PROJECT COST MANAGEMENT

Question 1

Which of the following choices are considered components of the schedule performance index?

a. Leads and lags
b. Critical Path Method
c. Earned Value and Planned value
d. Earned Value and Actual Cost

Answer 1

C

The best answer choice is C. Schedule performance index is the ratio of Earned Value to Planned value. The formula is SPI = EV / PV.

Question 2

You’ve been asked to produce an estimate for a newly approved project. Because the estimate is for a
customer, it needs to be as accurate as possible. Although it will some take time, the best estimate you can provide will be through the use of which of the following estimating techniques?

a. Parametric
b. Analogous
c. Three-point
d. Bottom-up

Answer 2

D

A bottom-up estimate is the most accurate estimate. It also takes the most time to prepare.

Question 3

You’ve been asked to calculate the expected total costs of completing all work expressed as the sum of the Actual Cost to date and the Estimate to Complete. What, specifically, are you calculating?

a. The Estimate to Complete (ETC)
b. Earned Value (EV)
c. Planned Value (PV)
d. The Estimate at Completion (EAC)

Answer 3

D

Per the PMBOK® Guide definition, EAC is the expected total cost of completing all work expressed as the sum of the Actual Cost to date and the Estimate to Complete.

Question 4

The advantages of analogous estimating include how easy it is to perform and the fact that you can create the estimate without a lot of detailed information. A disadvantage would include what?

a. It can be used only when projects are similar in fact, not just in appearance.
b. A computer program is needed.
c. Interaction costs may be overlooked.
d. It is time consuming.

Answer 4

A

Analogous estimating uses expert judgment and historical information to develop cost estimates. However, to be accurate, comparative projects must be similar in fact, not just in appearance.

Question 5

Which of the following is a measure of the cost efficiency of budgeted resources expressed as the ratio of Earned Value to Actual Cost?

a. CV
b. SV
c. CPI
d. SPI

Answer 5

C

The best answer choice is C. CPI (Cost Performance Index) compares Earned Value to Actual Cost
to determine the cost efficiency of the project.

Question 6

Many projects require the project manager to manage both direct and indirect costs. Which of the following is an example of an indirect cost?

a. Expenses incurred for travel to the project location
b. Costs for purchasing materials and supplies necessary to complete a project
c. Overhead for the portion of the office you occupy
d. Payments to contractors hired to perform work on your project

Answer 6

C

Indirect costs are those costs not directly attributable to a project, such as overhead, management salaries, and so on.

Question 7

Project costs are determined to a great degree by the effectiveness of the execution of the project work. Actual progress can be compared to planned progress by utilizing work performance information to generate activity metrics for evaluation. This type of performance reporting comparison is used in which of the following?

a. COQ
b. EVM
c. WBS
d. BAC

Answer 7

B

The best answer choice is B because EVM (Earned Value Management) is used to evaluate project progress.

Question 8

While work is being performed on a project, additional work is sometimes identified that was not previously
planned. This can cause budget overruns due to which of the following?

a. Inaccurate estimating
b. Quality issues
c. Inappropriate estimating methods
d. Unplanned, in-scope work

Answer 8

D

If a project or product scope is not fully defined, additional work not identified during the planning process may be discovered as part of project execution. The work is in scope, but not planned for in the budget or schedule, causing overruns in both.

Question 9

Your current Earned Value on your project is $360,000 and you have calculated the SPI at 0.8. What is your Planned value at this point?

a. $360,000
b. $480,000
c. $450,000
d. $288,000

Answer 9

C

The best answer choice is C. SPI = EV / PV. In this scenario, we would need to divide the Earned Value by the SPI in order to calculate the Planned value.

Question 10

Project Cost Management is primarily concerned with the cost of the resources needed to complete project
activities. The processes of Project Cost Management include:

a. Project execution, budget planning, force field analysis, visioning
b. Estimating costs, root-cause analysis, brainstorming, problem solving
c. Visioning, fishbone diagramming, gap analysis, controlling costs
d. Plan cost management, estimate costs, determine budget, control costs

Answer 10

D

Project Cost Management includes the following four processes: Plan Cost Management, Estimate Costs, Determine Budget, and Control Costs.

Question 11

You’ve been asked to calculate the EAC (Estimate at Completion) with a cost variance that is considered to be a one-time event. Which of the following would be the appropriate formula for you to use?

a. EAC = [(BAC – EV) / CPI] + AC
b. EAC = BAC – EV + AC
c. EAC = [(BAC – EV) / (CPI × SPI)] + AC
d. TCPI = (BAC – EV) / (BAC – AC)

Answer 11

B

EAC = BAC – EV + AC is used if the current Cost Variance is not expected to continue. It assumes that any existing variance is a one-time event. Most project managers don’t consider this a valid way of calculating EAC.

Question 12

A component of a project or program management plan that describes how costs will be planned, structured, and controlled is called:

a. Activity cost estimates
b. Basis of estimates
c. Cost management plan
d. Spend plan

Answer 12

C

The cost management plan describes the structure and criteria that will be used for cost planning, estimating, budgeting, and reporting.

Question 13

Which of the following is the primary output to the Determine Budget process?

a. Risk register
b. Reserve analysis
c. Project funding contingencies
d. Cost baseline

Answer 13

D

The best answer choice is D because it is the primary output to the Determine Budget process. The other outputs including Project funding requirements, and updates to cost estimates, the project schedule, and the risk register.

Question 14

Estimate Costs is the process of developing an approximation of the cost of resources necessary to complete project work. Which of the following tools and techniques is NOT used to estimate costs?

a. Analogous estimating
b. Parametric estimating
c. Bottom-up estimating
d. Cost aggregation

Answer 14

D

Cost aggregation is a technique used to develop the cost baseline.

Question 15

A measure of the cost performance that is required to be achieved with the remaining resources in order to
meet a specified management goal, expressed as the ratio of the cost to finish the outstanding work to the
remaining budget is called:

a. BAC (Budget at Completion)
b. TCPI (To-Complete Performance Index)
c. Variance analysis
d. ETC (Estimate at Completion)

Answer 15

B

The TCPI tells you how efficiently you need to perform to hit a budget target.

Question 16

You’ve just provided a 1,000-hour rough order of magnitude estimate at the beginning of a project. Based on studies that have been done, what would be the expected accuracy of this estimate?

a. –5% to + 10%
b. 10% to + 25%
c. –25% to + 75%
d. It is not possible to provide an estimate at this time.

Answer 16

C

A rough order of magnitude estimate done in the beginning of a project will have an accuracy range of –25% to + 75%.

Question 17

Marsha is a new project manager and is working on determining her project budget. Because this is her first project, she wants to make certain that she doesn’t go over budget. In order to keep everything well organized, she has decided to begin by establishing the policies, procedures, and documentation for planning, managing, expending, and controlling project costs. In which of the following processes is Marsha involved?

a. Determine Budget
b. Control Costs
c. Estimate Costs
d. Plan Cost Management

Answer 17

D

The best answer choice is D because the question defines Plan Cost Management.

Question 18

You are managing a project that has a work package having a lot of risk and uncertainty associated with it.
Knowing this, what type of estimate should you produce?

a. Bottom-up
b. Analogous
c. Parametric
d. Three-point

Answer 18

D

A three-point estimate accounts for high-level risk and uncertainty.

Question 19

The estimate at completion for your IT project is $125,000. At this point in the project life cycle, your actual cost is $90,000. What is your estimate to complete, assuming is proceeding according to plan?

a. $35,000
b. $125,000
c. $215,000
d. $90,000

Answer 19

A

The best answer choice is A. Estimate to Complete (ETC) can be calculated by subtracting the Actual Cost (AC) from the Estimate at Completion (EAC). The formula is ETC = EAC – AC.

Question 20

Rose is managing a project that is experiencing some scheduling issues, but the costs are going according to plan. She knows the Estimate at Completion and the Actual Cost of the work that has been accomplished to date. She wants to calculate the Estimate to Complete. In order to do so, which of the following equations should Rose use?

a. ETC = BAC / CPI
b. ETC = EV / PV
c. ETC = EAC – AC
d. ETC = BAC – EAC

Answer 20

C

The best answer choice is C. The Estimate to Complete is the Estimate at Completion minus the Actual Cost.

Question 21

Defining how costs will be estimated, budgeted, managed, monitored, and controlled is part of which of the following processes?

a. Project Integration Management
b. Project Time Management
c. Plan Cost Management
d. Select Financial Metrics

Answer 21

C

Plan Cost Management is the process defining how the project costs will be estimated, budgeted, managed, monitored, and controlled.

Question 22

If your SPI is greater than 1.0, which of the following is true?

a. The project is behind schedule
b. The project is ahead of schedule.
c. Your project is on schedule.
d. Your earned value is zero.

Answer 22

B

The best answer choice is B. An SPI greater than 1.0 indicates the project is ahead of schedule.

Question 23

Dena is managing a small project for a computer software development firm. The project is about half finished, and she is calculating the estimate at completion. From the following equations, which one should Dena use if she feels the remaining work will be accomplished at the planned rate.

a. EAC = AC + BAC – EV
b. EAC = BAC / CPI
c. EAC = AC + Bottom-up ETC
d. EAC = AC + [(BAC – EV) / (CPI × SPI)]

Answer 23

A

The best answer choice is A. If future work is expected to be accomplished at the planned rate, the estimate at completion can be calculated as Actual Cost plus budget at completion minus earned value.

Question 24

The knowledge gained during a project, which shows how cost variances were addressed or should be
addressed on subsequent projects, for the purpose of improving future performance should be documented in:

a. Financial status
b. Lessons learned
c. Post-project audit
d. Action items

Answer 24

B

Lessons learned should be recorded in the lessons learned register, a project document used to record the knowledge gained during a project so that it can be used in the current project or a future, subsequent initiative

Question 25

Tim is working on the cost estimate for his project. Because he is in the early phase of this project, he will
develop a Rough Order of Magnitude (ROM) estimate. What is the expected degree of accuracy?

a. –25% to +75%
b. –5% to +10%
c. –25% to +25%
d. –50% to +25%

Answer 25

A

The best answer choice is A. The ROM typically varies between a –25% and a +75% accuracy.

Question 26

When estimating costs, project budgets typically include management reserves as well as contingency
reserves. Select the option below that is true regarding management reserves.

a. They are seldom included in the funding requirements
b. They are included to cover unapproved changes
c. They are a factor in determining Earned Value
d. They are not part of the cost baseline

Answer 26

D

The best answer choice is D because management reserves are not included when creating the cost baseline.

Question 27

Which of the following are required in order to calculate the EAC forecast if future work will be performed at the budgeted rate?

a. BAC, EV, and AC
b. BAC, PV, and AC
c. BAC, EV, and PV
d. EAC, EV, and PV

Answer 27

A

The best answer choice is A. The formula is EAC = AC + BAC – EV.

Question 28

As part of a project status report you are preparing, you decide to include a forecast that shows the impact of your cost and schedule performance to date. Which of the following is the EAC calculation you should use?

a. EAC = BAC – EV + AC
b. EAC = ((BAC – EV) / CPI) + AC
c. EAC = BAC/CPI
d. EAC = ((BAC – EV) / (CPI  × SPI)) + AC

Answer 28

D

You should use the equation that includes the SPI and CPI in the denominator.

Question 29

When measuring how efficiently the project team is using their time, Wanda is using the Schedule Performance Index equation. Which of the following equations is she using?

a. SPI = EV / PV
b. SPI = EV / AC
c. SPI = PV / EV
d. SPI = PV / AC

Answer 29

A

The best answer choice is A. When calculating Schedule Performance Index, the Earned Value is divided by the Planned value. A result of less than 1.0 indicates the project is behind schedule.

Question 30

Don is managing a project that requires close supervision because of the client’s directive that it not go over budget. Don has determined the Earned Value to be $450,000. The Actual Cost is $425,000. What can Don conclude based on these numbers?

a. The project is $25,000 over budget
b. The project is $25,000 under budget
c. The project only has $25,000 left in the budget
d. The cost variance is 1.06

Answer 30

B

The best answer choice is B. The Cost Variance equation is EV – AC. In this case, because Actual Cost is less than Earned Value, the project is $25,000 under budget.

Question 31

You’ve just completed estimating the costs for your project. Prior to execution, you need to establish a time-phased project budget, excluding any management reserves, that can only be changed through formal change control procedures. It will then be used as a basis for comparison to actual results. This is formally called:

a. The project baseline
b. The cost baseline
c. The project management plan
d. The performance measurement baseline

Answer 31

B

The cost baseline is the authorized budget for the project, allocated over a timeline.

Question 32

A performance reporting methodology that combines scope, schedule, and resource measurements in order to assess project performance and progress is called:

a. EVM (Earned Value Management)
b. Variance analysis
c. Reserve analysis
d. Project statusing

Answer 32

A

The preferred project performance reporting methodology is Earned Value Management. It combines scope, schedule, and resource measurements in order to assess project performance and progress.

Question 33

An amount of the project budget or project schedule held outside of the performance measurement baseline (PMB) for management control purposes and reserved for unforeseen work that is within the scope of the project is called:

a. Management reserve
b. Contingency reserve
c. Risk reserve
d. Warranty reserve

Answer 33

A

Management reserve is used for project changes to scope and cost. It covers work that is in scope but unplanned.

Question 34

Curtis is calculating the variance at completion on his project. If his budget at completion is $250,000 and his estimate at completion is $280,000, what is his variance at completion?

a. $30,000
b. –$30,000
c. $530,000
d. 0.89

Answer 34

B

The best answer choice is B. VAC = BAC – EAC. Because the BAC is $250,000 and the EAC is $280,000, this results in a negative $30,000 VAC.

Question 35

Joseph has just calculated the To-complete performance index (TCPI) for his project and arrived at a number greater than 1.0. What does this indicate?

a. The remaining portion of the project will be easier to complete on budget.
b. The remaining portion of the project will be the same to complete on budget.
c. The remaining portion of the project will be harder to complete on budget.
d. The project is on schedule and on budget.

Answer 35

C

The best answer choice is C. Because TCPI is a measurement of efficiency based on what has
been done and what remains to be done to complete the project, a 1.0 TCPI indicates the rest of the
project will require the same efficiency as that of the work that has already been completed. A number
less than 1.0 indicates the required effort will be reduced, and a number greater than 1.0 indicates
additional effort will be necessary to complete the project with the remaining resources.

Question 36

As project manager, you have an allocation of time or money in the schedule or cost baseline for known risks with active response strategies. By definition, this is your ______________________.

a. Slush fund
b. Contingency reserve
c. Management reserve
d. Funding limitation

Answer 36

B

Your contingency reserve is within the control of the project manager and is used for project risks.

Question 37

Parametric, analogous, and bottom-up are estimating tools and techniques that are used in which of the
following processes?

a. Plan Cost Management
b. Determine Budget
c. Estimate Costs
d. Control Costs

Answer 37

C

The best answer choice is C because the estimating techniques listed are tools and techniques of
the Estimate Costs process.

Question 38

You need to determine how well your project is progressing from a cost standpoint. You have determined that your actual cost at this point in time is $150,000 and your Earned Value is $135,000. Which of the following represents your Cost Performance Index?

a. 0.9
b. 1.1
c. $15,000
d. $135,000

Answer 38

A

The best answer choice is A. Using the formula CPI = EV / AC, the resulting Cost Performance Index is 0.9, indicating that the project is over budget at this point in time.

Question 39

The BAC for your project is $450,000. You have determined your Earned Value and Actual Cost in order to calculate your CPI. Based on your current CPI of 0.95, and considering the CPI will remain at this level for the remainder of the project, which of the following represents your EAC?

a. $427,500
b. $473,684
c. $230,769
d. $877,500

Answer 39

B

The best answer choice is B. The formula for EAC, in situations where the current CPI is expected to remain constant for the duration of the project, is EAC = BAC / CPI.

Question 40

Which of the following formulas would you use to determine Cost Variance?

a. CV = AC – EV
b. CV = PV – EV
c. CV = EV – AC
d. CV = EV / PV

Answer 40

C

The best answer choice is C. Cost Variance is equal to Earned Value minus Actual Cost.

Question 41

Which of the following is used to compare actual project progress with planned progress?

a. Cost of Quality
b. Total Quality Management
c. Earned Value Management
d. Progressive elaboration

Answer 41

C

The best answer choice is C. Earned Value Management (EVM) is a methodology combining scope, schedule, and resource measurements to assess actual project performance and progress in comparison to planned progress at a specific point in time.

Question 42

Deborah’s project is at the midpoint in its schedule, and she needs to calculate the to-complete performance index (TCPI). If she needs to determine the efficiency that must be achieved on the remaining work in order to complete the current Estimate at Completion (EAC), she will need to know the Budget at Completion (BAC), the EAC, and which of the following values in order to calculate her TCPI?

a. Earned Value and Actual Cost
b. Earned Value and Planned value
c. Planned value and Actual Cost
d. Cost Variance and Cost Performance Index

Answer 42

A

The best answer choice is A. The equation for calculating TCPI to determine the efficiency that
must be maintained in order to complete the current EAC is (BAC – EV) / (EAC – AC).

Question 43

Your company is in the process of estimating costs for the manufacture of a new concept aircraft navigation
system. Initial estimates, based on manufacturing 200 of these units, was calculated at a fixed cost of $40,000 for tooling and a cost of $2,500 per unit. Market demand has risen above the original estimate, and the company has decided to produce 50 additional units. This has resulted in an increase of $300 additional cost per unit. Based on the new figures, and assuming the initial fixed cost for tooling remains the same, what is the estimated cost to manufacture 250 units?

a. $550,000
b. $560,000
c. $740,000
d. $700,000

Answer 43

C

The best answer choice is C. In order to calculate this problem, the sum of fixed cost plus variable cost is multiplied by the final number of units. In other words, $40,000 + [(2,500 + $300) × 250] = $740,000.

Question 44

Max is managing a large construction project for senior living suites. His team has completed a variance analysis, and they have calculated several cost performance indicators including Cost Performance Index (CPI) and Cost Variance (CV). When they completed the calculations, they discovered a significant deviation between the actual performance and the cost performance baseline. Once this variance is detected, what should Max do immediately to restore the necessary cost performance?

a. Request more funding
b. Schedule a team meeting
c. Initiate a corrective action
d. Compress the schedule

Answer 44

C

The best answer choice is C. A corrective action is the first step Max should take in order to restore the necessary cost performance.