Knowledge Area Test: Project Cost Management Flashcards
- As the project manager of a large project, you have just completed the Estimate Costs process. As you begin the Determine Budget process, which of the following would you require as inputs to the process from the Estimate Costs process?
Activity cost estimates, basis of estimates
Activity cost estimates are quantitative assessments of the probable costs required to complete project work. The basis of estimates consists of additional details supporting the cost estimate. These include documentation of the basis for the estimate, documentation of all assumptions, documentation of any known constraints and indication of the range of possible estimates. These are produced during the Estimate Costs process and form inputs to the Develop Budget process. [PMBOK® Guide 6th edition, Page 240, 248]
- You are a senior project manager working for RETAMART, a retail shopping network that sells various consumer products. As part of the expansion plan approved by the board of directors, you are a project manager for a new plant. Due to transportation problems, the project has experienced delays; the Schedule Performance Index (SPI) is at 0.6 and the Cost Performance Index (CPI) is at 0.7. However, you expect some improvements over the next few weeks, which may increase the SPI to 1.1 and the CPI to 0.9. Which of the following statements is true if your anticipated changes materialize?
The project is overspent but ahead of schedule
The cost performance index below 1 indicates that the project is over budget, and the schedule performance index above 1 indicates that the project is ahead of schedule. If all of your anticipated changes happen to be true, the project will be overspent but ahead of schedule because the schedule performance index will be greater than 1. [PMBOK® Guide 6th edition, Page 263]
- Variance analysis refers to cost performance measurements used to determine the magnitude of variation in comparison to the original cost baseline. What is the trend on the percentage range of acceptable variances as the project progresses?
The percentage range of acceptable variances will tend to decrease as the project progresses.
At the start of the project, larger percentage variances are acceptable. However, as more work is accomplished, the percentage range of acceptable variances will tend to decrease. [PMBOK® Guide 6th edition, Page 262]
- A project was estimated to cost $200,000 with a timeline of 10 months. Due to a shipment delay, the schedule was slightly delayed. However, this was made up by shipping the first batch of materials for the project by air. The net result was that there was some additional cost in the project. At the end of the second month, the Project Manager reviews the project and finds that the project is 20% complete and Actual Costs are $50,000. The Estimate to Complete (ETC) for the project would now be:
$160,000
The budget at completion (BAC) = $200,000 (given). The Actual Cost (AC) = $50,000 (given). The Earned value (EV) = (2/10) * 200,000 since 20% of the project is complete; i.e., 2 months out of 10. Hence, Earned Value (EV) = $40,000. This is an instance of an atypical situation in the project. Late arrival of materials does not mean that all subsequent material will arrive late. Hence, the calculation used for EAC is EAC = AC + BAC – EV = 50,000 + 200,000 – 40,000 = $210,000. Since ETC = EAC – AC = 210,000 – 50,000 = $160,000. [PMBOK® Guide 6th edition, Page 267]
- Rick, a project manager, is updating the status of his project. Based on the performance indices, he expects the project to finish a month earlier than the planned finish date. However, he expects the project to exceed the budgeted costs. What can you say about the schedule performance index (SPI) of the project?
The SPI is greater than 1.0.
A project that is ahead of schedule will have a SPI value greater than 1.0, since it indicates that more work was completed than was planned. [PMBOK® Guide 6th edition, Page 263]
- Since the start, your software development project has failed to meet the cost objectives. So far, the project’s CPI has varied between 0.5 and 0.75 throughout the project. It is becoming clearer that you will continue to witness such variations going forward. Which of the following methods of forecasting EAC and ETC is the most accurate?
ETC based on new estimate
The bottom-up ETC gives the most accurate results. [PMBOK® Guide 6th edition, Page 264]
- Costs incurred in one area of a project can offset costs in another area of the same project. However, it is not enough to consider only the costs of project execution when making project decisions. What other costs external to the project must also be considered?
Operating costs
Project Cost Management is primarily concerned with the cost of the resources needed to complete schedule activities. However, Project Cost Management should also consider the effect of project decisions on the costs of using, maintaining, and supporting the product, service, or result of the project. [PMBOK® Guide 6th edition, Page 233]
- Jackie is the project manager of a large project. During the Determine Budget process, she identifies that contingency reserves need to be set up for unplanned but potentially necessary changes that could result from realized risks identified in the risk register. Which of the following is true about reserves?
Management Reserves are not a part of project cost baseline, but will be included in the total budget for the project
Management Reserves are not a part of the project cost baseline but will be included in the total budget for the project. [PMBOK® Guide 6th edition, Page 252]
- Large variations in the periodic expenditure of funds are undesirable for organizational operations. Therefore, the expenditure of funds is frequently reconciled with the disbursement of funds for the project. According to the PMBOK® Guide, this is known as:
Funding Limit Reconciliation
This is known as funding limit reconciliation. This will necessitate the scheduling of work to be adjusted to smooth or regulate those expenditures. [PMBOK® Guide 6th edition, Page 253]
- Bill is the project manager of a software project that was originally estimated to be completed in 12 months. Two months into the project, it is discovered that the original estimating assumptions were fundamentally flawed. The Estimate at Completion (EAC) in such a project will be:
EAC = AC + Bottom-up ETC
The correct response is: EAC = AC + Bottom-up ETC, where AC stands for the Actual Cost and ETC stands for the Estimate to Complete. ETC based on a new estimate must be used because the original assumptions were fundamentally flawed. [PMBOK® Guide 6th edition, Page 267]
