Cost

Question 1

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.

Answer 1

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.

Question 2

2. 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.

Answer 2

2. 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.

Question 3

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

Answer 3

3. A: Work performance data is not an input in the Develop Budget process, but it is an
   input in the Control Costs process.

Question 4

4. 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

Answer 4

4. 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.

Question 5

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

Answer 5

5. D: Performance review is not a tool & technique in the Develop Budget process, but a
   tool & technique in the Control Costs process

Question 6

6. 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

Answer 6

6. 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

Question 7

7. 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

Answer 7

7. 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.

Question 8

8. 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

Answer 8

8. D: You just completed the Estimate Costs process and should be focusing on the Determine Budget process.

Question 9

9. 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)

Answer 9

9. D: To-Complete Performance Index (TCPI) calculates the performance that must be
   achieved in order to meet financial or schedule goals.

Question 10

10. 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.

Answer 10

10. 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.

Question 11

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

Answer 11

11. 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

Question 12

12. 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

Answer 12

12. 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.

Question 13

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

Answer 13

13. 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.

Question 14

14. 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.

Answer 14

14. 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.

Question 15

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

Answer 15

15. 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.

Question 16

16. 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.

Answer 16

16. D: Earned value analysis provides a means to determine cost and schedule variances, not to develop the project cost baseline.

Question 17

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

Answer 17

17. 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

Question 18

18. 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.

Answer 18

18. C: The primary concern for project cost management is to determine the cost of resources, not the amount to complete the project activities.

Question 19

19. 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.

Answer 19

19. 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.

Question 20

20. 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.

Answer 20

20. 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.

Question 21

21. 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.

Answer 21

21. 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.

Question 22

22. 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.

Answer 22

22. C: Expected future period operation costs are considered to be ongoing costs and
    should not be part of the project costs.

Question 23

23. 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?
    A. To compensate inadequacies in your original cost planning.
    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.

Answer 23

23. 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).

Question 24

24. 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.

Answer 24

24. 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.

Question 25

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

Answer 25

25. 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.

Question 26

26. 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

Answer 26

26. 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

Question 27

27. 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.

Answer 27

27. 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.