Plan and Manage Budget and Resources

Cost Estimate =

= sum of costs for work packages/activities

Resource Histogram

A bar chart that represents when a resource will be needed in the project. It defines resource requirements over time.

Cost Management Plan

A component of a project or program management plan that describes how costs will be planned, structured, and controlled.

bottom up estimating

A detailed and accurate method of project estimation that involves determining the cost, time, or resource requirements of individual tasks or components of a project and then summing them up to get a total estimate for the entire project. It's typically performed after the project scope has been clearly defined and the work breakdown structure (WBS) has been created. This method provides a high level of accuracy due to its focus on individual elements and their specific requirements.

Resource Leveling

A resource optimization technique in which adjustments are made to the project schedule to optimize the allocation of resources and which may affect the critical path.

Resource Smoothing

A resource optimization technique in which free and total float are used without affecting the critical path.

Fast Tracking

A schedule compression technique in which activities or phases normally done in sequence are performed in parallel for at least a portion of their duration.

Analogous

A technique for estimating the duration or cost of an activity on a project using historical data from a similar activity or project.

Analogous Estimating

A technique for estimating the duration or cost of an activity on a project using historical data from a similar activity or project.

Three-point estimating

A technique used to estimate cost or duration by applying an average or weighted average of optimistic, pessimistic, and most likely estimates when there is uncertainty with the individual activity estimates. Also called "triangular estimating".

Parametric

An estimating technique in which an algorithm is used to calculate cost or duration based on historical data and project parameters. This technique is scalable and linear.

top-down estimates

An estimation method that involves deriving an estimate for the entire project as a whole, usually based on the knowledge of the overall project requirements and historical data from similar projects. This type of estimating is done at an early stage of the project when detailed information about individual tasks or components is not yet available

Crashing

Applying additional resources to one or more tasks/activities to complete the work more quickly. This technique usually increases costs more than risks. In comparison, fast-tracking increases risks.

Definitive estimate (or "control" or "detailed")

Based on detailed information about the project work. Developed by estimating the cost for each work package in the WBS. Accuracy: -5% to +10%.

_____ addresses known unknowns.

Contingency Reserve

Three Point

Defines an approximate range of an activity's duration, using most likely, optimistic, and pessimistic estimates Used when historical data is insufficient, or subjective

Bottom-Up Estimating

Estimates the cost of individual activities then "rolls up" to higher levels.

Rough Order of Magnitude (ROM)

Generally made early in the project. Developed without basis of detailed data and often based on high-level historical data, expert judgment, or a costing model. Accuracy: -25% to +75%

Cost Performance Index (CPI)

It is a measure of how well the project is meeting its budget. CPI = EV/AC

Schedule Performance Index (SPI)

It is a measure of how well the project is meeting its schedule. SPI = EV/PV

Planned Value (PV)

It is the estimated value of the work that should have been completed by now. PV = % expected * budget

____ addresses unknown unknowns.

Management Reserve

Cost Baseline =

Project Cost Estimates + Contingency Reserves

Budget =

Project Cost Estimates + Contingency Reserves + Management Reserves

Contingency Reserve

Reserves added to the project cost estimates by the project manager for uncertain events / risks that might happen (also known as "known unknowns")

Management Reserve

Reserves intended to address the unknown unknowns that can affect a project. This reserve is included in the overall budget of a project.

The project team is defining certifications, technical competencies, and soft competencies for people, machinery, advance visualization software, workstations for physicians, and other supplies for a complex project that must be implemented in 5 months. If the project team uses a resource breakdown structure (RBS), how will it help to organize and visualize the resources? (Choose three). A. By hierarchy B. By source C .By category D. By type E. By last name

Solution: A, C, and D. By hierarchy, By category, and By type. The resource breakdown structure is a hierarchical representation of resources by category and type. This question and rationale were developed in reference to: https://standardsplus.pmi.org/posts/Res_14/83b71ea9-307a-4362-9704-19e840cd65f1 [Item] | Project Management Body of Knowledge (11/02/16) Project Management Institute//9.2.3.3/ [Item The resource breakdown structure is a hierarchical representation of resources by category and type. Examples of resource categories include but are not limited to labor, material, equipment, and supplies. Resource types may include the skill level, grade level, required certifications, or other information as appropriate to the project.]

A project manager learns that a functional manager is assigning a two-week task in another project to a team member. Loss of this resource for two weeks will jeopardize the project schedule. What should the project manager do? A. Review the resource management plan to determine how to negotiate with the functional manager. B. Submit a change request to the change control board (CCB) to obtain a replacement resource from another department. C. Meet with the project sponsor to discuss the priority levels of the two projects. D. Assign another team member to perform the work of the team member who will be missing for two weeks.

Solution: A. Review the resource management plan to determine how to negotiate with the functional manager. The project manager should review the resource management plan to determine how to negotiate with the functional manager. The resource management plan is used to help determine how resources are categorized, allocated, managed, and released. This will provide guidance as to how the project manager can negotiate with the resource's reporting manager. The other answer choices are incorrect. CCB reviews and approves all project change requests, not resource management; meeting the project sponsor is an escalation that could be avoided; assigning another team member would have cost.

The sponsor notified the product owner that the budget was approved for a project. However, any additional investment for the project would have to wait until the next fiscal year. The product owner is concerned that this will hold up the project. What should the product owner do? A. Track the budget based on the release plan and show the value to the business. B. Explain that the project is just starting and the budget will need to be adjusted. C. Track the budget based on each sprint and remove nice-to-have deliverables. D. Ensure that the project manager monitors every invoice from the project.

Solution: A. Track the budget based on the release plan and show the value to the business This question and rationale were developed in reference to: O'Reilly Platform (No Date) //8/ [Item Agile Managmenet by Mike Hoogveld] | O'Reilly Platform (No Date) //AMA Handbook of Project Management - Chapter 11/Project Cost Management [Item]

A new project manager has been assigned to a global project team. In the next few days, the project team must create a resource breakdown structure (RBS) for the project. However, the resource management plan states that the RBS should be created and reviewed only at the beginning of the project. What should the project manager do first? A. Update the resource management plan. B. Update the project management plan. C. Update the resource breakdown structure. D. Update the work breakdown structure.

Solution: A. Update the resource management plan The resource breakdown structure should be revisited throughout the project to adjust for any changes in resource needs so the Resource Management Plan needs to be rectified first. Update the project management plan is incorrect as updating the project management plan will not update the resource breakdown structure Update the resource breakdown structure is incorrect as the Resource Management Plan needs to be rectified first. Update the work breakdown structure is incorrect as WBS is not related to resources. This question and rationale were developed in reference to: https://standardsplus.pmi.org/posts/Res_14/83b71ea9-307a-4362-9704-19e840cd65f1 [Item] | Project Management Body of Knowledge (11/02/16) Project Management Institute//9.1.3.1/ [Item]

A team is working on a new product development project using a hybrid approach. After the fourth sprint, they learn that the exchange rate for imported goods will increase significantly. What should the project manager do in order to make sure the final product gets launched on time and as defined? A. Work with the stakeholders to develop incremental budgeting approaches. B. Reduce the product's specifications to use less imported material. C. Spend the extra money and plan to compensate for it in the next sprint. D. Review the backlog to see the impact of a budget increase.

Solution: A. Work with the stakeholders to develop incremental budgeting approaches. Work with internal stakeholders to develop flexible budgeting approaches that provide sufficient rigor to satisfy key business requirements but recognize the project team will need autonomy over funds to explore solutions that will emerge from working with customers.

A project's original budget at completion (BAC) was calculated as US$100,000, but the estimate at completion (EAC) is US$120,000. If the schedule performance index (SPI) is equal to 1, what is the cost performance index (CPI)? A. Equal to 1.2 B. Less than 1 C. Equal to 1 D. Greater than 1

Solution: B. Less than 1 PMBoK Sixth Edition Chapter 7 Section 7.4.2.2 states: "Cost performance index. The cost performance index (CPI) is a measure of the cost efficiency of budgeted resources, expressed as a ratio of earned value to actual cost. It is considered the most critical EVA metric and measures the cost efficiency for the work completed. A CPI value of less than 1.0 indicates a cost overrun for work completed. A CPI value greater than 1.0 indicates a cost underrun of performance to date. The CPI is equal to the ratio of the EV to the AC. Equation: CPI = EV/AC" The correct answer is "Less than 1". The distractors are correct. This question and rationale were developed in reference to: IT Project Management, 7th Ed. (7th) Kathy Schwalbe///Chapter 7 Project Cost Management - Page 293 [Item] | PMBoK, Sixth edition (2021) PMI/PMI/7/ [Item PMBoK Chapter 7 Section 7.4.2.2 Data analysis ] | PMBOK® Guide--Fifth Edition (5th) PMI/PMI//7.4.2.1 Earned Value Management Page 217ff. [Item]

An unforeseen issue results in the need to procure a new piece of machinery critical for meeting quality specifications. From where may the necessary funds be obtained? A. Key stakeholders B. Management reserve C. Contingency reserve D. Project sponsor

Solution: B. Management reserve PMBoK Sixth Edition Section 7.3.3.1 states: " COST BASELINE The cost baseline is the approved version of the time-phased project budget, excluding any management reserves, which can only be changed through formal change control procedures. It is used as a basis for comparison to actual results. The cost baseline is developed as a summation of the approved budgets for the different schedule activities. Cost estimates for the various project activities, along with any contingency reserves (see Section 7.2.2.6) for these activities, are aggregated into their associated work package costs. The work package cost estimates, along with any contingency reserves estimated for the work packages, are aggregated into control accounts. The summation of the control accounts make up the cost baseline. Since the cost estimates that make up the cost baseline are directly tied to the schedule activities, this enables a time-phased view of the cost baseline, which is typically displayed in the form of an S-curve. For projects that use earned value management, the cost baseline is referred to as the performance measurement baseline. Management reserves (Section 7.2.2.3) are added to the cost baseline to produce the project budget. As changes warranting the use of management reserves arise, the change control process is used to obtain approval to move the applicable management reserve funds into the cost baseline.

A project manager in a cross-functional organization needs to inform the department manager of the number and type of resources required, and the length of time they will be needed. What should the project manager use to present this resource information? A. Resource assignments B. Resource histogram C. Responsibility assignment matrix (RAM) D. Project organization chart

Solution: B. Resource histogram A resource histogram, by definition defines resource requirements over time. Resource assignments take place once the need for resources has been determined and available resources have been identified. The Project organization chart and Responsibility assignment matrix will not identify the need for resources nor for what duration they are needed.

A project manager received an email from the factory regarding key equipment that will not be delivered as planned. The project manager must make alternative arrangements with other vendors to implement a temporary fix. Who is responsible for confirming the resource availability for the fix? A. Service provider B. Functional manager C. Product owner D. Human resources

Solution: C. Product owner The product owner is responsible for maximizing the value of the product and ensuring that it meets the needs of the users and stakeholders. This includes ensuring that the product is delivered on time and within budget. When key equipment is not delivered as planned, the product owner is responsible for working with the team to develop a plan to address the issue. This may involve finding alternative vendors for the equipment or implementing a temporary fix. The other answer choices are not responsible for confirming the resource availability for the temporary fix. The service provider may be responsible for delivering the temporary fix, but they are not responsible for confirming the resource availability. The functional manager may be responsible for the team that will implement the temporary fix, but they are not responsible for confirming the resource availability. HR is responsible for managing the organization's workforce, but they are not responsible for confirming the resource availability for the temporary fix. This question and rationale were developed in reference to:

A project manager received an email from the factory regarding key equipment that will not be delivered as planned. The project manager must make alternative arrangements with other vendors to implement a temporary fix. Who is responsible for confirming the resource availability for the fix? A. Service provider B. Functional manager C. Product owner D. Human resources

Solution: C. Product owner The product owner is responsible for maximizing the value of the product and ensuring that it meets the needs of the users and stakeholders. This includes ensuring that the product is delivered on time and within budget. When key equipment is not delivered as planned, the product owner is responsible for working with the team to develop a plan to address the issue. This may involve finding alternative vendors for the equipment or implementing a temporary fix. The other answer choices are not responsible for confirming the resource availability for the temporary fix. The service provider may be responsible for delivering the temporary fix, but they are not responsible for confirming the resource availability. The functional manager may be responsible for the team that will implement the temporary fix, but they are not responsible for confirming the resource availability. HR is responsible for managing the organization's workforce, but they are not responsible for confirming the resource availability for the temporary fix. This question and rationale were developed in reference to: https://www.pmi.org/learning/library/matrix-evolves-internal-conflicts-4043/ https://www.pmi.org/learning/library/role-services-business-project-based-7138

A project is slightly ahead of schedule. However, the project manager was informed that a critical deliverable will not be available on time. If the project manager is able to crash the deliverable that is behind what would the impact be? A. Project warranty issues would result. B. Project costs and risks would decrease. C. Project costs and risks would increase. D. Rework would need to be performed.

Solution: C. Project costs and risks would increase Crashing a project will increase both costs and risks.

A project manager is developing a project budget. After estimating the cost of each activity, the manager adds a contingency reserve by increasing the estimated cost of all activities by the same percentage. However, this resulted in the total cost exceeding the allocated budget even before adding the management reserve. What should the project manager do? A. Request additional budget to ensure that all cost estimations are appropriately funded. B. Reduce the percentage increase to reduce the total cost of the project. C. Recalculate the contingency reserve based on identified risks and response strategies. D. Allocate a portion of the contingency reserve to the management reserve.

Solution: C. Recalculate the contingency reserve based on identified risks and response strategies Increasing the estimated cost of all project activities by the same percentage is not a sensible way to estimate a contingency reserve. Contingency reserves are typically calculated based on identified risks, not directly on individual activity costs. The project manager should recalculate the contingency reserve to ensure that it is accurate and appropriately calculated. The other answer choices are incorrect. Requesting an additional budget may not be necessary or feasible. The project manager should first attempt to optimize the contingency reserve based on identified risks. Reducing the percentage increase without justification may restrict the ability to manage risks and could put the project in jeopardy. Management and contingency reserves serve different purposes. Allocating a portion of the contingency reserve to the management reserve is not appropriate and may cause serious issues in the future.

A project is delayed due to resource availability, which puts the project budget at risk. Which document should the project manager use to review and update resources? A. Requirements Traceability Matrix B. Work Breakdown Structure C. Resource Breakdown Structure D. Responsibility Assignment Matrix

Solution: C. Resource Breakdown Structure A resource breakdown structure is a hierarchical representation of resources by category and type. It should be revisited throughout the project to adjust for any changes in resource needs. The other answer choices are incorrect. Responsibility Assignment Matrix is a grid that shows the project resources assigned to each work package; Work Breakdown Structure (WBS) is a hierarchical decomposition of the total scope of work to be carried out by the project team to accomplish the project objectives and create the required deliverables; and Requirements Traceability Matrix is a grid that links product requirements from their origin to the deliverables that satisfy them. This question and rationale were developed in reference to: https://standardsplus.pmi.org/posts/Res_14/83b71ea9-307a-4362-9704-19e840cd65f1 [Item] | Project Management Body of Knowledge (11/02/16) Project Management Institute//9.2.3.3/ [Item In Plan Resource Management, the resource breakdown structure was used to guide the categorization for the project. In [Estimate Activity Resources] it is a completed document that will be used to acquire and monitor resources.]

A project is delayed due to resource availability, which puts the project budget at risk. Which document should the project manager use to review and update resources? A. Requirements Traceability Matrix B. Work Breakdown Structure C. Resource Breakdown Structure D. Responsibility Assignment Matrix

Solution: C. Resource Breakdown Structure A resource breakdown structure is a hierarchical representation of resources by category and type. It should be revisited throughout the project to adjust for any changes in resource needs. The other answer choices are incorrect. Responsibility Assignment Matrix is a grid that shows the project resources assigned to each work package; Work Breakdown Structure (WBS) is a hierarchical decomposition of the total scope of work to be carried out by the project team to accomplish the project objectives and create the required deliverables; and Requirements Traceability Matrix is a grid that links product requirements from their origin to the deliverables that satisfy them. This question and rationale were developed in reference to: https://standardsplus.pmi.org/posts/Res_14/83b71ea9-307a-4362-9704-19e840cd65f1 [Item] | Project Management Body of Knowledge (11/02/16) Project Management Institute//9.2.3.3/ [Item In Plan Resource Management, the resource breakdown structure was used to guide the categorization for the project. In [Estimate Activity Resources] it is a completed document that will be used to acquire and monitor resources.]

A project execution phase overlaps with a holiday in the country where the majority of team members are based. This phase is critical, and all team members are required to work through the holiday. This negatively impacts team morale. What should the project manager have done to avoid this? A. Requested help from other teams based in other countries B. Postponed project activities C. Prepared the stakeholder engagement plan D. Better developed the resource management plan

Solution: D. Better developed the resource management plan The resource management plan takes into consideration factors that affect resource availability, including normally observed non-working days. Requested help: Transitioning project work is a reactive step and not a practical solution in most cases. Postponing activities further delays critical work and is therefore not an option The stakeholder engagement plan doesn't address the issue of resource availability working on the project.

A project that should have been 75 percent complete by now is only 65 percent complete. The total project budget is US$200,000 and the actual cost of work performed is US$110,000. What can be determined from this information? A. The project is under budget, has an SPI of 0.94, and a CPI of 1.04. B. The project is over budget, has an SPI of 1.04, and a CPI of 0.94. C. The project is over budget, has an SPI of 1.18, and a CPI of 0.87. D. The project is under budget, has an SPI of 0.87, and a CPI of 1.18.

Solution: D. The project is under budget, has an SPI (schedule performance index) of 0.87, and a CPI (cost performance index) of 1.18. CPI stands for Cost Performance Index. It is a measure of how well the project is meeting its budget. A CPI of 1 means that the project is on budget, a CPI of less than 1 means that the project is over budget, and a CPI of greater than 1 means that the project is under budget. SPI stands for Schedule Performance Index. It is a measure of how well the project is meeting its schedule. An SPI of 1 means that the project is on schedule, an SPI of less than 1 means that the project is behind schedule, and an SPI of greater than 1 means that the project is ahead of schedule. EV = % completed * budget = 65% * $200,000 = $130,000 PV = % expected * budget = 75% * $200,000 = $150,000 AC = $110,000 CPI = EV/AC = 130,000/110,000 = 1.18 SPI = EV/PV = 130,000/150,000 = 0.87 In this case, the CPI is 1.18, which means that the project is under budget. This is because the actual cost of the project is less than the budget for the project. The SPI is 0.87, which means that the project is behind schedule. This is because the project is only 65% complete, but it should have been 75% complete by now.+

A new project has high uncertainty in the cost required for completion. What approach should the project manager use to determine the expected costs? A. Analogous estimating B. Statistical techniques estimating C. Parametric estimating D. Three-point estimating

Solution: D. Three-point estimating Three-point estimating uses the most likely, optimistic, and pessimistic estimates, which improves estimate accuracy for a project with high uncertainty. Analogous estimating uses values from a previous similar project. Since this project has a high level of uncertainty, it can be assumed there is no similar project to compare. Parametric estimating uses a statistical relationship with historical data and is often used in construction. Other statistical techniques are not the best approach for a project with a high level of uncertainty.

Lead

The amount of time a successor activity can be advanced with respect to a predecessor activity.

Lag

The amount of time a successor activity will be delayed with respect to a predecessor activity.

Cost Baseline

The approved version of the time-phased project budget, excluding any management reserves, which can only be changed through formal change control procedures. It is used as a basis for comparison to actual results. The cost baseline is developed as a summation of the approved budgets for the different schedule activities.

Budget at Completion (BAC)

The sum of all budgets established to provide financial support for the work to be performed.

Schedule Variance (SV)

This indicates whether the project is ahead or behind schedule. SV = EV - PV

Actual Cost (AC)

This is the actual cost incurred for the work performed.

Earned Value (EV)

This is the value of the work actually completed to date. EV = % completed * budget

Cost Variance (CV)

This shows whether the project is under or over budget CV = EV - AC

Parametric estimating

Uses a statistical relationship with historical data and is often used in construction.

Resource Histogram

helps you identify if and which resources are overallocated

The resource breakdown structure is a

hierarchical representation of resources by category and type.

CPI of 1 indicates

project is on budget.

CPI less than 1 indicates

project is over budget.

CPI greater than 1 indicates

project is under budget.

SPI of greater than 1 means that_____________.

the project is ahead of schedule.

An SPI of less than 1 means that ______________.

the project is behind schedule.

An SPI of 1 means that

the project is on schedule.