude (ROM), budgetary, and definitive cost estimates for an information technology project. Give an example of using each of the following techniques for creating a cost estimate: analogous, parametric, and bottom-up. When requirements are not in detail and at a very high level, then a determinate solution could be a rough order of magnitude estimate which can vary . In Analogous Estimation, the cost of the project is guessed by comparing it with any similar project previously completed by your organization. Parametric estimation technique uses historical information along with statistical data. The bottom-up estimating technique is also known as the definitive technique. This estimation technique is the most accurate, time-consuming, and costly technique to estimate the cost.
5. Explain what happens during the process to determine the project budget. Project cost budgeting involves allocating the project cost estimate to individual work items over time to create a cost baseline. For example, you may need to break down costs into specific categories like travel, compensation, etc. for each month so…