Chapter 7 - Cost Management

Your cost forecast shows you will have a cost overrun at the end of the project. Which of the following should you do? A. Eliminate risks in estimates and reestimate. B. Meet with the sponsor to find out what work can be done sooner. C. Cut quality. D. Decrease scope.

A. Eliminate risks in estimates and reestimate.

You are having difficulty estimating the cost of a project. Which of the following best describes the most probable cause of your difficulty? A. Inadequate scope definition B. Unavailability of desired resources C. Lack of historical records from previous projects D. Lack of company processes

A. Inadequate scope definition

During which project management process group are budget forecasts created? A. Monitoring and controlling B. Planning C. Initiating D. Executing

A. Monitoring and controlling

Which type of cost is team training? A. Direct B. NPV C. Indirect D. Fixed

A. Direct

Early in the life of your project, you are having a discussion with the sponsor about what estimating techniques should be used. You want a form of expert judgment, but the sponsor argues for analogous estimating. It would be best to: A. Agree to analogous estimating, as it is a form of expert judgment. B. Suggest life cycle costing as a compromise. C. Determine why the sponsor wants such an accurate estimate. D. Try to convince the sponsor to allow expert judgment because it is typically more accurate.

A. Agree to analogous estimating, as it is a form of expert judgement

Which estimating method tends to be most costly for creating a project cost estimate? A. Bottom-up B. Analogous C. Parametric D. 50/50

A. Bottom-up

Your project has a medium amount of risk and is not very well defined. The sponsor hands you a project charter and asks you to confirm that the project can be completed within the project cost budget. What is the best method to handle this? A. Develop an estimate in the form of a range of possible results. B. Ask the team members to help estimate the cost based on the project charter. C. Based on the information you have, calculate a parametric estimate. D. Provide an analogous estimate based on past history.

A. Develop an estimate in the form of a range of possible results.

Which of the following is an example of a parametric estimate? A. Dollars per module B. Learning bend C. Bottom-up D. CPM

A. Dollars per module

To gain a clear indication of how the project is progressing, the buyer expects periodic reporting that includes analysis of the work that has been accomplished according to plan, the dollars that have been spent and how they reflect the planned expenses, the accepted deliverables, and evaluation of the risk events that have occurred. Which of the following represents the estimated value of the work actually accomplished? A. Earned value (EV) B. Planned value (PV) C. Actual cost (AC) D. Cost variance (CV)

A. Earned value (EV)

In analyzing problems that have occurred during testing, the team discovered that cause-and-effect diagramming is helpful in identifying the best place to focus their efforts. Their coordination of the interrelationships of the deliverables has improved, and the team has discovered efficiencies that have been shared with other projects and the organization for process improvement. This has made a difference in how well the project is aligning to the performance measurement baseline. Stakeholders are anticipating that control efforts and reporting on future projects will be easier. Earned value analysis is the basis for: A. Performance reporting B. Planning control C. Ishikawa diagrams D. Integrating the project components into a whole

A. Performance reporting

There is confusion among some of the stakeholders about how the cost forecasts will be calculated on the project. They also have concerns about whether enough money has been set aside to cover the cost of risk responses. You are planning to share information in the upcoming team meeting and in reports to stakeholders to clear up the confusion. You are referencing the stakeholder and communications management plans to determine how best to communicate with the stakeholders. You will explain that the difference between the cost baseline and the cost budget can be best described as: A. The management reserves B. The contingency reserves C. The project cost estimate D. The cost account

A. The management reserves

The project manager is working with cost estimates in order to establish a baseline for measuring project performance. What process is this? A. Cost Management B. Estimate Costs C. Determine Budget D. Control Costs

C. Determine Budget

A project manager is analyzing the project to find ways to decrease costs. It would be best if the project manager looks at: A. Variable costs and fixed costs B. Fixed costs and indirect costs C. Direct costs and variable costs D. Indirect costs and direct costs

C. Direct costs and variable costs

You're managing a project to develop a new mobile application for the inventory-tracking-and-control system of a restaurant franchise organization. Schedule is the highest-priority constraint for the leadership team, but the franchise owners are most concerned about cost and the quality of the application. If there are bugs and errors in the system, they will pay higher costs on waste or lost sales. But investing a lot of effort into delivering great functionality could be expensive. It was decided that an adaptive approach to the project life cycle would likely be the best way to balance the competing priorities and deliver a working, cost-effective application. The franchise decision team has been meeting with the development team. The groups feel good about the project's progress, but they are hearing concerns from other stakeholders about what the impact will be to the bottom line and whether the system will be ready for launch. These concerns were anticipated in planning, and will be managed with cost performance measurement. Cost performance measurement is best done through which of the following? A. Asking for a percent complete from each team member and reporting that in the monthly progress report B. Calculating earned value, and using indexes and other calculations to report past performance and forecast future performance C. Using the 50/50 rule, and making sure the life cycle cost is less than the project cost D. Focusing on the amount expended last month and what will be expended the following month

B. Calculating earned value, using indexes and other calculations to report past performance and forecast future performance

Which of the following are all items included in the cost management plan? A. The level of accuracy needed for estimates, rules for measuring cost performance, and specifications for how duration estimates should be stated B. Specifications for how estimates should be stated, rules for measuring cost performance, and the level of accuracy needed for estimates C. Rules for measuring team performance, the level of accuracy needed for estimates, and specifications for how estimates should be stated D. Specifications for how estimates should be stated, the level of risk needed for estimates, and rules for measuring cost performance

B. Specifications for how estimates should be stated, rules for measuring cost performance, and the level of accuracy needed for estimates

You have been working with the subject matter experts to estimate the activity durations and costs on the project. All the following are outputs of the Estimate Costs process except: A. An understanding of the cost risk in the work that has been estimated B. The prevention of inappropriate changes from being included in the cost baseline C. An indication of the range of possible costs for the project D. Documentation of any assumptions made during the Estimate Costs process

B. The prevention of inappropriate changes from being included in the cost baseline

You have just completed the initiating processes of a small project and are moving into project planning when a project stakeholder asks you for the projects budget and cost baseline. What should you tell her? A. The project budget can be found in the project charter, which has just been completed. B. The project budget and baseline will not be finalized and accepted until the planning processes are completed. C. The project management plan will not contain the projects budget and baseline; this is a small project. D. It is impossible to complete an estimate before the project management plan is created.

B. The project budget and baseline will not be finalized and accepted until the planning process are completed.

You provide a project cost estimate for the project to the project sponsor. He is unhappy with the estimate, because he thinks the price should be lower. He asks you to cut 15 percent off the project estimate. What should you do? A. Start the project and constantly look for cost savings. B. Tell all the team members to cut 15 percent from their estimates. C. Inform the sponsor of the activities to be cut. D. Add additional resources with low hourly rates.

C. Inform the sponsor of the activities to be cut.

You've recently been assigned to manage a marketing project to brand a sustainable development program. Even though you are just starting your efforts, the sponsors are concerned about the likelihood of reaching planned milestones during the project. They are wondering how you will go about estimating. Analogous estimating: A. Uses bottom-up estimating techniques B. Is used most frequently during project executing C. Uses top-down estimating techniques D. Calculates estimates using actual detailed historical costs

C.

Although the stakeholders thought there was enough money in the budget, halfway through the project the cost performance index (CPI) is 0.7. To determine the root cause, several stakeholders audit the project and discover the project cost budget was estimated analogously. Although the activity estimates add up to the project estimate, the stakeholders think something was missing in how the estimate was completed. Which of the following describes what was missing? A. Estimated costs should be used to measure CPI. B. SPI should be used, not CPI. C. Bottom-up estimating should have been used. D. Past history was not taken into account.

C. Bottom-up estimating should have been used.

For each activity on your project, you have worked with designers, engineers, technical experts, and consultants to come up with details on the resources needed to complete the activity. For some of the activities the lists are quite long, as you need raw and finished materials, equipment, and people. You have a limited amount of warehousing available, so you have to coordinate the deliveries and work so that the materials and equipment are delivered as close to the start of an activity as possible. You and the project management team have identified the amount of time and money needed for each of the activities, which you have then aggregated and analyzed with their help. These efforts will eventually result in the creation of a cost baseline for the project. A senior manager is trying to better understand the work of project management and has asked which process produces the cost baseline. What is the correct response? A. Estimate Activity Resources B. Estimate Costs C. Determine Budget D. Control Costs

C. Determine Budget

The finance department requires that you keep them updated on the costs being spent on the capital project you are leading. You were required to submit a funding plan, and monthly forecasts are necessary so that any changes to the funding plan can be requested in advance and evaluated. Exceeding the budget limit is unacceptable, as it will impact the stock value. You have successfully implemented processes and practices to anticipate funding changes, and you evaluate them to minimize problems and increase the efficient use of funds. You have employed a variety of reporting and analysis techniques to meet the finance department requirements. One of them is EAC, which is a periodic evaluation of: A. The cost of work completed B. The value of work performed C. The anticipated total cost at project completion D. What it will cost to finish the project

C. The anticipated Total Cost at Project Completion

Cost risk means: A. There are risks that will cost the project money. B. The project is too risky from a cost perspective. C. There is a risk that project costs could go higher than planned. D. There is a risk that the cost of the project will be lower than planned.

C. There is a risk that project costs could go higher than planned.

The teams attitude toward the project is very positive. They are excited about the research and development work they are doing. The value of the work completed today is $60 million. The potential consumers from the product testing and focus groups have stated "the product will be amazing" and "they would absolutely buy it." The phase gate review board has received the reports and is asking for market projections and launch plans. They are wondering when this product can start returning value to the organization. The project is budgeted to cost $77 million. The value of the work planned to be done to this point is $78.9 million. What does the schedule performance index (SPI) for this project tell you? A. You are over budget. B. You are ahead of schedule. C. You are progressing at 76 percent of the rate originally planned. D. You are progressing at 24 percent of the rate originally planned.

C. You are progressing at 76 percent of the rate originally planned.

If earned value (EV) = 350, actual cost (AC) = 400, and planned value (PV) = 325, what is the cost variance (CV)? A. 350 B. -75 C. 400 D. -50

D. -50

A manufacturing project has a schedule performance index (SPI) of 0.89 and a cost performance index (CPI) of 0.91. Generally, what is the most likely explanation for why this occurred? A. The scope was changed. B. A supplier went out of business, and a new one needed to be found. C. Additional equipment needed to be purchased. D. A critical path activity took longer and needed more labor hours to complete.

D. A critical path activity took longer and needed more labor hours to complete

You are leading a project to introduce a new healthcare appointment scheduling application. As you are creating plans detailing how the team will respond to possible events that may impact the project, you and the team determine the amount of cost contingency reserve needed. The cost contingency reserve should be: A. Hidden to prevent management from disallowing the reserve B. Added to each activity to provide the customer with a shorter critical path C. Maintained by management to cover cost overruns D. Added to the cost of the project to account for risks

D. Added to the cost of the project to account for risks

The customer responsible for overseeing your project asks you to provide a written cost estimate that is 30 percent higher than your estimate of the projects cost. He explains that the budgeting process requires managers to estimate pessimistically to ensure enough money is allocated for projects. What is the best way to handle this? A. Add the 30 percent as a lump sum contingency fund to handle project risks. B. Add the 30 percent to your cost estimate by spreading it evenly across all project activities. C. Create one cost baseline for budget allocation and a second one for the actual project management plan. D. Ask for information on risks that would cause your estimate to be too low.

D. Ask for information on risks that would cause your estimate to be too low.

The replacement of the inventory management and portion control system for an international restaurant chain has been prioritized as a key strategic objective for the organization. Stakeholders are very concerned about many aspects of the project. They have shared these concerns and ideas in workshops, focus groups, emails, and surveys. Identified risks are: A. An input to the Estimate Costs process B. An output of the Estimate Costs process C. Not related to the Estimate Costs process D. Both an input to and an output of the Estimate Costs process

D. Both an input to and an output of the Estimate Costs process

The project management team is busy breaking down deliverables, and the procurement department has started looking for possible sellers to help produce the deliverables. There are departmental concerns that the project could go over budget because the scope will be iterated and the planning and development will be done in increments. At a recent company gathering, the sponsor asked questions of the project manager and the project management staff team about how changes in scope will affect the estimates. The sponsor wanted to know how the project estimates could be relied upon, given that they were planning to iterate the scope. The project manager reassured them that the team has the right tools with which to provide accurate estimates, and will utilize the tools throughout the project. Which of the following is not needed in order to come up with a project estimate? A. A WBS B. A network diagram C. Risks D. Change requests

D. Change requests

The product your project team is working on is a replacement of a device the company launched a couple of years ago. That device did not meet market projections for sales, even though it was revolutionary in its capabilities. The reason it did not meet projections was that the life cycle costing was not fully considered and analyzed during the device development. When the original device was offered to the market, it had initial success until a trade publication analyzed the life cycle costs and determined they were unreasonably high. Sales lagged due to the negative reports. Internal tests showed that the trade publication was correct. This time the team is taking life cycle costs into consideration as they develop the product. The main focus of life cycle costing is to: A. Estimate installation costs. B. Estimate the cost of operations and maintenance. C. Consider installation costs when planning the project costs. D. Consider operations and maintenance costs in making project decisions.

D. Consider operations and maintenance costs in making project decisions

One common way to compute estimate at completion (EAC) is to take the budget at completion (BAC) and: A. Divide by SPI. B. Multiply by SPI. C. Multiply by CPI. D. Divide by CPI.

D. Divide by CPI.

A rough order of magnitude (ROM) estimate is made during which project management process group? A. Planning B. Closing C. Executing D. Initiating

D. Initiating

Monitoring cost expended to date in order to detect variances from the plan occurs during: A. The creation of the cost change control system B. Recommending corrective actions C. Updating the cost baseline D. Project performance reviews

D. Project performance reviews

You're thinking through what approach will make it easiest for the team to take responsibility for providing work performance data for all aspects of the project. As part of this approach, you believe it will be helpful to make sure the team understands how and why the data will be analyzed. You explain to the team that the cost management plan contains a description of: A. The project costs B. How resources are allocated C. The budgets and how they were calculated D. The WBS level at which earned value will be calculated

D. The WBS level at which earned value will be calculated

A cost performance index (CPI) of 0.89 means: A. At this time, we expect the total project to cost 89 percent more than planned. B. When the project is completed, we will have spent 89 percent more than planned. C. The project is progressing at 89 percent of the rate planned. D. The project is getting 89 cents out of every dollar invested

D. The project is getting 89 cents out of every dollar invested.