Cost

Question 1

navigate. 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 1

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

Question 2

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 2

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

Question 3

navigate. 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 3

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

Question 4

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 4

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

Question 5

navigate. 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 5

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 6

navigate. 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 6

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

Question 7

navigate. 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 7

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

Question 8

navigate. Estimating costs is the process of determining the total cost for completing the project, and the accuracy of these estimates will increase as the project progresses. While working on a cost estimation for your new project, you have been asked to provide a Rough Order of Magnitude (ROM). What is the expected degree of accuracy using this type of estimate?
a. –10% to +25%
b. –50% to +50%
c. –5% to +10%
d. –25% to +50%

Answer 8

The best answer choice is B because ROM estimates typically vary by + or – 50%

Question 9

navigate. 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 9

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

Question 10

navigate.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 10

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

Question 11

navigate. 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 11

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

Question 12

navigate. 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 12

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

Question 13

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 13

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

Question 14

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 14

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

Question 15

navigate. 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 15

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

Question 16

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 16

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 17

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 17

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 18

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 18

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

Question 19

navigate. 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 19

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

Question 20

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 20

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 21

navigate. 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 21

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

Question 22

navigate. 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 22

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 23

navigate. 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 23

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 24

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 24

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

Question 25

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 25

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 26

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 26

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 27

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 27

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

Question 28

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 28

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 29

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 29

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 30

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 30

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 31

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 31

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 32

navigate. 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 32

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

Question 33

navigate. 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 33

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 34

navigate. 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 34

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

Question 35

navigate. 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 35

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 36

navigate. 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 36

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 37

navigate. 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 37

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 38

navigate. 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 38

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 39

navigate. 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 39

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 40

navigate. 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 40

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

Question 41

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 41

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

Question 42

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 42

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

Question 43

navigate. 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 43

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 44

navigate. 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 44

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 45

navigate. 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 45

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 46

navigate. Which document sets out the format and establishes the activities and criteria for planning, structuring, and controlling the project’s cost?
a. Activity cost estimates
b. Basis of estimates
c. Cost management plan
d. Spend plan

Answer 46

C. The cost management plan establishes how cost will be managed on the project

Question 47

navigate. What are the processes involved in project cost management?
a. Project execution, budget planning, force-field analysis, visioning
b. Estimating costs, root-cause analysis, brainstorming, problem-solving
c. Plan cost management, estimate costs, determine budget, control costs
d. Visioning, fishbone diagramming, gap analysis, controlling costs

Answer 47

C. Project Cost Management includes the Plan Cost Management, Estimate Costs, Determine Budget, and Control Costs processes.

Question 48

A type of estimate done in the beginning of a project with a range of –25% to +75% is

a. Rough Order of Magnitude
b. Budgetary
c. Engineering
d. Definitive

Answer 48

A. This measurement band can differ by industry, but it is a standard generic rough order of magnitude range.

Question 49

Which is an example of an indirect cost?

a. Costs for purchasing supplies needed to complete a project
b. Expenses for traveling to the project site
c. Rent paid for your home office space
d. Payments to contractors hired to work on a project

Answer 49

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

Question 50

If you have a lot of uncertainty and risk associated with a particular work package, what type of estimate should you develop?

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

Answer 50

B. A three-point estimate accounts for risk and uncertainty

Question 51

The most accurate form of estimating is

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

Answer 51

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

Question 52

Funds that cover unplanned in-scope work are called

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

Answer 52

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

Question 53

The approved version of the time-phased budget is

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

Answer 53

B. The cost baseline is the approved version of the time-phased project budget.

Question 54

navigate.The tools and techniques of cost aggregation, data analysis, funding limit reconciliation, and financing are all part of which cost process?
Determine Budget
Estimate Costs
Plan Cost Management
Control Costs

Answer 54

A. The tools and techniques of cost aggregation, data analysis, funding limit reconciliation, and financing are all part of the Determine Budget process.

Question 55

Which of the following is NOT a common cause of cost overruns?

a. Inaccurate estimating
b. Unplanned, in-scope work
c. Contractor underrun
d. A risk event occurring

Answer 55

C. A contractor underrun would be more of a cause of a budget underrun, not overrun.

Question 56

navigate. When a project involves work that was not identified during the planning process, this can cause budget overruns due to
a. Inaccurate estimating
b. Unplanned in-scope work
c. Quality issues
d. Inappropriate estimating methods

Answer 56

B. 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 57

navigate. What is reserve analysis?
a. An analytical technique to establish a reserve for schedule duration, budget, estimated costs, or funds for a project
b. The practice of adding extra time to a schedule to account for unknown variables
c. An analytical technique that breaks a project down into best, most likely, and worst case scenarios
d. A mathematical model used to determine project duration

Answer 57

A. Reserve analysis is an analytical technique to determine the essential features and relationships of components in the project management plan to establish a reserve for the schedule duration, budget, estimated cost, or funds for a project.

Question 58

If you want to develop a forecast that shows the impact of your cost and schedule performance, which EAC should you use?

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

Answer 58

D. Use the equation that includes the SPI and CPI in the denominator.

Question 59

The measurement that indicates how well you have to perform to meet a budget target is the

a. Cost Performance Index
b. To-complete performance index (TCPI)
c. Schedule Performance Index
d. Estimate at Completion

Answer 59

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

Question 60

What is NOT an output from any of the project cost management processes?

a. Cost management plan, project funding requirements
b. Cost baseline, basis of estimates
c. Cost estimates, lessons learned
d. Cost designation, vendor acceptance

Answer 60

D. Cost designation and vendor acceptance are not outputs from any process.

Question 61

Which of these is not an output from the Control Costs process?
Work Performance data
Work performance information
Change requests
Cost forecasts

Answer 61

A. Work performance data is an output of the Direct and Manage Project Work while Work performance information, change requests, and cost forecasts are the outputs from the Control Costs process.