Cost
Your project is midway through a delivery schedule. As the project manager, you want to determine how much work is still left. Which is the most accurate way to determine the remaining work to be carried out by the project team?
A Manual forecast
You have just completed the first phase of a multi-phase project. You have calculated earned value measurements and found out that the current CPI is 0.79 and the current SPI is 0.98. Your next phase plan should focus first on which element of the project?
A Schedule Performance Index (SPI) of less than one indicates that less work has completed than planned, and a Cost Performance Index (CPI) of less than one indicates a cost overrun for the work completed. In this scenario, the cost overrun is more severe than the schedule delay. Therefore, you should focus on reducing the cost of the project.
As the project manager of a large project, you have just completed the Estimate Costs process. As you begin the Determine Budget process, which of the following would you require as inputs
Activity cost estimates are quantitative assessments of the probable costs required to complete project work. The basis of estimates consists of additional details supporting the cost estimate. These include documentation of the basis for the estimate, documentation of all assumptions, documentation of any known constraints and indication of the range of possible estimates. These form inputs to the Develop Budget process
What is Analogous Estimating ?
Analogous estimating is the correct choice. This technique relies on parameters from a similar previous project and is a gross value estimating approach. It is also generally less accurate
Variance analysis refers to cost performance measurements used to determine the magnitude of variation in comparison to the original cost baseline. What is the trend on the percentage range of acceptable variances as the project progresses?
At the start of the project, larger percentage variances are acceptable. However, as more work is accomplished, the percentage range of acceptable variances will tend to decrease. [PMBOK 5th edition, Page 222]
Martin is the project manager of a project that is in an early phase. He needs to estimate costs but finds that he has a limited amount of detailed information about the project. Which of the following estimation techniques would be least suited to his requirements?
Bottom-up estimating is a technique that can be applied only when there is a sufficient amount of detail available to the project manager
You are a project manager who is in charge of a technical documentation project. The project is 30% complete after 2 months and has cost $53,000. The budget for the project is $90,000 and is scheduled to last 6 months. How is the project performing?
CPI = EV/AC. CPI = (90,000*30%)/53,000 = 27,000/53,000 = 0.51 (i.e., over budget). SPI = EV/PV. SPI = 27,000/(90,000*0.33) = 27,000/29,970 = 0.9 (i.e., behind schedule). [PMBOK 5th edition, Page 219]
What does it mean if the Earned Value is equal to Actual Cost?
CV = EV - AC. If the EV is equal to the AC, then there is no cost variance on the project.
You have just been informed by your manager that you must present your project budget at a monthly executive level project review meeting prior to submitting it for approval by the sponsor. This meeting is next week. However, the scope for this project has not yet been finalized, nor has the project schedule. When you inform your manager of this fact, he advises you to just ballpark your budget. What do you do?
Come up with a rough order of magnitude estimate using analogous estimating technique
Contingency Reserves are estimated costs to be used at the discretion of the project manager to deal with:
Contingency Reserves are Contingency Reserves are estimated costs to be used at the discretion of the project manager to deal with anticipated but not certain events. These events are also called "Known unknowns."
A project manager included contingency reserves and management reserves in the total budget of a high-risk project. He also made certain earned value measurement calculations. Which of the following is incorrect?
Contingency reserves are included in the project cost baseline. [PMBOK 5th edition, Page 213]
If you are influencing factors that create changes to the cost of the project, which process are you using?
Control Costs
The Cost Management Plan is an output of the Plan Cost Management process. This plan is then integrated with other project plans in which of these processes?
Develop Project Management Plan
Lucy is currently preparing a high-level cost estimate for her project in the initiation phase. With the limited detail available to her, what would you expect the range of her estimate to be, and what would you call such an estimate?
During the initial stages of the project, the amount of information available will be limited. Therefore, a Rough Order of Magnitude (ROM) estimate is usually prepared, and it should have an accuracy range of -25% to +75%.
Rodney is in the process of preparing the project performance report for the team meeting. He is expecting many questions from his stakeholders on the budget and schedule. He calculates the following values: Budget at Completion (BAC) = $22,000, Earned Value (EV) = $13,000, Planned Value (PV) = $14,000, Actual cost (AC) = $15,000. What is the Estimate at Completion (EAC) for the project, if the work is performed at the budgeted rate?
If the project work is performed at the budgeted rate, the Estimate at Completion can be computed using the formula EAC = AC + (BAC - EV). Substituting all these values in the expression, EAC = $15,000 + ($22,000 - $13,000) = $24,000
The cost of running a project management office is an example of what type of cost?
Indirect costs are those costs that cannot be directly traced to a specific project. These costs are accumulated and allocated equitably over multiple projects by an approved and documented accounting procedure
You are the project manager for Gleeson Associates. You are working with Mary, a junior project manager on a project. You are currently discussing performance measurement analysis with her. You explain to her the different variables involved. You tell her that all of the following statements about the cost variance are true except:
It is always a positive value
Jackie is the project manager of a large project. During the Determine Budget process, she identifies that contingency reserves need to be set up for unplanned but potentially necessary changes that could result from realized risks identified in the risk register. Which of the following is true about reserves?
Management Reserves are not a part of project cost baseline, but will be included in the total budget for the project Management
Funding requirements for a project are usually in incremental amounts that are not continuous. These increments appear as a step function in the graph depicting Cash flow, Cost baseline and Funding. Any gap at the end of the project between the funds allocated and the cost baseline represents:
Management reserves are included in the project's total funds, but they are not included in the project's cost performance baseline
What is the best way to make an accurate forecast of ETC?
Manual forecasting of cost of the remaining work.
What is Parametric estimating
Parametric estimating is the process of using historical data to compare against your project to determine a correlation and thereby a cost estimate for your current project. [PMBOK 5th Edition, Page 205]
_______________ is the authorized budget for the work scheduled to be completed on an activity or WBS component up to a given point in time. The projected cost of all painting from a January 3 start to a February 15 milestone is an example of this
Planned Value is the budgeted cost of the work scheduled to be completed on an activity or WBS component up to a given point in time
Costs incurred in one area of a project can offset costs in another area of the same project. However, it is not enough to consider only the costs of project execution when making project decisions. What must also be considered?
Project Cost Management is Project Cost Management is primarily concerned with the cost of the resources needed to complete schedule activities. However, Project Cost Management should also consider the effect of project decisions on the costs of using, maintaining, and supporting the product, service, or result of the project.
A project to construct 10 buildings in sequence is estimated to cost $500,000 with a project timeline of 6 months. During a review after 3 months, the project manager finds that only 4 buildings are ready. The Actual Cost is $200,000. The Schedule Performance Index (SPI) of the project is:
SPI = EV/PV. Earned Value = (4/10)*500,000 = 200,000 since 4 buildings are completed out of 10. Planned Value = (5/10)*500,000 = 250,000 since 5 of 10 buildings were expected to be completed. Hence SPI = 200,000/250,000 = 0.8
As part of the Estimate Costs process, a project manager obtained access to certain commercially available databases to get resource cost rate information. Such published commercial information is considered what type of input?
Such published commercial information is considered part of enterprise environmental factors that influence the Estimate Costs process. [PMBOK 5th edition, Page 204] Page
A project was estimated to cost $100,000 with a timeline of 5 months. Due to some unusual causes, the schedule was delayed. At the end of the third month, the project manager reviews the project and finds that the project is 40% complete and Actual Costs are $60,000. The Estimate to complete (ETC) for the project would now be:
The (BAC) = $100,000 (given). The Actual Cost (AC) = $60,000 (given). The Earned value (EV) = (40/100)*100,000 since 40% of the project is complete. Hence, Earned Value (EV) = $40,000. This is an instance of an atypical cause of variance in the project. The formula for estimate to complete (ETC) is: ETC = BAC - EV = 100,000 - 40,000 = 60,000.
In an underground highway construction project, the project stakeholders have suggested many changes to the project scope. You had already defined the cost baseline in your project, and you would like to revisit the baseline to see how these changes might impact the overall cost of the project. You start an impact analysis to determine the impact and inform the concerned stakeholders of all approved changes and the corresponding costs. You perform these activities in which process?
The Control Costs process involves many activities, such as influencing the factors that change the cost baseline, managing the changes, and informing stakeholders of approved changes and corresponding costs. Since you are in the process of managing the cost changes and informing the stakeholders about them, you are in the Control Costs process
Two efficiency indicators that reflect the cost and schedule performance of a project are:
The Cost Performance Index (CPI) and the Schedule Performance Index (SPI) are two efficiency indicators that reflect the cost and schedule performance of the project.
During the course of the project, the project management team developed a forecast for the estimate at completion (EAC) based on the project performance. Which of the following statements about EAC is correct?
The EAC forecast based on the Bottom-up estimate to complete (ETC) requires a new estimate.
A project's financial management reserve is identified in which process:
The Management Contingency Reserve is identified in the Determine Budget process.
Which of the following indicates the required cost performance in order to complete the project on budget?
The To-Complete Performance Index (TCPI) indicates the required cost performance in order to complete the project on budget.
The total planned value (PV) for a project was $150,000. During the course of the project, the actual cost incurred turned out to be $275,000. What is the limit that the project manager usually imposes on the actual cost (AC)?
The actual cost will not have an upper limit. Whatever is spent to achieve the earned value will be measured.
A project was estimated to A project was estimated to cost $200,000 with a timeline of 10 months. Due to a shipment delay, the schedule was slightly delayed. However, this was made up by shipping the first batch of materials for the project by air. The net result was that there was some additional cost in the project. At the end of the second month, the Project Manager reviews the project and finds that the project is 20% complete and Actual Costs are $50,000. The Estimate to Complete (ETC) for the project would now be
The budget at completion (BAC) = $200,000 (given). The Actual Cost (AC) = $50,000 (given). The Earned value (EV) = (2/10) * 200,000 since 20% of the project is complete; i.e., 2 months out of 10. Hence, Earned Value (EV) = $40,000. This is an instance of an atypical situation in the project. Late arrival of materials does not mean that all subsequent material will arrive late. Hence, the calculation used for ETC is ETC = BAC - EV = $200,000 - $40,000 = $160,000.
A project is estimated to cost $50,000 with a timeline of 50 days. After 25 days, the project manager finds that 50% of the project is complete and actual costs are $50,000. What is the Cost Performance Index (CPI)?
The correct answer is 0.5. The Cost performance Index (CPI) is given by the formula CPI = EV/AC where EV is the Earned Value and AC is the Actual Cost. Since 50% of the project is complete, Earned Value = 50% of $50,000 = $25,000. Hence CPI = 25,000/50,000 = 0.5.
A project manager presented earned value analysis data in a tabular format and a performance report. Another way that the project manager could have presented the earned value analysis data is with:
The correct response is S-curve. Both S-curves and tabular formats can be used to represent earned value analysis data.
Bill is the project manager of a software project that was originally estimated to complete in 12 months. 2 months into the project, it is discovered that the original estimating assumptions were fundamentally flawed. The Estimate at Completion (EAC) in such a project will be:
The correct response is: EAC = AC + Bottom-up ETC, where AC stands for the Actual Cost and ETC stands for the Estimate to Complete. ETC based on a new estimate must be used because the original assumptions were fundamentally flawed.
Which of these are not inputs to the Determine Budget process?
The cost baseline and the requirements traceability matrix are not inputs to the Determine Budget process. The other choices are valid inpu
Project costs are estimated Project costs are estimated for all project activities and are aggregated to establish a cost baseline. Which of the following statements about the cost baseline is not true
The cost baseline includes all authorized budgets including management reserves
You are a senior project You are a senior project manager working for RETAMART, a retail shopping network that sells various consumer products. As part of the expansion plan approved by the board of directors, you have been assigned as a project manager for a new plant. Due to transportation problems, the project has experienced delays; the Schedule Performance Index (SPI) is at 0.6 and the Cost Performance Index (CPI) is at 0.7. However, you expect some improvements over the next few weeks, which may increase the SPI to 1.1 and the CPI to 0.9. Which of the following statements will be true if your anticipated changes materialize?
The cost performance index below 1 indicates that the project is over budget, and the schedule performance index above 1 indicates that the project is ahead of schedule. If all of your anticipated changes happen to be true, the project will be overspent but ahead of schedule because the schedule performance index will be greater than 1.
What does a Cost Performance Index (CPI) of more than 1.0 indicate?
The project is under budget
You are a senior project You are a project manager working for RETAMART, a retail shopping network that sells various consumer products. As part of the expansion plan approved by the board of directors, you have been assigned as a project manager for a new plant. Due to transportation problems, the project has experienced delays; the Schedule Performance Index (SPI) is at 0.6 and the Cost Performance Index (CPI) is at 0.7. However, you expect some improvements over the next few weeks, which may increase the SPI to 1.1 and the CPI to 0.9. Which of the following statements will be true if your anticipated changes materialize?
The project will be overspent but ahead of schedule The cost performance index <1 indicates that the project is over budget, and the schedule performance index >1 indicates that the project is ahead of schedule. If all of your anticipated changes happen to be true, the project will be overspent but ahead of schedule because the schedule performance index will be greater than 1. [PMBOK 5th edition, Page 219]
Large variations in the periodic expenditure of funds are undesirable for organizational operations. Therefore, the expenditure of funds is frequently reconciled with the disbursement of funds for the project. According to the PMBOK, this is known as:
This is known as funding limit reconciliation. This will necessitate the scheduling of work to be adjusted to smooth or regulate those expenditures
You are aware that cost and schedule risks are prevalent in your project. You want to compare the planned project performance with its actual performance. What should you perform to provide this information? and schedule risks are prevalent in your project. You want to compare the planned project performance with its actual performance. What should you perform to provide this information?
Variance and trend analysis, a tool and technique of the Monitor and Control Risks process, is used to evaluate the differentials between planned and actual costs, schedules, and performance criteria. Several statistical techniques, such as Earned Value (EV) technique, are used to analyze these variances.
You are a Project Manager You are a Project Manager for Groceries "R" Us, a supermarket chain, and are currently working on a project to build a new outlet. The planned values (PV) for the foundation and the frame were $150,000 and $500,000. After five months, you do a performance measurement analysis. You are currently not ahead of schedule. The actual costs for the foundation and frame were $175,000 and $650,000. At this point, 100% of the foundation is complete, and only 80% of the frame is complete. Which value represents the cost performance index (CPI) to two decimal places at this point in the project?
We calculate the total actual cost by adding the $175,000 and $650,000 for the foundation and frame. The total actual cost is $825,000. Now we calculate earned value (EV). We need to identify all of the activities that have been completed or partially completed as of the measurement date. If partially completed, we calculate the fractional value of the budgeted cost for the activity by the percent completed. Add up the budgeted costs for completed or partially completed work activities including any work that has been performed ahead of schedule. We are told that we are not ahead of schedule, so there is no budgeted cost to include for that. 100% of the foundation is complete, and only 80% of the frame is complete. Therefore, we add 100% of $150,000 and 80% of 500,000 (which is $400,000) to get a total EV of $550,000. Now find the CPI by dividing the total EV by the total actual cost for the same time period. The result for CPI is $550,000/$825,000 or 0.67. [PMBOK 5th edition, Page 219]
Your project is running slightly over budget. You mention this to another project manager, who suggests you shift some of your expenses to indirect costs that are not charged to your project budget. What do you do?
You should use your project reserves to cover the budget overruns. Project managers are required to disclose accurate and truthful information about their projects. Masking an expense or otherwise using a half-truth to cover a budget overrun is a violation of the PMI Code
