8. Cost estimation and budgeting

Question 1

The project administrator is preparing a preliminary
budget for a project and adds in the cost of a new computer
for the project team to use. What type of cost
would this computer purchase represent?
a. Variable
b. Direct
c. Indirect
d. Variable direct

Answer 1

b—A computer purchase would be an example

of a direct cost for the project

Question 2

The project manager for a large project being developed
in northern Ontario recognizes that it will be
necessary for her to maintain a close presence at the
construction site during its development and has
negotiated the use of a building for her team near
the construction project. The cost of the building must
be factored into the project cost and will increase with
use; that is, the cost of heating and other utilities is
subject to change depending upon weather and team
use. What type of cost would this building represent?
a. Variable direct
b. Indirect
c. Nonrecurring
d. None of the above

Answer 2

a—The cost of using a site-building varies to the degree it is used and is charged as a direct cost to the project

Question 3

A project budget identifies $5,000 budgeted for programming
costs. The actual amount for programming costs is
$5,450. Which of the following statements is correct?
a. The $450 represents a negative variance to the budget
b. There is no variance to the budget
c. The $450 represents a positive variance to the
budget
d. The entire $5,450 represents a positive variance to
the budget

Answer 3

c—The overrun of $450 would be referred to as a positive variance to the budget

Question 4

The project planning phase is moving forward. The
project team has solicited the opinions of some senior
project managers with experience in similar types of
projects to try and develop a cost estimate for the project.
This process is an example of:
a. Activity-based budgeting
b. Contingency planning
c. Top-down budgeting
d. Cost estimation

Answer 4

d—The process of asking senior project managers for their best estimates of project costs is part of the cost estimation process

Question 5

John is putting together his budget for the project and
as part of this process, he is actively discussing and soliciting estimates from each member of the project team
for the overall budget. He presents his budget to senior
management and Susan rejects it, stating, “Team members
are always going to pad their estimates. I will give you the figure I want you to shoot for.” Susan is employing
what method for project cost budgeting?
a. Bottom-up
b. Top-down
c. Parametric
d. Comparative

Answer 5

b—Susan is using a top-down method in which she, as the senior manager, is providing the project budget estimate

Question 6

What are the common sources of project cost?

Answer 6

Labor
Materials
Subcontractors
Equipment and facilities
Travel

Question 7

What is Cost estimation?

Answer 7

Cost estimation processes create a reasonable budget baseline for the project

Question 8

What are the forms of costs associated with projects?

Answer 8

1. Related to type
2. Frequency of occurrence
3. Opportunity to be adjusted
4. Schedule

Question 9

What are the costs associated with Type?

Answer 9

Direct and Indirect

Question 10

What are the costs associated with the Frequency of occurrence?

Answer 10

Recurring and nonrecurring

Question 11

What are the costs associated with the opportunity to be adjusted?

Answer 11

Fixed or Variable

Question 12

What are the costs associated with the schedule?

Answer 12

Normal or Expedited

Question 13

What is a project budget?

Answer 13

The budget is a plan that identifies the resources, goals, and schedule that allows a firm to achieve those goals.