Project Management Basics - 7.0 Project cost Management

Question 1

Determining the approximate monetary resources required to complete project activities is the purpose of what Project Cost Management process?

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

Answer 1

d. Estimate Costs

Estimate Cost is the process of developing an approximation of the cost resources needed to complete project work. The key benefit of this process is that it determines the monetary resources required for the project. This process is performed periodically throughout the project as needed.

See Section 7.2 Estimate costs

Question 2

What describes the approved version of the time-phased project budget, excluding any management reserves, which can be changed only through formal change control procedures and is used as a basis for comparison to actual results?

a. Schedule baseline
b. Budget baseline
c. Cost baseline
d. Resource baseline

Answer 2

c. Cost baseline

Cost baseline. The approved version of the time-phased project budget, excluding any management reserves, which can be changed only through formal change control procedures and is used as a basis for comparison to actual results.

See cost baseline in the Glossary

Question 3

Which of the following tasks are involved in project cost management?

a. Estimating, budgeting, and financing
b. Estimating, financing, and spending
c. Financing, allocating, and spending
d. Financing, budgeting, and allocating

Answer 3

a. Estimating, budgeting, and financing

Project Cost Management includes the processes involved in:
-  planning, 
- estimating, 
- budgeting, 
- financing, 
- funding, 
- managing,
- and controlling costs
so that the project can be completed within the approved budget.

See Section 7 Project Cost Management.

Question 4

Which of the following should be considered when tailoring processes for Project Cost Management?

a. Estimating, governance, and continuous improvement
b. Budgeting, continuous improvement, and knowledge management.
c. Estimating, budgeting, and governance
d. Budgeting, knowledge management, and risk mitigation

Answer 4

c. Estimating, budgeting, and governance

Considerations for tailoring project cost management include but are not limited to:

• knowledge management,
• estimating and budgeting,
• earned value management,
• use of agile approach,
• and governance.

See Section X5.7 Project Cost Management

Question 5

Time or money allocated in the schedule or cost baseline for known risks with active response strategies is:

a. Risk allocation reserve
b. Top-down reserve
c. Contingency reserve
d. Management reserve

Answer 5

c. Contingency reserve

Contingency Reserve. Time or Money allocated in the schedule or cost baseline for known risks with active response strategies.

See contingency reserve in the Glossary of the PMBOK

Question 6

Which are the processes in the project cost Management?

Answer 6

• Plan Cost Management
• Estimate Cost
• Determine Budget
• Control Costs

Question 7

The cost management plan has all of the following characteristics EXCEPT:

a. It may specify variance thresholds for monitoring cost performance to indicate an agreed-upon amount of variation allowed before some action needs to be taken.
b. It describes how the project costs will be planned, structured, and controlled.
c. It may specify the level of precision, which is the degree to which activity cost estimates will be rounded up or down.
d. It is based on project cost estimates and is separate from the project management plan.

Answer 7

d. It is based on project cost estimates and is separate from the project management plan.

The cost management plan is a component of the project management plan and describes how the project costs will be planned, structured, and controlled. It can include the Level of precision to which activity cost estimates will be rounded up or down. Variance thresholds for monitoring cost performance used to indicate an agreed-upon allowable amount of variation before some action needs to be taken.

See Section 7.1.3.1 Cost Management Plan

Question 8

Which of the following is a tool and technique of the Plan Cost Management process?

a. Virtual teams
b. Meetings
c. Data gathering
d. Interpersonal and team skills

Answer 8

b. Meetings

Plan Cost Management Tools & Techniques:

• Expert Judgment.
• Data analysis;
• and Meetings,

See Figure 7-2 Plan Cost Management: Inputs, Tools and Techniques, and Output for more information.

Question 9

Which of the following inputs is referenced in the Plan Cost Management process?

a. Project documents
b. Business documents
c. Agreements
d. Project charter

Answer 9

d. Project charter

Plan Cost Management: Inputs:

• Project Charter;
• Project Management Plan (Schedule management plan, risk management plan);
• Enterprise environmental factors;
• Organizational process assets.

See Figure 7-2. Plan Cost Management: Inputs, Tools and Techniques, and Outputs for more information,

Question 10

Which of the following best defines the cost management plan?

a. How cost will be planned, structured, and controlled.
b. The cost of resource types and deliverables
c. What tools will be used to control the project budget.
d. The best way to manage the project budget contraints

Answer 10

a. How cost will be planned, structured, and controlled.

The cost management plan is a component of the project management plan and describes how the project costs will be planned, structured, and controlled.

See Section 7.1.3.1 Cost Management Plan.

Question 11

What is an input to the Estimate Costs process?

a. Assumption log
b. Data analysis
c. Project charter
d. Risk register

Answer 11

d. Risk register

Inputs of Estimate Costs:

• Project management plan (cost management plan, quality management plan, scope baseline),
• project documents (lessons learned register, project schedule, resources requirements, risk register;
• Enterprise environmental factors;
• Organizational process assets.

See Figure 7-4

Question 12

Parametric estimating involves:

a. Calculating individual cost estimates for each work package and integrating them to obtain the total cost of the project.
b. Using the actual cost of a previous similar project to estimate the cost of the current project.
c. Using a statistical relationship between relevant historical data and other variables to calculate a cost estimate for project work.
d. Defining cost or duration parameters of the project life cycle,

Answer 12

c. Using a statistical relationship between relevant historical data and other variables to calculate a cost estimate for project work.

Parametric estimating uses a statistical relationship between relevant historical data and other variables (e.g., square footage in construction) to calculate a cost estimate for project work. This technique can produce higher levels of accuracy depending on the sophistication and underlying data built into the model. Parametric cost estimates can be applied to a total project or to segments of a project, in conjunction with other estimating methods.

See Section 7.2.2.3. Parametric Estimating

Question 13

Which of the following are estimated for resources that are applied to the cost estimate?

a. Materials, exchange rates, and time shortages
b. Labor, materials, and equipment
c. Labor, time shortages, and equipment
d. Technology, materials, and exchange rates.

Answer 13

b. Labor, materials, and equipment

Costs are estimated for all resources that will be charged to the project, This includes, but is not limited to,
- Labor,
- Materials,
- Equipment,
- Services,
- and facilities
as well as special categories such as 
- an inflation allowance, 
- cost of financing, 
- or contingency costs.
A cost estimate is a quantitative assessment of the likely costs for resources required to complete the activity.

See Section 7.2 Estimate Costs

Question 14

What is an input to the Estimate Costs process?

a. Resource calendars
b. Scope baseline
c. Agreements
d. Project charter

Answer 14

b. Scope baseline

Inputs of Estimate Costs:

• Project management plan (cost management plan, quality management plan, scope baseline),
• project documents (lessons learned register, project schedule, resources requirements, risk register;
• Enterprise environmental factors;
• Organizational process assets.

See Figure 7-4

Question 15

Analogous cost estimating uses which of the following costs?

a. The total cost of all estimated resource types
b. The budgeted cost of all project components
c. The actual cost of previous, similar projects.
d. The forecasted cost of individual work packages

Answer 15

c. The actual cost of previous, similar projects.

Analogous cost estimating uses values, or attributes, of a previous project that are similar to the current project. Values and attributes of the project may include but are not limited to: scope, cost, budget, duration, and measures of scale (e.g., size, weight). Comparison of these project values, or attributes, becomes the basis for estimating the same parameter or measurement for the current project.

See Section 7.2.2.2 Analogous Estimating

Question 16

Which of the following is a tool or technique for the Determine Budget process?

a. Alternative analysis
b. Reserve analysis
c. Trend analysis
d. Variance analysis

Answer 16

b. Reserve analysis

Tools and Techniques:

• Expert judgement,
• cost aggregation;
• data analysis ( reserve analysis);
• Historical information review;
• Funding limit reconciliation;
• Financing.

See Figure 7-6 on Determine Budget Inputs, Tools & Techniques, and Outputs

Question 17

The cost performance baseline has all of the following characteristics EXCEPT:

a. It is developed as a summation of the approved budgets for the different schedule activities.
b. It is typically displayed in the form of an S-curve.
c. It is the approved version of the time-phased project budget, excluding any management reserves, and is used as a basis for comparison with actual results.
d. It show the actual cost expenditures throughout the project life cycle.

Answer 17

d. It show the actual cost expenditures throughout the project life cycle.

The cost baseline is the approved version of the time-phased project budget, excluding any management reserves, which can only be changed through fromal change control procedures. The cost baseline is developed as a summation of the approved budgets for the different schedule activities. The cost baseline is a time-phased view that is typically displayed in the form of an S-Curve.

See Section 7.3.3.1 Cost Baseline

Question 18

Which of the following is an input to the Determine Budget process?

a. Resource management plan.
b. Quality management plan.
c. Stakeholder engagement plan.
d. Risk management plan.

Answer 18

a. Resource management plan.

Inputs:

• Project management plan (Cost management plan, resource management plan, scope baseline);
• Project documents ( basis of estimates, cost estimates, project schedule, risk register);
• Business documents ( business case, benefits management plan);
• Agreements;
• Enterprise environmental factors;
• Organizational process assets.

See Figure 7-6 on Determine Budget: Inputs, Toolls & Techniques, and Outputs

Question 19

Which of the following represents processes concerned with establishing and controlling the cost baseline?

a. Plan Resource Management and Control Costs.
b. Estimate Costs, Develop Budget and Adhere to baseline.
c. Determine Budget and Control Costs
d. Plan Resource Management, Cost Estimating, and Cost Control.

Answer 19

c. Determine Budget and Control Costs

The cost baseline is the approved version of the time-phased project budget, excluding any management reserves, which can only be changed through formal change control procedures. it is used as a basis for comparison to actual results. The cost baseline is developed as a summation of the approved budgets for the different schedule activities.

See Section 7.3.3.1 Cost Baseline

Question 20

How is the cost baseline developed?

a. As a result of the management reserves minus the total budget.
b. By creating an all-encompassing list of actual cost expenditures.
c. By totaling the resource costs, technology costs, and management costs.
d. As a summation of the approved budgets for the different schedule activities.

Answer 20

d. As a summation of the approved budgets for the different schedule activities.

The cost baseline is the approved version of the time phases project budget, excluding any management reserves, which can only be changed through formal change control procedures. It is used as a basis for comparison to actual results. The cost baseline is developed as a summation of the approved budgets for the different schedule activities.

See Section 7.3.3.1 Cost Baseline

Question 21

Your sponsor specifies that there is no additional money in the budget for your project and asks you to complete the project at the original budget at completion (BAC). To achieve that goal, you and your team must complete the remaining work at the to-complete performance index (TCPI) of (Use the data below):
BAC= 200
PV= 100
AC= 120
EV= 80

a. 1.50
b. 1
c. 2
d. 0.67

Answer 21

a. 1.50

The to-complete performance index (TCPI) is 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. The equation for the TCPI based on the BAC:(BAC-EV)/(BAC-AC).

Work Remaining (BAC-EV)
Funds Remaining (BAC-AC) or (EAC-AC)

AC= Actual Costs
BAC= Budget at Completion
EV= Earned Value
EAC=Estimate at completion
PV= Planned Value

See Section 7.4.2.3 To-Complete Performance Index

Question 22

What is the best definition of the variance at completion (VAC)?

a. An estimate of the amount of total deliverables, expressed as the difference between the cost per deliverable at completion and the estimate at completion.
b. A calculation of the amount of time spent ahead or behind schedule, expressed as the difference between the project schedule and completion date.
c. A projection of the amount of budget deficit or surplus expressed as the difference between the budget at completion and the estimate at completion.
d. The amount the project is ahead or behind the planned delivery date expressed as the difference between the earned value and the planned value.

Answer 22

c. A projection of the amount of budget deficit or surplus expressed as the difference between the budget at completion and the estimate at completion.

Variance at completion (VAC). A projection of the amount of budget deficit or surplus, expressed as the difference between the budget at completion and the estimate at completion.
See Table 7-1

Question 23

What is the definition of estimate at completion (EAC)?

a. The expected cost to finish all the remaining project work.
b. The expected cost incurred for the work performed on any activity completed.
c. The expected sum of all budgets established for the work to be performed.
d. The actual cost incurred for work plus an estimate to complete (ETC) the remaining work.

Answer 23

d. The actual cost incurred for work plus an estimate to complete (ETC) the remaining work.

EACs are typically based on the actual costs incurred for work completed, plus an estimate to complete (ETC) the remaining work. It is incumbent on the project team to predict what it may encounter to perform the ETC, based on its experience to date.

See Section 7.4.2.2 Forecasting

Question 24

Using the data below, which item is MOST over budget?
Item      PV          AC       EV
1    10,000    11,000   10,000
2   9,000     8,000    7,000
3   8,000     8,000     8,000
4   7,000      7,000     5,000

Answer 24

Item 4

The cost performance index (CPI) is a measure of the cost efficiency of budgeted resources, expressed as a ratio of earned value to actual cost. A CPI value less than 1.0 indicates a cost overrun for work completed. A CPI value greater than 1.0 indicates a cost underrun of performance to date. Equation:

CPI=EV/AC.

See Section 7.4.2.2 Data Analysis.

AC= Actual Costs
BAC= Budget at Completion
EV= Earned Value
EAC=Estimate at completion
PV= Planned Value

Question 25

Using the data below, assuming that all future work will be performed at the budgeted rate, the estimate at completion (EAC) is:

BAC= 200
PC=100
AC=120
EV=80

a. 220
b. 200
c. 240
d. 260

Answer 25

c. 240

The manual EAC is compared with a range of calculated EACs representing various risk scenarios:
Equation: EAC = AC + (BAC - EV).

See Section 7.4.2.2 Forecasting

AC= Actual Costs
BAC= Budget at Completion
EV= Earned Value
EAC=Estimate at completion
PV= Planned Value

Question 26

What is work performance Information?

Answer 26

Work performance information: Includes information on how the project work is performing compared to the cost baseline.
This includes the following mathematical concepts:
- Budget at completion (BAC): The total budget allocated to the project.
- Estimate at completion (EAC): the expected total cost of completing all work expressed. Actual cost (AC) + Estimate to complete (ETC).

Question 27

What is Earned Value Analysis?

Answer 27

Earned Value Analysis (EVA): shows the health of the project by integrating scope, schedule, and cost.

• EVA can be reported for the current reporting period and also cumulatively.
• EVA can be used to forecast:
• Total cost of the project at completion
• The efficiency required to complete the project ( as outlined in the baseline budget)

There are three key dimensions for EVA:

1. Planned Value (PV): the authorized budget assigned to scheduled work. The total of the PV is sometimes referred to as the performance measurement baseline (PMB).
2. Earned Value (EV): A measure of work performed until a specific date, expressed in the monetary value obtained as a result of the work performed. The EV needs to relate to the PMB. The EV cannot be greater than the authorized PV budget for a component. The EV is often used to calculate the percent complete of a project.
3. Actual cost (AC): The budget spent until a specific date for the work performed until that date. The total cost incurred in accomplishing the work that the EV measured.

Question 28

What is Varience Analysis?

Answer 28

Variance Analysis collects and assembles information on project performance variances. Common topics are schedule, cost, and quality variances.

Question 29

What is Variance at completion?

Answer 29

Variance at completion (VAC): a projection of the amount of budget (deficit or surplus) expressed as the difference between the budget at completion (BAC) and the estimate at completion (EAC). Equation: VAC = BAC - EAC

Question 30

What is the Cost performance index ?

Answer 30

The Cost performance index (CPI): Measures the cost efficiency of budgeted resources. If the result is greater than 1, the project is saving money. Equation: CPI = EV/AC

Question 31

What is Trend Analysis?

Answer 31

Trend Analysis examines project performance over time to determine if performance is improving or deteriorating.

Question 32

What is to-complete performance index?

Answer 32

The to-complete performance index (TCPI) is a measure of the cost performance that should be achieved with the remaining resources in order to meet a management goal.

TCPI is expressed as the ratio of the cost needed to finish the outstanding work to the remaining budget. Equation: (BAC - EV) / (BAC - AC).

Question 33

What input to the Control Cost process contains data on project status such as which costs ave been authorized, incurred, invoiced, and paid?

a. Work breakdown structure (WBS)
b. Project management Plan
c. Work performance data
d. Project funding requirements

Answer 33

c. Work performance data

Work performance data contains data on project status such as which costs have been authorized, incurred, invoiced, and paid.

See Section 7.4.1.4 Work Performance Data

Question 34

In earned value management, the cost variance is equal to:

a. PV minus EV
b. EV minus PV
c. EV minus AC
d. AC minus EV

Answer 34

c. EV minus AC

Variance analysis, as used in EVM, is the explanation (cause, impact, and corrective actions) for cost (CV= EV-AC), schedule (SV = EV- PV), and variance at completion ( VAC= BAC- EAC) variances. See Section 7.4.2.2. Data Analysis

Question 35

what is the project’s status if the variance at completion (VAC) is positive?

a. Ahead of schedule
b. Behind schedule
c. Under budget
d. Over budget

Answer 35

c. Under budget

Variance analysis, as used in EVM, is the explanation (cause, impact, and corrective actions) for cost (CV= EV-AC), schedule (SV = EV- PV), and variance at completion ( VAC= BAC- EAC) variances. For projects not using formal earned value analysis, comparing planned cost against actual cost can be performed to identify variances between the cost baseline and actual project performance.

See Section 7.4.2.2. Data Analysis

Question 36

When using earned value management, the performance measurement baseline is compared to what result to determine if a change, corective action or preventive action is necessary)

a. Budgeted results
b. Forecasted results
c. Resource results
d. Actual results

Answer 36

d. Actual results

Data Analysis techniques that can be used to control costs include but are not limited to: Earned value analysis (EVA). Earned value analysis compares the performance measurement baseline to the actual schedule and cost performance.

See Section 7.4.2.2 Data Analysis

Question 37

What is Schedule Variance?

Answer 37

Schedule Variance (SV): Is a measure of schedule performance. It is the amount by which the project is ahead or behind the planned delivery date, at a given point in time. It is a measure of schedule performance on a project. it is equal to the earned value (EV) minus the planned value (PV).
Equation: SV= EV-PV

Question 38

What is Cost variance (CV)?

Answer 38

Cost variance (CV) is the amount of budget deficit or surplus at a given point in time, expressed as the difference between earned value and the actual cost. It is equal to the earned value (EV) minus the actual cost (AC). 
Equation: CV= EV-AC

Question 39

What is schedule performance index (SPI)?

Answer 39

schedule performance index (SPI) is a measure of schedule efficiency. If the result is greater than 1, more work was completed than was planned. An SPI value less than 1.0 indicates less work was completed than was planned. It measures how efficiently the project team is accomplishing the work.
Equation: SPI=EV/PV

Question 40

What is Estimate at completion (EAC)?

Answer 40

What is Estimate at completion (EAC): the expected total cost of completing all work expressed. Actual cost (AC) + Estimate to complete (ETC).

If the CPI (Cost Performance Index) is expected to be the same for the remainder of the project, EAC can be calculated with the following Equation:
EAC= BAC/CPI

If the future work will be accomplished at the planned rate, use the following Equation:
EAC= AC + BAC - EV

If the initial plan is no longer valid, use the following Equation:
EAC= AC + Bottom-up ETC

If both the CPI and SPI influence the remaining work, use the following Equation:
EAC= AC + [(BAC-EV)/(CPIxSPI)]