This Document Contains Chapters 7 to 8 Chapter 7: Project Cost Management True/False 1. Overrun is the additional percentage amount by which estimates exceed actual costs. Answer: False Rationale: Overrun is the additional percentage or dollar amount by which actual costs exceed estimates. 2. The primary output of the planning cost management process is a change request. Answer: False Rationale: The main output of the planning cost management process is a cost management plan. Planning cost management involves determining the policies, procedures, and documentation that will be used for planning, executing, and controlling project cost. 3. IT project managers must be able to present and discuss project information both in financial and technical terms. Answer: True Rationale: Most members of a company’s executive board have a better understanding of financial terms than IT terms, and are more interested in finance. Therefore, IT project managers need to be able to present and discuss project information both in financial terms and technical terms. 4. Project managers must conduct cash flow analysis to determine net present value. Answer: True Rationale: Cash flow analysis is a method of determining the estimated annual costs and benefits for a project and the resulting annual cash flow. Project managers must conduct cash flow analysis to determine net present value. 5. Intangible costs can be easily measured in monetary terms. Answer: False Rationale: Intangible costs or benefits are difficult to measure in monetary terms. Conversely, tangible costs or benefits can easily be measured in dollars. 6. When deciding what projects to invest in or continue, one should include sunk costs. Answer: False Rationale: Sunk cost is money that has been spent in the past. When deciding what projects to invest in or continue, one should not include sunk costs. 7. It is important for project managers to focus on indirect costs because they can be easily controlled. Answer: False Rationale: Direct costs can be directly related to creating the products and services of the project. Project managers should focus on direct costs because they can be controlled. 8. If an important supplier goes out of business, management reserves can be set aside to cover the resulting costs. Answer: True Rationale: Management reserves allow for future situations that are unpredictable. For example, if a project manager gets sick for two weeks or an important supplier goes out of business, management reserves could be set aside to cover the resulting costs. 9. Contingency reserves are also known as unknown unknowns. Answer: False Rationale: Contingency reserves allow for future situations that may be partially planned for. They are sometimes called known unknowns. 10. A cost management plan can include organizational procedures links, control thresholds, and process descriptions. Answer: True Rationale: In general, a cost management plan includes level of accuracy, organizational procedures links, process descriptions, control thresholds, and rules of performance measurement, among others. 11. A budgetary estimate is the most accurate of the three types of estimates. Answer: False Rationale: A definitive estimate provides an accurate estimate of project costs. It provides details for purchases and estimates actual costs. 12. Budgetary estimates are made even before a project is officially started. Answer: False Rationale: Budgetary estimates are made one to two years prior to project completion. 13. Definitive estimates are made one year or less prior to project completion. Answer: True Rationale: Definitive estimates are made one year or less prior to project completion. They provide an accurate estimate of project costs. 14. Estimates should become more accurate as time progresses. Answer: True Rationale: Estimates are usually done at various stages of a project and should become more accurate as time progresses. 15. Supporting details for an estimate include the ground rules and assumptions used in creating the estimate. Answer: True Rationale: In addition to creating cost estimates for the entire project and activity cost estimates, it is also important to provide supporting details for the estimates and updates to project documents. The supporting details include the ground rules and assumptions used in creating the estimate, a description of the project used as a basis for the estimate, and details on the cost estimation tools and techniques used to create the estimate. 16. Analogous estimates are called activity-based costing. Answer: False Rationale: Analogous estimates are also called top-down estimates. Such estimates use the actual cost of a previous, similar project as the basis for estimating the cost of the current project. 17. Analogous estimates are the most accurate technique to estimate costs. Answer: False Rationale: Analogous estimates requires a good deal of expert judgment and is generally less costly than other techniques. However, it is also less accurate. 18. In a bottom-up estimate, the size of the individual work items is one of the factors that drives the accuracy of the estimates. Answer: True Rationale: The size of the individual work items and the experience of the estimators drive the accuracy of the estimates. Using smaller work items increases the accuracy of the cost estimate because the people assigned to do the work develop the cost estimate instead of someone unfamiliar with the work. 19. Parametric models are reliable when the models are flexible in terms of the project’s size. Answer: True Rationale: Parametric models are most reliable when the historical information used to create the model is accurate, the parameters are readily quantifiable, and the model is flexible in terms of the project’s size. 20. One of the reasons why project cost estimates are inaccurate is because human beings are biased toward underestimation. Answer: True Rationale: One of the reasons why project cost estimates are very inaccurate is because human beings are biased toward underestimation. It is thus important for project managers and top management to review estimates and ask important questions to make sure the estimates are not biased. 21. It is important for project managers to understand that every cost estimate is unique. Answer: True Rationale: Every cost estimate is unique, just as every project is unique. 22. Determining the budget involves allocating the project cost estimate to individual work items over time. Answer: True Rationale: Determining the budget involves allocating the project cost estimate to individual material resources or work items over time. These material resources or work items are based on the activities in the work breakdown structure for the project. 23. The project management plan and project funding requirements are inputs of the process of controlling costs. Answer: True Rationale: The project management plan, project funding requirements, work performance data, and organizational process assets are inputs for controlling costs. 24. The formulas for variances and indexes start with EV, the earned value. Answer: True Rationale: The formulas for variances and indexes start with EV, the earned value. Variances are calculated by subtracting the actual cost or planned value from EV, and indexes are calculated by dividing EV by the actual cost or planned value. 25. If cost variance is a positive number, it means that performing the work costs more than planned. Answer: False Rationale: Cost variance (CV) is the earned value minus the actual cost. If cost variance is a negative number, it means that performing the work costs more than planned. If cost variance is a positive number, performing the work costs less than planned. 26. A negative schedule variance means that it took lesser than planned to perform the work. Answer: False Rationale: A negative schedule variance means that it took longer than planned to perform the work, and a positive schedule variance means that the work took less time than planned to perform. 27. If the cost performance index (CPI) is less than 100 percent, the project is under budget. Answer: False Rationale: If the CPI is less than one or less than 100 percent, the project is over budget. On the other hand, if the CPI is greater than one or more than 100 percent, the project is under budget. 28. A schedule performance index of one means that the project is on schedule. Answer: True Rationale: The schedule performance index (SPI) is the ratio of earned value to planned value; it can be used to estimate the projected time to complete the project. A schedule performance index of one means the project is on schedule. 29. In an earned value chart, when the actual cost line is right on or above the earned value line, it indicates that costs are less than planned. Answer: False Rationale: Viewing earned value information in chart form helps in visualizing how a project is performing. If the actual cost line is always on or above the earned value line, it indicates that costs are equal to or more than planned. 30. Spreadsheets are a common tool for cost estimating, cost budgeting, and cost control. Answer: True Rationale: Most organizations use software to assist in various activities related to project cost management. Spreadsheets are a common tool for cost estimating, cost budgeting, and cost control. Multiple Choice 1. _____ includes the processes required to ensure that a project team completes a project within an approved budget. A. Project scope management B. Project quality management C. Project time management D. Project cost management Answer: D Rationale: Project cost management includes the processes required to ensure that a project team completes a project within an approved budget. Project managers must make sure their projects are well defined, have accurate time and cost estimates, and have a realistic budget that they were involved in approving. 2. Which of the following involves developing an approximation of the costs of resources needed to complete a project? A. Determining the budget B. Finalising the cost baseline C. Controlling costs D. Estimating costs Answer: D Rationale: Estimating costs involves developing an approximation or estimate of the costs of the resources needed to complete a project. The main outputs of the cost estimating process are activity cost estimates, basis of estimates, and project documents updates. 3. _____ involves allocating the overall cost estimate to individual work items to establish a baseline for measuring performance. A. Determining the budget B. Finalising policies for project costs C. Controlling costs D. Estimating costs Answer: A Rationale: Determining the budget involves allocating the overall cost estimate to individual work items to establish a baseline for measuring performance. 4. One of the main outputs of the _____ process is a cost baseline. A. cost controlling B. cost estimating C. cost budgeting D. cost planning Answer: C Rationale: Determining the budget involves allocating the overall cost estimate to individual work items to establish a baseline for measuring performance. The main outputs of the cost budgeting process are a cost baseline, project funding requirements, and project documents updates. 5. The process of controlling costs primarily involves: A. determining the policies for project costs. B. managing changes to the project budget. C. finalising the procedures for project costs. D. determining a basis for estimates. Answer: B Rationale: Controlling costs involves controlling changes to the project budget. The main outputs of the cost control process are work performance information, cost forecasts, change requests, project management plan updates, project documents updates, and organizational process assets updates. 6. Work performance information and cost forecasts are main outputs of the _____ process. A. cost budgeting B. cost estimating C. cost control D. cost pricing Answer: C Rationale: Controlling costs involves controlling changes to the project budget. The main outputs of the cost control process are work performance information, cost forecasts, change requests, project management plan updates, project documents updates, and organizational process assets updates. 7. Profits may be defined as: A. expenses plus net income. B. costs plus revenues. C. revenues plus expenses. D. revenues minus expenditures. Answer: D Rationale: Profits are revenues minus expenditures. To increase profits, a company can increase revenues, decrease expenses, or try to do both. 8. _____ helps develop an accurate projection of a project’s financial expenses and benefits. A. Critical path analysis B. Fast tracking C. Life cycle costing D. Crashing Answer: C Rationale: Life cycle costing helps develop an accurate projection of a project’s financial costs and benefits. It allows one to see a big-picture view of the cost of a project throughout its life cycle. 9. _____ is a method for determining the estimated annual costs and benefits for a project. A. Critical path analysis B. Cash flow analysis C. Present value analysis D. Requirements analysis Answer: B Rationale: Cash flow analysis is a method for determining the estimated annual costs and benefits for a project and the resulting annual cash flow. Project managers must conduct cash flow analysis to determine net present value. 10. Which of the following is true of tangible costs? A. They cannot be calculated in monetary terms. B. They can be easily measured. C. They are difficult to quantify. D. Their examples include goodwill and prestige. Answer: B Rationale: Tangible and intangible costs and benefits are categories for determining how well an organization can define the estimated costs and benefits for a project. Tangible costs or benefits can easily be measured in dollars. 11. _____ are those costs that are difficult to measure in monetary terms. A. Intangible costs B. Direct costs C. Tangible costs D. Fixed costs Answer: A Rationale: Intangible costs or benefits are difficult to measure in monetary terms. 12. Newtech Inc. hires John for the position of a software programmer to work on their new project. Salary paid to John by Newtech Inc. would be an example of _____ costs. A. direct B. indirect C. sunk D. intangible Answer: A Rationale: Direct costs can be directly related to creating the products and services of a project. For instance, direct costs include the salaries of people working full time on a project. 13. Indirect costs are: A. directly related to performing the project. B. those that cannot be allocated to projects. C. those that can be easily controlled by managers. D. not directly related to the products or services of a project. Answer: D Rationale: Indirect costs are not directly related to the products or services of the project, but are indirectly related to performing the project. 14. Soles is a footwear company which has recently set up its store in Ambrosia. To manufacture its products, Soles incurs a range of different costs. Which of the following would be an example of an indirect cost? A. Cost of machines to produce shoes B. Salary paid to factory workers C. Electricity used to run its factories D. Cost of leather used to manufacture shoes Answer: C Rationale: Indirect costs are not directly related to the products or services of the project, but are indirectly related to performing the project. For example, indirect costs would include the cost of electricity, paper towels, and other necessities in a large building that houses 1,000 employees who work on many projects. 15. Good Earth, a company manufacturing packaged food products, sets up its stores in Baltonia. However, a year later, the company closes the store down due to high operating costs. In such a scenario, the money spent in paying for the rent of the store in Baltonia would be an example of _____ costs. A. recurring B. direct C. sunk D. intangible Answer: C Rationale: Sunk cost is money that has been spent in the past. When deciding what projects to invest in or continue, one should not include sunk costs. 16. Which of the following is true of contingency reserves? A. They allow for future situations that can be partially planned for. B. They are also known as unknown unknowns. C. They are not included in a cost baseline. D. They allow for dollar amounts to be used to cover existing, fixed costs. Answer: A Rationale: Contingency reserves allow for future situations that may be partially planned for (sometimes called known unknowns) and are included in the project cost baseline. 17. Which of the following reserves allows for future situations that are unpredictable? A. Contingency reserves B. Management reserves C. Known unknowns D. Cost baseline reserves Answer: B Rationale: Management reserves allow for future situations that are unpredictable. They are sometimes called unknown unknowns. 18. The first step in project cost management is: A. to allocate project cost estimates to individual material resources. B. to plan how costs will be managed. C. to control project costs and monitor cost performance. D. to develop several estimates of costs for different types of resources. Answer: B Rationale: The first step in project cost management is planning how the costs will be managed throughout the life of the project. The project manager and other stakeholders use expert judgment, analytical techniques, and meetings to produce the cost management plan. 19. Which of the following is true of a rough order of magnitude estimate? A. It is used to allocate money into an organization’s budget. B. It provides an estimate of what a project will cost. C. Its timeframe is always less than a year prior to project completion. D. It is a type of estimate that is done in the final stages of a project. Answer: B Rationale: A rough order of magnitude (ROM) estimate provides an estimate of what a project will cost. This type of estimate is done very early in a project or even before a project is officially started. 20. A rough order of magnitude estimate can be referred to as a _____ estimate. A. definitive B. budgetary C. final D. ballpark Answer: D Rationale: A rough order of magnitude (ROM) estimate provides an estimate of what a project will cost. A ROM estimate can also be referred to as a ballpark estimate, a guesstimate, a swag, or a broad gauge. 21. A cost estimation tool which is used to allocate money into an organization’s budget is known as a _____ estimate. A. budgetary B. definitive C. rough order of magnitude D. ballpark Answer: A Rationale: A budgetary estimate is used to allocate money into an organization’s budget. Budgetary estimates are made one to two years prior to project completion. 22. A _____ estimate is used for making many purchasing decisions for which accurate estimates are required and for estimating final project costs. A. budgetary B. definitive C. rough order of magnitude D. final Answer: B Rationale: A definitive estimate provides an accurate estimate of project costs. Definitive estimates are used for making many purchasing decisions for which accurate estimates are required and for estimating final project costs. 23. Which of the following types of estimate use the actual cost of a previous, similar project as the basis for estimating the cost of the current project? A. Definitive estimates B. Parametric estimates C. Bottom-up estimates D. Analogous estimates Answer: D Rationale: Analogous estimates use the actual cost of a previous, similar project as the basis for estimating the cost of the current project. This technique requires a good deal of expert judgment and is generally less costly than other techniques, but it is also less accurate. 24. Analogous estimates are also known as _____ estimates. A. bottom-up B. top-down C. parametric D. budgetary Answer: B Rationale: Analogous estimates use the actual cost of a previous, similar project as the basis for estimating the cost of the current project. They are also called top-down estimates. 25. Which of the following is true of analogous estimates? A. Their main disadvantage is that they cost more than other techniques. B. They are the only technique which do not require expert judgement. C. They are most reliable when previous projects are similar in fact with current projects. D. They use project characteristics in a mathematical model to estimate project costs. Answer: C Rationale: Analogous estimates use the actual cost of a previous, similar project as the basis for estimating the cost of the current project. They are most reliable when the previous projects are similar in fact, not just in appearance. 26. A cost estimation tool which involves estimating individual work items or activities and summing them to get a project total is known as a(n) _____ estimate. A. budgetary B. parametric C. bottom-up D. analogous Answer: C Rationale: Bottom-up estimates involve estimating the costs of individual work items or activities and summing them to get a project total. This approach is sometimes referred to as activity-based costing. 27. Which of the following is true of bottom-up estimates? A. They are based on the actual cost of a previous, similar project. B. They are also known as parametric estimating. C. They are most accurate when they involve large, extensive work items. D. They are time-intensive and expensive to develop. Answer: D Rationale: Bottom-up estimates involve estimating the costs of individual work items or activities and summing them to get a project total. The drawback with bottom-up estimates is that they are usually time-intensive and therefore expensive to develop. 28. _____ uses project characteristics in a mathematical model to estimate project costs. A. Rough order of magnitude estimating B. Parametric estimating C. Bottom-up estimating D. Analogous estimating Answer: B Rationale: Parametric estimating uses project characteristics (parameters) in a mathematical model to estimate project costs. 29. Which of the following is most likely to be a reason for inaccuracies in information technology cost estimates? A. Estimates take a long time to be worked out. B. People lack estimating experience. C. Human beings are biased toward overestimation. D. Only software development provides the scope for estimates to be accurate. Answer: B Rationale: The people who develop software cost estimates often do not have much experience with cost estimation, especially for large projects. They also do not have enough accurate, reliable project data on which to base estimates. 30. If the cost estimate for a project is a basis for contract awards and performance reporting, it should be a(n) _____ estimate and as accurate as possible. A. budgetary B. definitive C. rough order of magnitude D. analogous Answer: B Rationale: If the cost estimate for a project is a basis for contract awards and performance reporting, it should be a definitive estimate and as accurate as possible. 31. The main goal of the _____ process is to produce a cost baseline for measuring project performance and project funding requirements. A. cost budgeting B. cost planning C. cost controlling D. cost estimating Answer: A Rationale: The main goal of the cost budgeting process is to produce a cost baseline for measuring project performance and to determine project funding requirements. Determining the budget involves allocating the project cost estimate to individual material resources or work items over time. 32. Which of the following is an output of the process of controlling costs? A. Cost forecasts B. Project funding requirements C. Basis of estimates D. Scope baselines Answer: A Rationale: Outputs of the process of controlling costs are work performance information, cost forecasts, change requests, project management plan updates, project documents updates, and organizational process asset updates. 33. Which of the following is an input of the process of controlling costs? A. Cost forecasts B. Work performance data C. Change requests D. Scope baseline Answer: B Rationale: The project management plan, project funding requirements, work performance data, and organizational process assets are inputs for controlling costs. 34. The budget is one of the three values of earned value management and is also known as _____. A. earned value B. actual cost C. indirect cost D. planned value Answer: D Rationale: The planned value (PV), also called the budget, is the portion of the approved total cost estimate planned to be spent on an activity during a given period. 35. Which of the following is true of earned value? A. It is the actual cost plus the planned cost. B. It is based solely on the total cost estimate to be spent on an activity. C. It is an estimate of the value of the physical work actually completed. D. It is also known as the planned value. Answer: C Rationale: The earned value (EV) is an estimate of the value of the physical work actually completed. EV is based on the original planned costs for the project or activity and the rate at which the team is completing work on the project or activity to date. 36. Variances are calculated by subtracting the actual cost from _____. A. earned value B. schedule variance C. planned value D. rate of performance Answer: A Rationale: Variances are calculated by subtracting the actual cost or planned value from EV or earned value, and indexes are calculated by dividing EV by the actual cost or planned value. 37. Cost variance is: A. the planned value plus actual costs. B. the earned value minus the actual cost. C. the rate of performance minus earned value. D. the planned value minus the rate of performance. Answer: B Rationale: Cost variance (CV) is the earned value minus the actual cost. If cost variance is a negative number, it means that performing the work costs more than planned. If cost variance is a positive number, performing the work costs less than planned. 38. Schedule variance is: A. the earned value minus the planned value. B. the earned value minus the actual cost. C. the planned value plus the earned value. D. the planned value plus the rate of performance. Answer: A Rationale: Schedule variance (SV) is the earned value minus the planned value. A negative schedule variance means that it took longer than planned to perform the work, and a positive schedule variance means that the work took less time than planned to perform. 39. The cost performance index (CPI): A. indicates that a project is under budget if CPI is less than one. B. can be used to estimate the projected cost of completing the project. C. indicates that the planned and actual costs are equal if CPI is more than one. D. is the ratio of earned value to planned value. Answer: B Rationale: The cost performance index (CPI) is the ratio of earned value to actual cost; it can be used to estimate the projected cost of completing the project. 40. Which of the following is true of the schedule performance index (SPI)? A. It can be used to estimate the projected time to complete the project. B. It means that a project is behind schedule if an SPI is greater than one. C. It means that a project is ahead of schedule if SPI is lesser than one or hundred percent. D. It is the ratio of planned value to actual costs. Answer: A Rationale: The schedule performance index (SPI) is the ratio of earned value to planned value; it can be used to estimate the projected time to complete the project. Completion 1. The additional percentage or dollar amount by which actual costs exceed estimates is known as a(n) _____. Answer: overrun 2. The main output of the planning cost management process is a(n) _____. Answer: cost management plan 3. The main outputs of the _____ process are activity cost estimates, basis of estimates, and project document updates. Answer: cost estimating 4. The main outputs of the _____ process are a cost performance baseline, project funding requirements, and project document updates. Answer: cost budgeting 5. _____ are revenues minus expenditures. Answer: Profits 6. _____ costing helps to see a big-picture view of the cost of a project throughout its life cycle. Answer: Life cycle 7. _____ costing considers the total cost of ownership, or development plus support costs, for a project. Answer: Life cycle 8. Project managers must conduct cash flow analysis to determine _____. Answer: net present value 9. The _____ theory states that when many items are produced repetitively, the unit cost of those items decreases in a regular pattern as more units are produced. Answer: learning curve 10. Project costs, like project schedules, grow out of the basic documents that initiate a project, like the _____. Answer: project charter 11. A(n) _____ estimate is done very early in a project or even before a project is officially started. Answer: rough order of magnitude (ROM) 12. The timeframe for a(n) _____ estimate is often three or more years prior to project completion. Answer: rough order of magnitude (ROM) 13. In practice, many people find that using a combination or hybrid approach involving analogous, bottom up, and/or parametric modeling provides the best _____. Answer: cost estimates 14. Project cost estimates are allocated to work items which are based on the activities in the _____ for the project. Answer: work breakdown structure 15. A(n) _____ is a time-phased budget that project managers use to measure and monitor cost performance. Answer: cost baseline 16. In addition to providing input for budgetary estimates, the process of _____ provides a cost baseline. Answer: cost budgeting 17. A cost management plan is a subsidiary of the _____ plan. Answer: project management 18. _____ is a project performance measurement technique that integrates scope, time, and cost data. Answer: Earned value management (EVM) 19. A(n)_____ is the original project plan plus approved changes. Answer: baseline 20. The ratio of actual work completed to the percentage of work planned to have been completed at any given time during the life of the project or activity is known as the _____. Answer: rate of performance (RP) 21. The _____ is the portion of the approved total cost estimate planned to be spent on an activity during a given period. Answer: planned value (PV) 22. The total direct and indirect costs incurred in accomplishing work on an activity during a given period is known as the _____. Answer: actual cost (AC) 23. The _____ is based on the original planned costs for the project or activity and the rate at which the team is completing work on the project or activity to date. Answer: earned value 24. The _____ index is the ratio of earned value to planned value. Answer: schedule performance 25. The cost performance index can be used to calculate the _____ which gives an approximate cost of completing a project based on performance to date. Answer: estimate at completion (EAC) Essay 1. List and briefly describe the four project cost management processes. Answer: The four processes for project cost management are as follows: (1) Planning cost management involves determining the policies, procedures, and documentation that will be used for planning, executing, and controlling project cost. The main output of this process is a cost management plan. (2) Estimating costs involves developing an approximation or estimate of the costs of the resources needed to complete a project. The main outputs of the cost estimating process are activity cost estimates, basis of estimates, and project document updates. (3) Determining the budget involves allocating the overall cost estimate to individual work items to establish a baseline for measuring performance. The main outputs of the cost budgeting process are a cost baseline, project funding requirements, and project document updates. (4) Controlling costs involves controlling changes to the project budget. The main outputs of the cost control process are work performance information, cost forecasts, change requests, project management plan updates, project documents updates, and organizational process assets updates. 2. What are tangible and intangible costs? Distinguish between direct and indirect costs and give examples of each. Answer: Tangible and intangible costs and benefits are categories for determining how well an organization can define the estimated costs and benefits for a project. Tangible costs or benefits are those costs or benefits that an organization can easily measure in dollars. Conversely, intangible costs or benefits are costs or benefits that are difficult to measure in monetary terms. Intangible benefits for projects often include items like goodwill, prestige, and general statements of improved productivity that an organization cannot easily translate into dollar amounts. Because intangible costs and benefits are difficult to quantify, they are often harder to justify. Direct costs are costs that can be directly related to producing the products and services of the project. One can attribute direct costs directly to a certain project. Project managers should focus on direct costs, since they can control them. For example, direct costs include the salaries of people working full time on the project and the cost of hardware and software purchased specifically for the project. Indirect costs are costs that are not directly related to the products or services of the project, but are indirectly related to performing the project. For example, the cost of electricity, paper towels, and so on in a large building housing a thousand employees who work on many projects would be indirect costs. Indirect costs are allocated to projects, and project managers have very little control over them. 3. What are the three basic types of cost estimating? Describe each type. Answer: The three basic types of cost estimating are as follows: (1) A rough order of magnitude (ROM) estimate provides an estimate of what a project will cost. This type of estimate is done very early in a project or even before a project is officially started. Project managers and top management use this estimate to help make project selection decisions. The timeframe for this type of estimate is often three or more years prior to project completion. A ROM estimate’s accuracy is typically –50 percent to +100 percent, which means that the project’s actual costs could be 50 percent below the ROM estimate or 100 percent above. For information technology project estimates, this accuracy range is often much wider. ROM estimates are also known as a ballpark estimate, a guesstimate, a swag, or a broad gauge. (2) A budgetary estimate is used to allocate money into an organization’s budget. Many organizations develop budgets at least two years into the future. Budgetary estimates are made one to two years prior to project completion. The accuracy of budgetary estimates is typically –10 percent to +25 percent, meaning the actual costs could be 10 percent less or 25 percent more than the budgetary estimate. (3) A definitive estimate provides an accurate estimate of project costs. Definitive estimates are used for making many purchasing decisions for which accurate estimates are required and for estimating final project costs. Definitive estimates are made one year or less prior to project completion. A definitive estimate should be the most accurate of the three types of estimates. The accuracy of this type of estimate is normally –5 percent to +10 percent, meaning the actual costs could be 5 percent less or 10 percent more than the definitive estimate. 4. Describe three tools used in developing a good cost estimate. Answer: Several tools and techniques can be used to create a cost estimate. Three of such tools are as follows: (1) Analogous estimates: They use the actual cost of a previous, similar project as the basis for estimating the cost of the current project. This technique requires a good deal of expert judgment and is generally less costly than other techniques, but it is also less accurate. Analogous estimates are most reliable when the previous projects are similar in fact, not just in appearance. In addition, the groups preparing cost estimates must have the needed expertise to determine whether certain parts of the project will be more or less expensive than analogous projects. (2) Bottom-up estimates: They involve estimating the costs of individual work items or activities and summing them to get a project total. This approach is sometimes referred to as activity-based costing. The size of the individual work items and the experience of the estimators drive the accuracy of the estimates. Using smaller work items increases the accuracy of the cost estimate because the people assigned to do the work develop the cost estimate instead of someone unfamiliar with the work. The drawback with bottom-up estimates is that they are usually time-intensive and therefore expensive to develop. (3) Parametric estimating: They use project characteristics (parameters) in a mathematical model to estimate project costs. Parametric models are most reliable when the historical information used to create the model is accurate, the parameters are readily quantifiable, and the model is flexible in terms of the project’s size. 5. Earned value management involves calculating three values for each activity or summary activity from a project’s WBS. Describe each of these three values with examples. Answer: (1) The planned value (PV), also called the budget, is that portion of the approved total cost estimate planned to be spent on an activity during a given period. Suppose a project included a summary activity of purchasing and installing a new Web server. Suppose further that, according to the plan, it would take one week and cost a total of $10,000 for the labor hours, hardware, and software involved. The planned value (PV) for that activity that week is, therefore, $10,000. (2) The actual cost (AC) is the total direct and indirect costs incurred in accomplishing work on an activity during a given period. For example, assume that it actually took two weeks and cost $20,000 to purchase and install the new Web server. Assume that $15,000 of these actual costs were incurred during Week 1 and $5,000 was incurred during Week 2. These amounts are the actual cost (AC) for the activity each week. (3) The earned value (EV) is an estimate of the value of the physical work actually completed. It is based on the original planned costs for the project or activity and the rate at which the team is completing work on the project or activity to date. The rate of performance (RP) is the ratio of actual work completed to the percentage of work planned to have been completed at any given time during the life of the project or activity. For example, suppose that the server installation was halfway completed by the end of week 1. The rate of performance would be 50 percent (50/100) because by the end of week 1, the planned schedule reflects that the task should be 100 percent complete and only 50 percent of that work has been completed. Chapter 8: Project Quality Management True/False 1. The quality assurance process involves taking responsibility for quality throughout the project’s life cycle. Answer: True Rationale: Performing quality assurance involves periodically evaluating overall project performance to ensure that the project will satisfy the relevant quality standards. The quality assurance process involves taking responsibility for quality throughout the project’s life cycle. 2. Validated changes and validated deliverables are the outputs of the quality assurance process. Answer: False Rationale: Controlling quality involves monitoring specific project results to ensure that they comply with the relevant quality standards while identifying ways to improve overall quality. Validated changes and validated deliverables are the outputs of the quality control process. 3. The design of experiments technique cannot be applied to project management issues such as cost and schedule trade-offs. Answer: False Rationale: Design of experiments is a technique that helps identify which variables have the most influence on the overall outcome of a process. You can also apply design of experiments to project management issues such as cost and schedule trade-offs. 4. Customer requirements are an important aspect of the quality planning process. Answer: False Rationale: Quality planning also involves communicating the correct actions for ensuring quality in a format that is understandable and complete. In quality planning for projects, it is important to describe key factors that directly contribute to meeting the customer’s requirements. 5. Reliability is the ability of a product or service to perform as expected under deviant conditions. Answer: False Rationale: Reliability is the ability of a product or service to perform as expected under normal conditions. 6. Project managers are ultimately responsible for quality management on their projects. Answer: True Rationale: It is important for all project stakeholders to work together to balance the quality, scope, time, and cost dimensions of the project. Project managers, however, are ultimately responsible for quality management on their projects. 7. Only in-house auditors can perform quality audits. Answer: False Rationale: In-house auditors or third parties with expertise in specific areas can perform quality audits; these quality audits can be scheduled or random. 8. Products that are accepted by project stakeholders are considered to be validated deliverables. Answer: True Rationale: Acceptance decisions determine if the products or services produced as part of the project will be accepted or rejected. If they are accepted, they are considered to be validated deliverables. 9. A run chart is a bar graph that depicts data points and their order of occurrence. Answer: False Rationale: A run chart displays the history and pattern of variation of a process over time. It is a line chart that shows data points plotted in the order of occurrence. 10. Using Six Sigma principles is an organization-wide commitment and all employees must embrace its principles. Answer: True Rationale: Using Six Sigma principles is an organization-wide commitment. CEOs, top managers, and all levels of employees in an organization that embraces Six Sigma principles have seen remarkable improvements due to its use. 11. The Six Sigma approach works best for a project where a quality problem is identified between the current and desired performance. Answer: True Rationale: The Six Sigma approach works best for a project where a quality problem is identified between the current and desired performance. 12. The term sigma means median. Answer: False Rationale: An important concept in Six Sigma is improving quality by reducing variation. The term sigma means standard deviation. 13. Testing as a stage is important only at the end of an information technology product development. Answer: False Rationale: Testing needs to be done during almost every phase of the systems development life cycle, not just before the organization ships or hands over a product to the customer. 14. Integration testing involves testing of each individual component to ensure that it is as defect-free as possible. Answer: False Rationale: Integration testing occurs between unit and system testing to test functionally grouped components. It ensures that a subset or subsets of the entire system work together. 15. In TQC, product quality is more important than production rates, and workers are allowed to stop production whenever a quality problem occurs. Answer: True Rationale: In Total Quality Control, product quality is more important than production rates, and workers are allowed to stop production whenever a quality problem occurs. 16. DeMarco and Lister’s study on organizations and productivity found direct correlations between productivity and programming language, years of experience, and salary. Answer: False Rationale: DeMarco and Lister also found no correlation between productivity and programming language, years of experience, or salary. Furthermore, the study showed that providing a dedicated workspace and a quiet work environment were key factors in improving productivity. 17. Gantt charts cannot be used to aid project quality management. Answer: False Rationale: Gantt charts can be created using project management software to help plan and track work related to project quality management. Multiple Choice 1. _____ means the project’s processes and products meet written specifications. A. Conformance to requirements B. Fitness for use C. Project feasibility D. Benchmarking Answer: A Rationale: Conformance to requirements means that the project’s processes and products meet written specifications. For example, if the project scope statement requires delivery of 100 computers with specific processors and memory, you could easily check whether suitable computers had been delivered. 2. _____ means that a product can be used as it was intended. A. Conformance to requirements B. Fitness for use C. Critical chain scheduling D. Free slack Answer: B Rationale: Fitness for use means that a product can be used as it was intended. 3. Process improvement plan, quality metrics, and quality checklists are the outputs of the _____ process of project quality management. A. controlling quality B. planning quality management C. quality certification D. performing quality assurance Answer: B Rationale: The main outputs of planning quality management are a quality management plan, a process improvement plan, quality metrics, quality checklists, and project documents updates. 4. A _____ is a standard of measurement in quality management. A. milestone B. metric C. merge D. matrix Answer: B Rationale: A metric is a standard of measurement. Examples of common metrics include failure rates of products, availability of goods and services, and customer satisfaction ratings. 5. The _____ process is often associated with the technical tools and techniques of quality management, such as Pareto charts, quality control charts, and statistical sampling. A. quality planning B. quality certification C. quality assurance D. quality control Answer: D Rationale: Controlling quality involves monitoring specific project results to ensure that they comply with the relevant quality standards while identifying ways to improve overall quality. This process is often associated with the technical tools and techniques of quality management, such as Pareto charts, quality control charts, and statistical sampling. 6. Performing quality assurance is a subprocess of the _____ process of project quality management. A. initiating B. closing C. monitoring and controlling D. executing Answer: D Rationale: Performing quality assurance is a subprocess of the executing process of project quality management. 7. Validated changes and validated deliverables are the outputs of the _____ subprocess of project quality management. A. initiating B. closing C. monitoring and controlling D. executing Answer: C Rationale: Validated changes and validated deliverables are the outputs of the monitoring and controlling subprocess of the quality control process of project quality management. 8. _____ is a technique that helps identify which variables have the most influence on the overall outcome of a process. A. Design of experiments B. Backward pass C. Activity-on-arrow D. Crashing Answer: A Rationale: Design of experiments is a technique that helps identify which variables have the most influence on the overall outcome of a process. Understanding which variables affect outcome is a very important part of quality planning. 9. _____ is the degree to which a system performs its intended function. A. Reliability B. Validity C. Maintainability D. Functionality Answer: D Rationale: Functionality is the degree to which a system performs its intended function. Features are the system’s special characteristics that appeal to users. It is important to clarify what functions and features the system must perform, and what functions and features are optional. 10. _____ are the system’s special characteristics that appeal to users. A. Features B. Outputs C. Yields D. Metrics Answer: A Rationale: Features are the system’s special characteristics that appeal to users. It is important to clarify what functions and features the system must perform, and what functions and features are optional. 11. _____ addresses how well a product or service performs the customer’s intended use. A. Reliability B. Performance C. Maintainability D. Functionality Answer: B Rationale: Performance addresses how well a product or service performs the customer’s intended use. 12. _____ is the ability of a product or service to perform as expected under normal conditions. A. Reliability B. Performance C. Maintainability D. Functionality Answer: A Rationale: Reliability is the ability of a product or service to perform as expected under abnormal conditions. In discussing reliability for IT projects, many people use the term IT service management. 13. _____ addresses the ease of performing maintenance on a product. A. Reliability B. Performance C. Maintainability D. Functionality Answer: C Rationale: Maintainability addresses the ease of performing maintenance on a product. 14. _____ generates ideas for quality improvements by comparing specific project practices or product characteristics to those of other projects or products within or outside the performing organization. A. Prototyping B. Systems thinking C. Mind mapping D. Benchmarking Answer: D Rationale: Benchmarking generates ideas for quality improvements by comparing specific project practices or product characteristics to those of other projects or products within or outside the performing organization. 15. _____ refers to action taken to bring rejected items into compliance with product requirements or specifications or other stakeholder expectations. A. A process adjustment B. Rework C. An acceptance decision D. Validation Answer: B Rationale: Rework is action taken to bring rejected items into compliance with product requirements, specifications, or other stakeholder expectations. Rework often results in requested changes and validated defect repair, and it results from recommended defect repair or corrective or preventive actions. 16. _____ correct(s) or prevent(s) further quality problems based on quality control measurements. A. Process adjustments B. Rework C. Acceptance decisions D. Decomposition Answer: A Rationale: Process adjustments correct or prevent further quality problems based on quality control measurements. Process adjustments often result in updates to the quality baseline, Organization process assets, and the project management plan. 17. A _____ is a graphic display of data that illustrates the results of a process over time. A. statistical sampling chart B. Pareto chart C. Six Sigma chart D. control chart Answer: D Rationale: A control chart is a graphic display of data that illustrates the results of a process over time. Control charts allow you to determine whether a process is in control or out of control. 18. _____ help users to identify the vital few contributors that account for most quality problems in a system. A. Gantt charts B. Pareto charts C. Control charts D. Tracking Gantt charts Answer: B Rationale: A Pareto chart is a histogram that can help you identify and prioritize problem areas. The variables described by the histogram are ordered by frequency of occurrence. Pareto charts help you identify the vital few contributors that account for most quality problems in a system. 19. _____ involves choosing part of a population of interest for inspection. A. Statistical sampling B. Conformance C. System testing D. Fitness for use Answer: A Rationale: Statistical sampling is a key concept in project quality management. Statistical sampling involves choosing part of a population of interest for inspection. 20. Six Sigma’s target for perfection is the achievement of no more than _____ defects, errors, or mistakes per million opportunities. A. 1.34 B. 3.4 C. 34 D. 13.4 Answer: B Rationale: Six Sigma’s target for perfection is the achievement of no more than 3.4 defects, errors, or mistakes per million opportunities. 21. Projects that use Six Sigma principles for quality control normally follow a five-phase improvement process called _____. A. DMAIC B. weighted scoring model C. configuration management D. use case modeling Answer: A Rationale: Projects that use Six Sigma principles for quality control normally follow a five-phase improvement process called DMAIC. 22. Important tools used in the _____ phase of the DMAIC process include a project charter, a description of customer requirements, process maps, and Voice of the Customer (VOC) data. A. define B. measure C. analyze D. improve Answer: A Rationale: Important tools used in define phase include a project charter, a description of customer requirements, process maps, and Voice of the Customer (VOC) data. 23. An important tool used in the _____ phase of the DMAIC process is the fishbone or Ishikawa diagram. A. define B. measure C. analyze D. improve Answer: C Rationale: An important tool used in the analyze phase of the DMAIC process is the fishbone or Ishikawa diagram. 24. A ____ is a bell-shaped curve that is symmetrical regarding the average value of the population (the data being analyzed). A. skewed distribution B. normal distribution C. bimodal distribution D. degenerate distribution Answer: B Rationale: A normal distribution is a bell-shaped curve that is symmetrical regarding the mean or average value of the population (the data being analyzed). 25. A(n) _____ is any instance where the product or service fails to meet customer requirements. A. defect B. yield C. deliverable D. variance Answer: A Rationale: A defect is any instance in which the product or service fails to meet customer requirements. Because most products or services have multiple customer requirements, there can be several opportunities to have a defect. 26. The _____ is a measure of quality control equal to 1 fault in 1 million opportunities problems. A. ISO 9000 B. six 9s of quality rule C. seven run rule D. Six Sigma rule Answer: B Rationale: Six 9s of quality is a measure of quality control equal to 1 fault in 1 million opportunities. In the telecommunications industry, it means 99.9999 percent service availability or 30 seconds of downtime a year. 27. A(n) _____ is done to test each individual component (often a program) to ensure that it is as defect-free as possible. A. integration test B. unit test C. user acceptance test D. system test Answer: B Rationale: A unit test is done to test each individual component (often a program) to ensure that it is as defect-free as possible. Unit tests are performed before moving on to the integration test. 28. ____ is an independent test performed by end users prior to accepting the delivered system. A. Integration testing B. Unit testing C. User acceptance testing D. System testing Answer: C Rationale: User acceptance testing is an independent test performed by end users prior to accepting the delivered system. It focuses on the business fit of the system to the organization, rather than technical issues. 29. Which of the following is one of Deming’s 14 Points for Management? A. An organization should increase dependence on inspection to achieve quality. B. Award business based on price tag alone rather than on other considerations. C. Minimize total cost by working with multiple suppliers rather than a single supplier. D. Eliminate the annual rating or merit system. Answer: D Rationale: Dr. W. Edwards Deming is known primarily for his work on quality control in Japan. One of Deming’s 14 Points for Management states that an organization should remove barriers that rob people of workmanship and eliminate the annual rating or merit system. 30. One of Juran’s ten steps to quality improvement states that: A. an organization should minimize top management involvement in the achievement of individual employee goals. B. an organization should entrust improvement to individual employees rather than appointing teams or facilitators. C. an organization should build awareness of the need and opportunity for improvement. D. an organization should avoid “keeping score” in order to achieve an overall atmosphere of quality improvement. Answer: C Rationale: Joseph M. Juran wrote the first edition of the Quality Control Handbook in 1974, stressing the importance of top management commitment to continuous product quality improvement. One of Juran’s ten steps states that an organization should build awareness of the need and opportunity for improvement. 31. _____ wrote Quality Is Free in 1979 and is best known for suggesting that organizations strive for zero defects. A. Juran B. Ishikawa C. Crosby D. Deming Answer: C Rationale: Philip B. Crosby wrote Quality Is Free in 1979 and is best known for suggesting that organizations strive for zero defects.19 He stressed that the costs of poor quality should include all the costs of not doing the job right the first time, such as scrap, rework, lost labor hours and machine hours, customer ill will and lost sales, and warranty costs. 32. _____, a quality system standard is a three-part, continuous cycle of planning, controlling, and documenting quality in an organization. A. Seven run rule B. ISO 9000 C. Six Sigma D. ASQ Answer: B Rationale: ISO 9000, a quality system standard developed by the ISO, is a three-part, continuous cycle of planning, controlling, and documenting quality in an organization. 33. _____ is the cost of evaluating processes and their outputs to ensure that a project is error-free or within an acceptable error range. A. Prevention cost B. Appraisal cost C. Internal failure cost D. External failure cost Answer: B Rationale: Appraisal cost is the cost of evaluating processes and their outputs to ensure that a project is error-free or within an acceptable error range. Activities such as inspection and testing of products, maintenance of inspection and test equipment, and processing and reporting inspection data all contribute to appraisal costs of quality. 34. _____ is a cost that relates to all errors not detected and not corrected before delivery to the customer. A. Prevention cost B. Appraisal cost C. Internal failure cost D. External failure cost Answer: D Rationale: External failure cost is a cost that relates to all errors not detected and corrected before delivery to the customer. Items such as warranty cost, field service personnel training cost, product liability suits, complaint handling, and future business losses are examples of external failure costs. 35. _____ helps integrate traditionally separate organizational functions, set process improvement goals and priorities, provide guidance for quality processes, and provide a point of reference for appraising current processes. A. SQFD B. MTBI C. OPM3 D. CMMI Answer: D Rationale: The Capability Maturity Model Integration (CMMI) is “a process improvement approach that provides organizations with the essential elements of effective processes. It can be used to guide process improvement across a project, a division, or an entire organization.” Completion 1. The International Organization for Standardization (ISO) defines _____ as “the totality of characteristics of an entity that bear on its ability to satisfy stated or implied needs.” Answer: quality 2. The term _____ means a product can be used as it was intended. Answer: fitness for use 3. The purpose of _____ is to ensure that the project will satisfy the needs for which it was undertaken. Answer: project quality management quality management 4. Performing _____ involves periodically evaluating overall project performance to ensure that the project will satisfy the relevant quality standards. Answer: quality assurance 5. Performing _____ involves monitoring specific project results to ensure that they comply with the relevant quality standards while identifying ways to improve overall quality. Answer: quality control 6. _____ is a quality planning technique that helps identify which variables have the most influence on the overall outcome of a process. Answer: Design of experiments 7. _____ are the screens and reports the system generates. Answer: System outputs 8. _____ is the ability of a product or service to perform as expected under normal conditions. Answer: Reliability 9. A(n)_____ is a structured review of specific quality management activities that help identify lessons learned that could improve performance on current or future projects. Answer: quality audit 10. _____ correct or prevent further quality problems based on quality control measurements. Answer: Process adjustments 11. _____ diagrams trace complaints about quality problems back to the responsible production operations. Answer: Cause-and-effect Fishbone Ishikawa 12. In a _____, the closer data points are to a diagonal line, the more closely the two variables are related. Answer: scatter diagram 13. _____ involves choosing part of a population of interest for inspection. Answer: Statistical sampling 14. Complete the formula: sample size = 0.25 * (_____/acceptable error)2 Answer: certainty factor 15. In the DMAIC process, the letter “C” stands for _____. Answer: control 16. _____ measures how much variation exists in a distribution of data. Answer: Standard deviation 17. The _____ represents the number of units handled correctly through the process steps. Answer: yield 18. _____ is a measure of quality control equal to 1 fault in 1 million opportunities. Answer: Six 9s of quality Six nines of quality 19. Watts S. Humphrey defines a(n) _____ as anything that must be changed before delivery of the program. Answer: software defect 20. _____ are groups of non-supervisors and work leaders in a single company department who volunteer to conduct group studies on how to improve the effectiveness of work in their department. Answer: Quality circles 21. Genichi Taguchi’s _____ methods focus on eliminating defects by substituting scientific inquiry for trial-and-error methods. Answer: Robust Design 22. The _____ means taking responsibility for failures or not meeting quality expectations. Answer: cost of nonconformance 23. The _____ model focuses on defining user requirements and planning software projects. Answer: SQFD Software Quality Function Deployment Software Quality Function Deployment (SQFD) SQFD (Software Quality Function Deployment) Essay 1. List and briefly describe the three project quality management processes. Answer: Planning quality includes identifying which quality standards are relevant to the project and how to satisfy those standards. Incorporating quality standards into project design is a key part of quality planning. For an information technology project, quality standards might include allowing for system growth, planning a reasonable response time for a system, or ensuring that the system produces consistent and accurate information. Quality standards can also apply to information technology services. For example, you can set standards for how long it should take to get a reply from a help desk or how long it should take to ship a replacement part for a hardware item under warranty. The main outputs of quality planning are a quality management plan, quality metrics, quality checklists, a process improvement plan, and project document updates. A metric is a standard of measurement. Examples of common metrics include failure rates of products produced, availability of goods and services, and customer satisfaction ratings. Performing quality assurance involves periodically evaluating overall project performance to ensure that the project will satisfy the relevant quality standards. The quality assurance process involves taking responsibility for quality throughout the project’s life cycle. Top management must take the lead in emphasizing the roles all employees play in quality assurance, especially senior managers’ roles. The main outputs of this process are organizational process asset updates, change requests, project management plan updates, and project document updates. Controlling quality involves monitoring specific project results to ensure that they comply with the relevant quality standards while identifying ways to improve overall quality. This process is often associated with the technical tools and techniques of quality management, such as Pareto charts, quality control charts, and statistical sampling. The main outputs of quality control include quality control measurements, validated changes, validated deliverables, work performance information , change requests, project management plan updates, project document updates, and organizational process asset updates. 2. What are the three main outcomes of quality control? Briefly describe each. Answer: Acceptance decisions determine if the products or services produced as part of the project will be accepted or rejected. If they are accepted, they are considered to be validated deliverables. If project stakeholders reject some of the products or services produced as part of the project, there must be rework. Rework is action taken to bring rejected items into compliance with product requirements or specifications or other stakeholder expectations. Rework often results in requested changes and validated defect repair, resulting from recommended defect repair or corrective or preventive actions. Rework can be very expensive, so the project manager must strive to do a good job of quality planning and quality assurance to avoid this need. Process adjustments correct or prevent further quality problems based on quality control measurements. Process adjustments are often found by using quality control measurements, and they often result in updates to the quality baseline, organization process assets, and the project management plan. 3. What are the five phases in the DMAIC process? Briefly describe each one. Answer: Define: Define the problem/opportunity, process, and customer requirements. Important tools used in this phase include a project charter, a description of customer requirements, process maps, and Voice of the Customer (VOC) data. Examples of VOC data include complaints, surveys, comments, and market research that represent the views and needs of the organization’s customers. Measure: Define measures, then collect, compile, and display data. Measures are defined in terms of defects per opportunity. Analyze: Scrutinize process details to find improvement opportunities. A project team working on a Six Sigma project, normally referred to as a Six Sigma team, investigates and verifies data to prove the suspected root causes of quality problems and substantiates the problem statement. An important tool in this phase is the fishbone or Ishikawa diagram. Improve: Generate solutions and ideas for improving the problem. A final solution is verified with the project sponsor, and the Six Sigma team develops a plan to pilot test the solution. The Six Sigma team reviews the results of the pilot test to refine the solution, if needed, and then implements the solution where appropriate. Control: Track and verify the stability of the improvements and the predictability of the solution. Control charts are one tool used in the control phase. 4. Describe the relationship between Six Sigma and Statistics. What statistical concepts are involved in the Six Sigma philosophy? Answer: An important concept in Six Sigma is improving quality by reducing variation. The term sigma means standard deviation. Standard deviation measures how much variation exists in a distribution of data. A small standard deviation means that data clusters closely around the middle of a distribution and there is little variability among the data. A large standard deviation means that data is spread out around the middle of the distribution and there is relatively greater variability. A normal distribution is a bell-shaped curve that is symmetrical regarding the mean or average value of the population (the data being analyzed). In any normal distribution, 68.3 percent of the population is within one standard deviation (1sigma) of the mean, 95.5 percent of the population is within two standard deviations (2sigma), and 99.7 percent of the population is within three standard deviations (3sigma) of the mean. Standard deviation is a key factor in determining the acceptable number of defective units found in a population. A plus or minus six sigma in pure statistical terms means only two defective units per billion. However, the target for Six Sigma programs is 3.4 defects per million opportunities. Based on Motorola’s original work on Six Sigma in the 1980s, the convention used for Six Sigma is a scoring system that accounts for more variation in a process than you would typically find in a few weeks or months of data gathering. In other words, time is an important factor in determining process variations. 5. What are the five major cost categories related to quality? Briefly describe each category. Answer: Prevention cost: The cost of planning and executing a project so that it is error-free or within an acceptable error range. Preventive actions such as training, detailed studies related to quality, and quality surveys of suppliers and subcontractors fall under this category. Detecting defects in information systems during the early phases of the systems development life cycle is much less expensive than during the later phases. One hundred dollars spent refining user requirements could save millions by finding a defect before implementing a large system. The Year 2000 (Y2K) issue provides a good example of these costs. If organizations had decided during the 1960s, 1970s, and 1980s that all dates would need four characters to represent the year instead of two characters, they would have saved billions of dollars. Appraisal cost: The cost of evaluating processes and their outputs to ensure that a project is error-free or within an acceptable error range. Activities such as inspection and testing of products, maintenance of inspection and test equipment, and processing and reporting inspection data all contribute to appraisal costs of quality. Internal failure cost: A cost incurred to correct an identified defect before the customer receives the product. Items such as scrap and rework, charges related to late payment of bills, inventory costs that are a direct result of defects, costs of engineering changes related to correcting a design error, premature failure of products, and correcting documentation all contribute to internal failure cost. External failure cost: A cost that relates to all errors not detected and not corrected before delivery to the customer. Items such as warranty cost, field service personnel training cost, product liability suits, complaint handling, and future business losses are examples of external failure costs. Measurement and test equipment costs: The capital cost of equipment used to perform prevention and appraisal activities. Test Bank for Information Technology Project Management Kathy Schwalbe 9781133526858, 9781133627227, 9780324786927, 9781337101356, 9780324665215
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