Chapter 4

The project's budget is merely the sum of its resource costs.

False Page 115

Because project budgeting is for a special case and the organization's budgeting process is for routine work, the project manager need not be familiar with the organization's accounting system.

False Page 118

Overhead and indirect charges should not be assigned to a project.

False Page 118

The project manager recognizes an expense when an invoice is actually paid.

False Page 118

With top-down budgeting, overlooking a small but important task can often cause a serious budgetary problem.

False Page 118

Top-down budgeting typically results in better acceptance of the budget.

False Page 119

For projects with S-shaped life cycles, top-down budgeting is most likely unacceptable.

False Page 121-122

Activity budgets show expenses by task and expected time period of the expenditure.

False Page 124

Traditional organizational budgets are task-oriented, rather than activity-oriented.

False Page 124

There is no way other than guessing to estimate the impact of learning on a project's task.

False Page 125 to 129

Learning curve theory states that performance of labor per unit will improve by a percentage each time production increases by the same percentage.

False Page 126

Mechanical tasks typically have higher learning rates than more mental tasks.

False Page 127

As a project unfolds, the cost uncertainty increases as the project moves towards completion.

False Page 131

The best approach to handling change in projects is to accept the negative change and take a loss on the project.

False Page 133

Qualitative risk analysis is not as important to a project's planning because there are not many qualitative concerns in project management.

False Page 137

Scenario analysis is not a popular technique for identifying risks.

False Page 137

Contingency planning is generally begun at that point in time when an organization finds itself in serious financial trouble.

False Page 142

By very careful planning, a project manager can do away with cost uncertainty.

False 133

Organizational tradition has little or no impact on the firm's project budgeting.

False Page 118

The PMI does not devote much coverage to risk management in the PMBOK

False Page 136

The result of game theory analysis is a Risk Priority Number.

False Page 139

Project budget is nothing more than the project plan, based on the WBS, expressed in monetary terms.

True Page 112

A budget is a plan for allocating resources to project activities.

True Page 115

A budget is a plan for allocating resources.

True Page 115

The project budget acts as a project control.

True Page 115

A key advantage of top-down budgeting is that the overall budget costs can be estimated quite accurately.

True Page 118

Most organizations use top-down budgeting.

True Page 118&119

Bottom-up budgets are usually more accurate in the detailed tasks.

True Page 119

Individual elements of project budgets are generally more accurate in bottom-up budgeting.

True Page 119

Organizations can use both top-down and bottom-up budgeting.

True Page 119

Budget cuts are usually disastrous to an exponential life-cycle project.

True Page 121&122

Budgeting a project is often more difficult than budgeting routine activities.

True Page 124

Learning curves can be used to help improve cost estimates.

True Page 126&127

Random errors will tend to cancel out.

True Page 130

Tracking signals can be used to identify bias in your estimates

True Page 130

Expected value is a tool for risk analysis.

True Page 141

A disaster is an event that may have an extraordinarily high cost if it occurs, but has a very low probability of occurring.

True Page 143

Calculating the Tracking Signal can not only reveal if estimates are biased, it can also tell how severe the bias is.

True Pages 130&131

Learning curve theory states that performance of labor per unit will improve by a fixed percentage each time production doubles.

True Page 126

There is a 30 percent chance that a new product development project will result in sales of $500,000 and a 70 percent chance that the project will result in sales of $100,000. What is the expected value of this project? a) $220,000 b) $240,000 c) $300,000 d) $320,000 e) $340,000

a) $220,000 Page 141

Which of the following is not true regarding bottom-up budgeting? a) The method tends to be inaccurate in the detailed tasks. b) The WBS is used to identify the elemental tasks. c) It is rarely used. d) It is a good managerial training technique. e) All of the above are true concerning top-down budgeting.

a) The method tends to be inaccurate in the detailed tasks. Page 119

A problem with bottom-up budgeting is: a) individual team members overstate their budget needs b) lack of involvement from the project team c) underestimating the project task's budget requirements d) all of the above e) none of the above

a) individual team members overstate their budget needs Page 119

Why is it necessary to consider the learning curve of resources on a project? a) to estimate labor costs properly b) to improve project team morale c) because it always takes less time to do a task after someone has done it a few times d) collective bargaining contracts require it e) All of the above

a) to estimate labor costs properly Page 126

The budgeting approach based on the collective judgments of top and middle managers is called: a) top-down budgeting b) bottom-up budgeting c) activity budgeting d) program budgeting e) life cycle budgeting

a) top-down budgeting Page 118

A task is expected to take 20 hours of labor at $25 per hour. The required material cost is $500 and the organization charges 30% of direct labor for overhead. The total task cost is: a) $500 b) $1,150 c) $1,250 d) $1,300 e) $1,500

b) $1,150 Page 120

The first unit required 6 hours. If the industry uses a 90 percent learning rate, how long should the fourth unit take? a) 6 hours b) 4.86 hours c) 3.75 hours d) 3.34 hours e) 2.67 hours

b) 4.86 hours Page 127

Which of the following is not true regarding top-down budgeting? a) It is based on the collective judgments of top and middle managers. b) Overall project costs are estimated by top and middle managers and then passed on to the next lower level. c) The overall budget cost is generally not very accurate. d) Overlooking small but important tasks can lead to a serious budgetary problem. e) All of the above are true concerning top-down budgeting.

c) The overall budget cost is generally not very accurate. Page 118&119

Which of the following statements is not true about a firm and its project accounting? a) each firm has its own rules with regard to the allocation of overhead b) most firms must comply with the Sarbanes-Oxley Act c) the project manager must rely on the accounting department to make special allowances for his/her project d) most firms have their own accounting idiosyncrasies e) unexpected charges may suddenly appear when the PM least expects it

c) the project manager must rely on the accounting department to make special Page 118

The first unit requires 10 hours to complete. If the industry uses an 80 percent learning rate, how long should the third unit take? a) 10 hours b) 9 hours c) 8 hours d) 7.02 hours e) 6.40 hours

d) 7.02 hours Page 127

The name given to the budget process that aggregates income and expenditures across projects is: a) activity-oriented budget b) top-down budget c) bottom-up budget d) program-oriented budget e) activity-based costing

d) program-oriented Page 124

Reason for cost uncertainty in projects include; a. Prices may escalate b. Different resources may be required c. The project may take a different amount of time than was expected d. All of the following

d. All of the following Page 131

A requirement of top-down budgeting is: a) involvement of the project team b) estimating the detailed level of the project's tasks c) applying the learning curve to labor time estimates d) all of the above e) none of the above

e) none of the above Page 118&119

After major risk are identified which of the following data should NOT be obtained for analysis a) probability of each risk occurring b) Range or distribution of possible outcomes c) probability of each outcome d) the expected time of each outcome e) the person responsible for each outcome

e) the person responsible for each outcome Page 137