Chapter 7, Problem 2DQ

Explanation of Solution

Basic Principles of cost management:

The basic principles of cost management are the key measures for reviewing an IT project in terms of profit, life cycle costs, tangible and intangible costs and benefits, direct and indirect costs, and reserves.

Profit:

• Profit of a project is referred to as the revenue of the project minus total expenditures spent on IT projects.
• The best way to increase the profits of IT project is by increasing the revenue of the company and reducing the expenditures spent during the project development.

Life cycle costs:

• Life cycle cost is defined as the total cost of ownership of a project throughout its life cycle.
• The project managers must consider the life cycle costs of the project while taking financial decisions on any project.

Tangible costs:

• A tangible cost represents the cost that can be linked up with a specific activity or product for task which includes purchasing of materials, hardware systems and paying employees.

Intangible costs:

• Intangible costs represent variety of costs that consists of losses in productivity, and goodwill of customer...