# Cost Flashcards

1
Q
1. For an IT project your EV = \$130,500, PV = \$125,500, and AC = \$129,000. Which one of the following statements is TRUE?
A. The project is behind schedule and over budget.
B. The project is ahead of schedule and under budget.
C. The project is behind schedule and under budget.
D. The project is ahead of schedule and over budget.
A
1. B: The EV is greater than the PV, which indicates the project is ahead of schedule. The AC is smaller than the EV, which indicates the project is under budget.
2
Q
1. You recently took over a project from another project manager who left the
organization. You find out that the project has a BAC = \$45,000, PV = \$30,000,
cumulative AC = \$25,000, and cumulative EV = \$24,000. You decided to perform a
forecasting analysis and calculated the values for EAC, ETC, TCPI, and VAC. Which of the following is NOT true?
A. You will need \$21,875 more to complete this project.
B. The project will cost \$46,875.
C. The project performance is not good as TCPI is 1.05.
D. The project will be under budget by \$1,875.
A
1. D: We are given the following values: BAC = \$45,000
PV = \$30,000
AC = \$25,000
EV = \$24,000. We know:
EAC = BAC/CPI
ETC = EAC – AC
VAC = BAC – EAC and
TCPI = (BAC – EV) / (BAC – AC)
CPI = EV/AC
Thus CPI = \$24,000/\$25,000 = 0.96
So EAC = BAC/CPI = \$45,000/0.96 = \$46,875 ETC = EAC – AC = \$46,875 – \$25,000 =
\$21,875
TCPI = (BAC – EV) / (BAC – AC) = (45,000 – 24,000) / (45,000 – 25,000) = 21,000 / 20,000 =
1.05 VAC= BAC – EAC = \$45,000 – \$46,875 = –\$1,875
The project will cost \$46,875 since the EAC is \$46,875. The ETC is \$21,875, so you will need \$21,875 to complete the project. The VAC is –\$1,875; thus, the project will be over budget by \$1,875. The project performance is not good as TCPI is 1.05. All of the statements are true except D. The project is over budget by \$1,875, not under budget.
3
Q
```3. You are in the Determine Budget process of developing a budget or cost baseline and project funding requirements. All of the following are inputs in this process EXCEPT:
A. Work performance data
B. Cost management plan
C. Activity cost estimates
D. Project schedule```
A
1. A: Work performance data is not an input in the Develop Budget process, but it is an
input in the Control Costs process.
4
Q
1. To develop an online accounting application for your software development project, you are working on figuring out the total funding requirements including all reserves of the project. Which of the following will help you the MOST in this case?
A. Project budget and contingency reserves
B. Funding limit reconciliation
C. Cost baseline and management reserves
D. Management reserves and contingency reserves
A
1. C:

Total fund or cost budget = cost baseline + management reserves.
Cost baseline = project cost + contingency reserves
The cost baseline is the project cost plus the contingency reserves, and the cost budget, or how much money the company should have available for the project, is the cost baseline plus the management reserves. The project manager determines, manages, and controls the contingency reserves, which will address the cost impact of the risks remaining during the Plan Risk Responses process. On the other hand, management reserves are funds to cover unforeseen risks or changes to the project. In this case, the cost baseline and the management reserves will be most helpful to calculate the total funding and periodic funding requirements. Funding limit reconciliation is the technique of reconciling the expenditure of funds with the funding limits set for the project. As per the variance between the expenditure of funds and planned limit, the activities can be rescheduled to level out the rate of expenditures.

5
Q
```5. You are in the Determine Budget process of developing a budget or cost baseline and project funding requirements. All of the following are tools & techniques in this process
EXCEPT:
A. Cost aggregation
B. Data analysis
C. Funding limit reconciliation
D. Performance review```
A
1. D: Performance review is not a tool & technique in the Develop Budget process, but a
tool & technique in the Control Costs process
6
Q
1. You are the project manager of a construction project that will take six months
to complete and will cost \$75,000/month. At the end of the third month, you were
asked to find out the cumulative SPI for the project and report it to management. While
reviewing the project status, you found that you have spent \$80,000 in the first month,
\$72,000 in the second month, and \$75,000 in the third month. You also found that the
project was 15 percent complete at the end of first month, 35 percent complete at
the end of second month, and 45 percent complete at the end of third month. If you
planned to complete 50 percent of the work by this time, what is the cumulative SPI at
the end of month three?
A. 0.5
B. 0.9
C. 0.34
D. 1.1
A
1. B: We have BAC = 6 * \$75,000 = \$450,000
At the end of month three, we were supposed to finish 50 percent of the work. Thus,
PV = BAC * Planned % Complete or PV = \$450,000 * 50 percent = \$225,000 Also, project work is 45 percent completed at the end of three months. Thus, EV = BAC * Actual % Complete or EV = \$450,000 * 45 percent = \$202,500.

We know SPI = EV/PV or SPI = \$202,500/\$225,000 = 0.9

7
Q
1. A project manager working on a construction project planned to install new carpets in
all four rooms of the house. She measured the square footage of all the rooms and then
multiplied that figure by a set cost factor to estimate the cost for installing the carpet.
This is an example of:
A. Bottom-up estimating
B. Analogous estimating
C. Parametric estimating
D. Three-point estimating
A
1. C: Parametric estimate uses mathematical models based on historical records from other projects. It utilizes the statistical relationship that exists between a series of historical data and a particular delineated list of other variables. Depending upon the quality of the underlying data, this estimate can produce higher levels of accuracy and can be used in conjunction with other estimates to provide estimates for the entire project or specific segments of a project. Measures such as time per line of code, time per installation, and time per linear meter are considered in this type of estimate.
8
Q
1. With the help of your team members, you just finished the development of an
approximation of the costs of all resources, such as labor, materials, equipment, services, facilities, and other special items associated with each schedule activity. What should you do NEXT?
A. Control costs
B. Resource leveling
C. Bottom-up estimating
D. Determine budget
A
1. D: You just completed the Estimate Costs process and should be focusing on the Determine Budget process.
9
Q
1. Steve, a project manager, is trying to figure out the performance that must be
achieved in order to meet the financial and schedule goals in his project. He is using a
measurement that will give him the status on the remaining work with respect to the
funds remaining. Which of the following measures is Steve using?
A. Cost aggregation
B. Variance analysis
C. Trend analysis
D. To-Complete Performance Index (TCPI)
A
1. D: To-Complete Performance Index (TCPI) calculates the performance that must be
achieved in order to meet financial or schedule goals.
10
Q
1. You are overseeing a mobile application development project. While reviewing an
earned value report, you observe that the SPI is 1.2 and the CPI is 0.9. Which statement
can you make about the project?
A. On track according to schedule and budget baselines.
B. Behind the schedule and over budget.
C. Ahead of the schedule and over budget.
D. On schedule and under budget.
A
1. C: A SPI of 1.2 means that the project is ahead of schedule, and a CPI of 0.9 or less than one means that the project is over budget.
11
Q
```11. Your project has a budget of \$900,000 and is running well. In the latest earned value report, the team reported that the CPI = 1.1, the SPI = 0.9, and the PV= \$600,000. You want to know, from this point on, how much more the project will cost, but could not find it in the report. What will be the estimate to complete, or ETC, be in this case?
A. \$300,000
B. \$327,272
C. \$818,181
D. \$490,909```
A
1. B: We know ETC = EAC – AC, so we need to find out the values for Estimate at Completion
(EAC) and Actual Cost (AC).
We are given the following values: BAC = \$900,000
CPI = 1.1
SPI = 0.9
PV = \$600,000
We also know that EAC = BAC/CPI; thus EAC = \$900,000/1.1 = \$818,181
Now we have SPI = 0.9 or EV/PV = 0.9; thus EV = 0.9 * PV
So EV = 0.9 * 600,000 = \$540,000
We also know that CPI = 1.1 or EV/AC = 1.1; thus, EV = 1.1 * AC So AC = EV/1.1 or AC =
540,000/1.1 = \$490,909
So ETC = EAC – AC or ETC = \$818,181 – \$490,909 = \$327,272
12
Q
1. You asked one of your team members about the schedule variance (SV) for one of her key deliverables. She mentioned that she is behind schedule, but there would not be
any cost variance. Which of the following is NOT true in this case?
A. EV and PV were the same
B. EV and AC were the same
C. EV is less than PV
D. CPI is 1
A
1. A: We know SV = EV – PV. Since SV has a negative value, EV must be less than PV.
Also CV = EV – AC. Since there will be no cost variance, EV and AC have the same value. CPI is also EV/AC = 1.
13
Q
```13. There were eight potential projects in your organization, and your senior management wanted to select the best project that would meet and exceed the organizational strategic goals and objectives. As your organization has limited resources and time constraints, it developed business cases for these projects and compared the benefits to select the best project. Out of eight projects, management has selected two projects and later on decided to go for Project X, which would yield \$250,000 in benefits instead of Project Y, which would yield \$200,000. What is the opportunity cost for selecting Project X over Project Y?
A. \$250,000
B. \$200,000
C. –\$250,000
D. –\$200,000```
A
1. B: The opportunity cost is the value of the project that was not selected or the opportunity that was missed out on. In this case, the opportunity cost for Project X is the value of the Project Y, or \$200,000.
14
Q
1. You are overseeing a project to implement an accounting application for a dentist’s
office. In one of the performance meetings, you came up with the following
measurement: AC = 500, PV = 600, and EV = 650. What is going on with this project?
A. Both CV and SV are positive numbers; thus, you are under budget and ahead of
schedule.
B. You do not have enough information to calculate SPI and CPI.
C. The CV is a negative number, which means you have spent more than planned.
D. The SV is a negative number, which means the project is behind schedule.
A
1. A: We know SV = EV – PV and CV = EV – AC So SV = 650 – 600 = 50 and CV = 650 – 500 = 150. A positive CV indicates that the project is under budget, and a positive SV indicates that the project is ahead of schedule.
15
Q
```15. The project manager and the team members have just finished working on the WBS and have almost finalized the project schedule. The project manager is also planning to start working on the project budget. Which document will be used for planning, estimating, budgeting, and controlling costs so that the project can be completed within the approved budget?
A. Earned value management
B. Cost baseline
C. Cost management plan
D. Funding limit reconciliation```
A
1. C: The project cost management plan is a component of the overall project management plan, and it defines how the project cost will be planned, managed, expended, and controlled throughout the project life cycle.
16
Q
1. The Earned Value Management (EVM) will NOT be very beneficial in which situation?
A. To measure a project’s progress against the project scope, cost, and schedule
baselines.
B. To forecast future performance and the project’s completion date and final cost.
C. To provide schedule and budget variances during the project.
D. To develop the project cost baseline.
A
1. D: Earned value analysis provides a means to determine cost and schedule variances, not to develop the project cost baseline.
17
Q
```17. A project manager is working on a project designed to create an internal website for ITPro Consultancy, LLC that will allow them to schedule the conference room online. While reviewing the status of the project, the project manager found out the EV, AC, and PV (listed in the table below). What are the SPI and CPI? PV EV AC
Project 242,200 224,000 140,500
A. 0.925 and 1.59
B. 1.59 and .925
C. 0.919 and 1.77
D. 1.77 and 0.919```
A
1. A: We know that SPI = EV/PV and CPI = EV/AC
SPI = EV/PV = 224,000/242,000 = 0.925
CPI = EV/AC = 224,000/140,500 = 1.59
18
Q
1. You are preparing a cost management plan for the data center project you are managing for ITPro Consultancy, LLC. All of the following is true regarding this plan EXCEPT:
A. Activity cost estimates will be rounded to a prescribed precision; for example, \$100,
\$1,000, and so on.
B. Units of measurement such as hours, days, weeks, or a lump sum amount will be
used to estimate resources.
C. The primary concern is determining the amount of resources needed to complete
the project activities.
D. The WBS provides a framework for the cost management plan, and a control account
(CA) in the WBS is used to monitor and control the project cost.
A
1. C: The primary concern for project cost management is to determine the cost of resources, not the amount to complete the project activities.
19
Q
1. You estimated your project cost to be \$80,000 with a timeline of eight months. After four months in the project, you found out that 40 percent of the project is completed; the
actual cost is \$25,000. What does the SPI tell you in this case?
A. There is not enough information to calculate the SPI.
B. The project is behind schedule.
C. The project is ahead of schedule.
D. The project is progressing as per the plan.
A
1. B: Here we have BAC = \$80,000
We know that EV = BAC * Actual % Complete
So EV = BAC * 40 percent completion = \$80,000 x 40 percent = \$32,000
Also PV = BAC * (Time Passed/Total Scheduled Time)
And PV = \$80,000 * (4 months/8 months) = \$40,000
So SPI = EV/PV = 32,000/40,000 = 0.8
SPI is less than one, which suggests that the project is behind schedule.
20
Q
1. You estimated your project cost to be \$80,000 with a timeline of eight months. As of
today, you found out that 40 percent of the project is completed; the actual cost is
\$30,000. What does the CPI tell you in this case?
A. There is not enough information to calculate the CPI.
B. The project is over budget.
C. The project is under budget.
D. The project is costing as per the plan.
A
1. C: Here we have BAC= \$80,000 and AC = \$30,000 We know that EV = BAC * Actual % Complete
So EV = BAC * 40 percent completion
= \$80,000 * 40 percent = \$32,000
So CPI = EV/AC = 32,000/30,000 = 1.066
CPI is more than one, which suggests that the project is under budget.
21
Q
1. Which one of the following is FALSE about TCPI?
A. TCPI calculates the performance that must be achieved in order to meet financial or
schedule goals.
B. TCPI usually determines the status on the remaining work with respect to the funds
remaining.
C. If the cumulative CPI falls below the baseline plan, all future work must be performed
at the TCPI to achieve the planned BAC.
D. If the cumulative CPI falls below the baseline plan, all future work must be performed
below the TCPI to achieve the planned BAC.
A
1. D: TCPI calculates the performance that must be achieved in order to meet financial or schedule goals and determines the status on the remaining work with respect to the funds remaining. If the cumulative CPI falls below the baseline plan, all future work must
be performed at the TCPI to achieve the planned BAC.
22
Q
1. All of the following statements are true about cost baseline EXCEPT:
A. It is a time-phased budget used to monitor, measure, and control cost performance
during the project.
B. It is usually displayed in the form of an S-curve.
C. It assigns cost estimates for expected future period operating costs.
D. It aggregates the estimated costs of project activities to work packages, then to
control accounts, and finally to the project.
A
1. C: Expected future period operation costs are considered to be ongoing costs and
should not be part of the project costs.
23
Q
1. While working on your project budget, you also calculated the contingency reserve. This contingency reserve is the estimated cost to be determined, managed, and controlled at your discretion to deal with which of the following?
B. To address the cost impact of the risks remaining during the Plan Risk Responses
process.
C. To handle anticipated and certain events in your project.
D. To handle unanticipated events or surprises in your project.
A
1. B: The project manager determines, manages, and controls the contingency reserves, which will address the cost impact of the risks remaining (residual risks or known unknown risks).
24
Q
1. Lori is the project manager for a software development firm and has been assigned to create an accounting automation application for a dentist’s office. While reviewing the
cost estimate with Lori, the sponsor expressed her frustration with the higher cost and
asked to reduce the estimate by at least ten percent. The sponsor is not too worried
about the project duration estimate and suggested that Lori seek her help with the
schedule if needed. What is the best course of action for Lori in this kind of situation?
A. Replace a couple of expensive resources with lower-cost resources.
B. Continue with the project and constantly find an opportunity to save money for a
total savings of 10 percent.
C. Have an urgent meeting with the team members and ask them to be innovative and
squeeze their estimate.
D. Inform the sponsor of the activities to be cut.
A
1. D: The project manager is expected to come up with a realistic estimate that does not include padding. The project manager also should not simply reduce the estimate whenever asked by the sponsor or clients. If the project manager must reduce the estimate, she needs to explore other options such as cutting scope, reducing quality, or replacing expensive resources with lower-cost resources. In this case, Lori should inform the sponsor the activities to be cut in order to reduce the estimate by ten percent.
25
Q
```25. Selina is a project manager involved in the Estimate Costs process in the early phase of her project when a limited amount of detail was available to her. The range of her estimate was \$75,000 to \$200,000, and the actual cost came to be around \$150,000. What would you call such an estimate?
A. A variable estimate
B. A definitive estimate
C. A rough order of magnitude estimate
D. A budget estimate```
A
1. C: A rough order of magnitude (–25 percent to 75 percent) is an approximate estimate made without detailed data. This type of estimate is used during the formative stages for initial evaluation of a project’s feasibility. In this example,
\$75,000 and \$200,000 are –25 percent to +75 percent of \$150,000.
26
Q
1. You have fifteen components to work on in a software development project. As per your estimation, the first six components would cost \$1,500 each, and the remaining
nine would cost \$1,400 each. Your schedule projected that you would be done with 40 percent of the components today. While collecting the status updates from the team
members, you found out that the first five components were completed at a cost of \$8,000. What is the SPI?
A. 1.20
B. 0.132
C. 0.833
D. Cannot be determined
A
1. C: The budget for the first six components is 6 * \$1,500 = \$9,000, and the budget for the remaining nine components is 9 * \$1,400 = \$12,600. So BAC = \$9,000 + \$ 12,600 = \$21,600
We know PV = BAC * Planned % Complete So PV = 21,600 * 40 percent = \$8,640
We have a total of fifteen components and so far completed five components. EV = BAC
* (Work Completed/Total Work Required)
So EV = \$21,600 * 5/15 = \$7,200
So SPI = EV/PV = 7200/8640 = 0.833
27
Q
1. You are working on a project to convert an old nursing home to a new office complex. While reviewing the progress of your project, you found out that your EV = \$26,000 and AC = \$27,000. One of your site supervisors calls to inform you that there are several damages in the foundation that were not discovered earlier, and it will result in a significant cost overrun. What will you do FIRST?
A. Make sure that the contingency reserves you have will be sufficient enough to cover
the cost overrun.
B. Call the sponsor immediately and inform her that additional funds will be needed.
C. Ask the supervisor to figure out why these damages were not discovered earlier.
D. Evaluate the cause and size of this cost overrun.
A
1. D: The first step should be to get as much information as possible about the damages in the foundation by evaluating the cause and size of the damage and the amount needed for the fix. You can take other actions as appropriate once you have all the details.