PMP Exam Chapter 7 Cost Management

What are the 4 types of estimating?

- Analogous - Parametric - Bottom-up - Three point estimating

What are the four processes found in the cost management knowledge area?

- Plan cost management - Estimate costs - Determine budget - Control costs

What is the Cost Baseline?

- The cost baseline usually appears as an S-curve and represents the budget over time for the project. - It is important because it provides the target or comparison point as the project progresses.

28. You are asked to produce an estimate of the performance rate that must be achieved to meet the targeted budget at completion. If the project currently has an EV of 18, a PV of 20 and an AC of 22.5. If your original budget was 30 and you are using the EAC method, what estimate do you provide? A. 0.80 B. 6.40 C. 0.81 D. 0.78

A. 0.80 p. 261-267 - This question requires you to calculate the TCPI or the To-Complete Performance Index using the EAC formula. This formula is: (BAC - EV) / (EAC - AC). The EAC is calculated using the CPI method. TCPI = (BAC - EV) / (EAC - AC) TCPI = (BAC - EV) / ((BAC/CPI) - AC) TCPI = (BAC - EV) / ((BAC/(EV/AC)) - AC) TCPI = (30 - 18)/ ((30/(18/22.5) - 22.5) BAC = 30 EV = 18 AC = 22.5 EAC = (BAC/CPI) -> (BAC/(EV/AC) CPI = (EV/AC)

30. You are asked to produce an estimate of the performance rate that must be achieved to meet the targeted budget at completion. The project currently has an EV of 18, a PV of 17.5 and an AC of 20. If your original budget was 55 and you are using the EAC method, what estimate do you provide? A. 0.90 B. 1.03 C. 0.93 D. 1.50

A. 0.90 p. 261-267 - This question requires you to calculate the TCPI or the To-Complete Performance Index using the EAC formula. This formula is: (BAC - EV) / (EAC - AC). The EAC is calculated using the CPI method. TCPI = (BAC - EV) / (EAC - AC) TCPI = (BAC - EV) / ((BAC/CPI) - AC) TCPI = (BAC - EV) / ((BAC/(EV/AC)) - AC) TCPI = (55 - 18)/ ((55/(18/20) - 20) BAC = 55 EV = 18 AC = 20 EAC = (BAC/CPI) -> (BAC/(EV/AC) CPI = (EV/AC)

16. What is the Critical Ratio for a project that had an original budget of $950,000, an original schedule of eleven months, actual costs of $400,000, has produced $391,000 worth of work, and was scheduled to have spent $405,000? A. 0.94 B. 0.98 C. 0.97 D. It cannot be determined

A. 0.94 — The critical ratio is the CPI * SPI. It provides a quick, single number review of project performance. p. 261-267 - The critical ratio is calculated by first determining both the Cost Performance Index CPI (EV / AC) Schedule Performance Index SPI (EV / PV). The Critical Ratio is then equal to the CPI * SPI. (EV)^2/(AC*PV)

3. Which of the following variables represents the total cost incurred in accomplishing work on the scheduled activity during a specific time period? A. Actual costs B. Summary costs C. Earned value D. Planned value

A. Actual costs p. 261-267 - The Actual Costs are the total costs incurred in accomplishing work on the schedule activity during a specified time period. The actual costs are sometimes referred to as ACWP or actual costs of work performed.

61. Early in the life of your project, you are having a discussion with the sponsor about which 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 judgment. Determining why the sponsor wants such an accurate estimate sounds like a good idea at first; however, analogous estimates are less accurate than other forms of estimating, as they are prepared with a limited amount of detailed information. You need to realize that analogous estimating is a form of expert judgment.

60. You have been assigned as the project manager for a medium-sized information technology project. Upon receiving your charter, the project sponsor asks if the project can be completed within the target budget. Which of the following is the best way to handle this? A. Build 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. Build an estimate in the form of a range of possible results. With such limited information, it is best to estimate in a range. The range can be narrowed as planning progresses and risks are addressed.

6. Which of the following variables represents the formula: Earned Value minus Actual Costs? A. CV B. CPI C. SV D. SPI

A. CV Cost Variance (CV) = EV - AC p. 261-267 - The Cost Variance or CV, represents an indicator of how far away from the original cost baseline the project actually is. To calculate it, take the Earned Value (EV) and subtract the Actual Costs (AC). A project is on target if the CV is equal to 0.

8. Which of the following is not typically part of the cost management plan? A. Cost paradigms B. Control thresholds C. Earned value rules D. Reporting formats

A. Cost paradigms Control thresholds, earned value rules and reporting formats are all typically part of the cost management plan. "Cost paradigms" is a nonexistent term for the purposes of project management.

4. One way to compute ETC is to: A. Create an entirely new estimate. B. Take the BAC and add the cumulative EV. C. Take the BAC / CPI. D. Take the BAC and add an entirely new estimate.

A. Create an entirely new estimate. p. 264-265. There are three ways to calculate ETC or Estimate to Complete. They include: - Create an entirely new estimate - Assume the variances are atypical (BAC- Cumulative EV) - Assume the variances are typical (BAC - cumulative EV) / (CPI* SPI) Using the critical ratio (BAC - cumulative EV) / CPI

58. What type of cost is team development? A. Direct B. Indirect C. Required D. Fixed

A. Direct Team development or training is considered a direct cost to the project as it represents paying for the skills required to complete the project.

34. Which of the following is a tool or technique used in the control costs process? A. Forecasting B. Funding limit reconciliation C. Reserve analysis D. Parametric analysis

A. Forecasting p. 167 - The tools and techniques used in the control costs process include: Expert judgment Data analysis To-complete performance index (TCPI) Project management information system

50. Which of the following is a tool for determining when investing any additional money will not produce an equivalent return? A. Marginal analysis B. Benefit cost ratio analysis C. Cost benefit ratio analysis D. Internal rate of return analysis

A. Marginal analysis Marginal analysis, which uses the law of diminishing returns is an attempt to find the point investing $1 gets you exactly $1 in return and investing any more gives you less. In those situations, it usually does not make sense to invest more.

47. You are the project manager for a major road project. You have been asked to estimate the cost for your project using the formula of number of miles of road multiplied by the number of lanes multiplied by the cost per lane mile of road. What kind of estimate is this? A. Parametric estimate B. Analogous estimate C. Rough order of magnitude estimate D. Bottom up estimate

A. Parametric estimate p. 172 - Parametric estimating is a technique that uses a statistical relationship between historical data and other variables to calculate a cost estimate. In other words a mathematical model.

22. Which of the following cost estimating techniques involves calculating the costs of individual tasks or activities or work packages by determining the relationship between them, historical data and other variables? A. Parametric estimating B. Bottom-up estimating C. Analogous estimating D. Monte Carlo estimating

A. Parametric estimating p. 244. Relationships between historical data and other variables to calculate a cost estimate represent parametric estimating.

26. If you have a burn rate of 1.21 which of the following is true? A. The AC is $84,000 and the EV is $102,000 B. The AC is $102,000 and the EV is $84,000 C. The AC is $84,000 and the PV is $102,000 D. The EV is $102,000 and the PV is $84,000

A. The AC is $84,000 and the EV is $102,000 p. 263. The "Burn Rate" measures the rate you are "burning" or spending your money versus how much work product you are obtaining. It is another way to say CPI. It is expressed as a numerical value with a target of one. It is defined by the formula of Earned Value / Actual Costs.

11. In which of the following processes is the project cost management plan developed? A. The develop project management plan process B. The estimate costs process C. The determine budget process D. The control costs process

A. The develop project management plan process p. 235 - Although it is not formally called out in the cost management processes, the PMBOK® Guide specifies that the cost management plan is initially produced as part of the development of the project management plan.

42. You are the project manager on a project that has a cost performance index of 0.79. What does this mean? A. The project is only producing 79 cents of value for every dollar invested. B. The project is 21% behind schedule. C. The project is 79% over budget. D. The project is likely to cost 79% more than planned.

A. The project is only producing 79 cents of value for every dollar invested. p. 261-267. The cost performance index or CPI is defined as the Earned Value divided by the Actual Costs. It tells you how close to the forecasted budget you actually are. If the CPI is 0.79 that tells you the project is 1 - .79 or 0.21 over budget.

36. Parametric estimating: A. Uses project characteristics in a mathematical model B. Uses an algorithm to calculate project costs C. Uses top-down estimating D. Represent the most common estimating technique

A. Uses project characteristics in a mathematical model p. 244 - Parametric estimating involves using project characteristics in a mathematical model to predict total project costs.

54. You have been asked to determine a less costly way to complete the same work. Which of the following tools would you use? A. Value analysis B. Six sigma analysis C. Marginal analysis D. Benefit cost analysis

A. Value analysis This is a simple memorization question. You must remember that value analysis is all about determining the least costly way to complete work (e.g. obtain the most value).

17. Your manager comes into your office and asks about your project that is currently in the execution phase. They specifically want to know what the budget for your project is. If your team estimated the project at $250,000 what do you tell your boss? A. $225,000 to $275,000 B. $237,500 to $275,000 C. $125,000 to $500,000 D. Approximately $275,000

B. $237,500 to $275,000 p. 241. Remember, according to PMI®, you never give a single number. You always provide a range. In this case that fact excludes one of the answers. Since you are in the planning phase of the project you are using the definitive estimate which is +10% to -5%. That provides a range of $237,500 to $275,000.

23. You are working on a project that had an original budget of $200,000 and was originally forecast to take sixty weeks. As the project coordinator, you have been somewhat frustrated with your project's performance. To date you have delivered on $79,000 of the project's deliverables while you had budgeted $93,000 and actually spent $98,000. The project has been progressing consistently and you expect the trends the project has shown to continue. Based upon this information, what do you expect the project's estimate at completion to be? A. $219,000 B. $248,000 C. $292,000 D. $256,000

B. $248,000 p. 261-267 - The key to this question is the fact that the variances are believed to be typical. This means whatever is happening will continue to happen at approximately the same rate. With this piece of information you should have known to use the following formula: EAC = $98K + ($200K - 79K)/(79K/$98K) EAC = AC + ((BAC - EV)/CPI) AC = Actual Costs ($98K) BAC = Budget At Completion ($200K) EV = Earned Value ($79K) CPI =(EV / AC) ($79K/98K) = .868

18. You are a project manager working on a project that had an original budget of $250,000 and was forecast to take 54 weeks. The project currently has delivered on $90,000 worth of the project and has spent $100,000. If the variances to date are believed to be atypical and the project had planned to spend $80,000 what is the estimate at completion? A. $277,780 B. $260,000 C. $246,910 D. It cannot be determined

B. $260,000 p. 261-267 - The key to this question is the fact that the variances are believed to be atypical. With this piece of information, you know the formula should be EAC = AC + BAC - EV (atypical) EAC = Estimate At Completion AC = Actual Costs BAC = Budget At Completion EV = Earned Value.

13. Which of the following best represents a ROM estimate? A. +100% to -100% B. +75% to -25% C. +50% to 100% D. +10% to -5%

B. +75% to -25% p. 241. Early in a project's life cycle you are not likely to have a lot of detailed information. Therefore, you need to provide a wide ranging estimate. The Rough Order of Magnitude estimate does just that. It is a range of +75% to -25% of the original estimate.

13. You are the program manager for a large software development company. You are currently leading a project that has an original budget of $35,000 and an original schedule of seven months. Currently the project has delivered on $27,500 of the project. It has also spent $29,000. If the project was forecast to spend $30,000 to date, what is the project's SPI? A. 0.95 B. 0.92 C. 0.87 D. -1.5

B. 0.92 p. 261-267 - The Schedule Performance Index, or SPI, is calculated by taking the Earned Value (EV or amount of work produced) and dividing it by the Planned Value (PV, budget or planned spending). A project is on schedule if the result is 1.

21. Which of the following cost estimating techniques involves calculating the costs of individual tasks or activities and then summarizing the costs? A. Analogous estimating B. Bottom-up estimating C. Parametric estimating D. Monte Carlo estimating

B. Bottom-up estimating p. 244. Bottom-up estimating involves completing the estimates at the lowest possible level, the task or activity, and then summing the work packages as you go higher up the WBS. PMI ® considers this the most accurate and detailed form of estimating.

28. You have been assigned a project to deploy new desktop computers throughout your organization. Your assignment to the project has occurred after the project estimates have been completed and baselines have been established. You are concerned that the cost estimates are unrealistic based upon your previous experience. Which of the following is the best thing to do? A. Determine if the contingency budget will cover the additional costs B. Bring your project team together to determine the best solution C. Meet with the project sponsor to examine possible solutions D. Meet with the people who generated the cost estimate

B. Bring your project team together to determine the best solution Your best answer is to always work with your project team first to determine alternatives. Remember, the PMI® standards are all about examining alternatives and presenting recommendations. You would not want to meet with anyone else until you have met with your team.

25. If you have a burn rate of .92 which of the following is true? A. The AC is 110 and the EV is 120 B. The AC is 120 and the EV is 110 C. The AC is 120 and the PV is 110 D. The EV is 110 and the PV is 120

B. The AC is 120 and the EV is 110 p. 263. The "Burn Rate" measures the rate you are "burning" or spending your money versus how much work product you are obtaining. It is another way to say CPI. It is expressed as a numerical value with a target of one. It is defined by the formula of Earned Value / Actual Costs.

3. You are six months into a year-long project when your boss comes into your office and asks how much money in total your project is going to cost at completion. What do you provide him? A. The most current ETC. B. The most current EAC. C. The project budget / CPI. D. The project budget plus the latest variance estimate.

B. The most current EAC p. 264-265. This question is asking how much money will you have spent when the project has been completed. This is the Estimate at Completion or EAC.

62. 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 project's 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 planning processes are completed. C. The project management plan will not contain the project's 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 planning processes are completed. The overall project budget may be included in the project charter but not the detailed costs. Even small projects should have a budget and a schedule. It is not impossible to create a project budget before the project management plan is created. However, it is not wise to do so, as the budget will not be accurate. The project budget and baseline are not finalized and accepted until the planning processes are completed.

15. A coworker comes into your office and asks about your project that is currently in the execution phase. They specifically want to know what the budget for your project is. If your team estimated the project at $275,000 what do you tell your coworker? A. Approximately $302,500 B. $247,500 to $316,250 C. $261,250 to $302,500 D. Approximately $316,250

C. $261,250 to $302,500 p. 241. Remember, according to PMI®, you never give a single number. You always provide a range. In this case that fact excludes two of the answers. Since you are in the execution phase of the project you are using the definitive estimate which is +10% to -5%. That provides a range of 261,250 to $302,500.

19. You are a project manager working on a project that had an original budget of $300,000 and was forecast to take seventy-two weeks. The project currently has delivered on $65,000 worth of the project and has spent $100,000. If the variances to date are believed to be atypical and the project had planned to spend $75,000 what is the estimate at completion? A. $461,540 B. $532,540 C. $335,000 D. $235,000

C. $335,000 p. 261-267 - The key to this question is the fact that the variances are believed to be atypical. With this piece of information, you know the formula should be EAC = AC + BAC - EV (atypical) EAC = Estimate At Completion AC = Actual Costs BAC = Budget At Completion EV = Earned Value

51. You have been asked to choose one of three projects. Project A has an NPV of $75,000. Project B has an NPV of $81,000. Project C has an NPV of $62,500. What is the opportunity cost of selecting Project B? A. $81,000 B. $62,500 C. $75,000 D. $6,000

C. $75,000 Opportunity cost is defined as the value of the next highest, not selected alternative. In this case, the correct answer is $75,000.

14. What is the Critical Ratio for a project that had an original budget of $25,000, an original schedule of ten months, actual costs of $10,000, has produced $9,000 worth of work, and was scheduled to have spent $10,000? A. 0.90 B. -1 C. 0.81 . It cannot be determined

C. 0.81 p. 261-267 - The critical ratio is calculated by first determining both the Cost Performance Index, or CPI (EV / AC) and the Schedule Performance Index or SPI (EV / PV). The Critical Ratio is then equal to the CPI * SPI.

29. You are asked to produce an estimate of the performance rate that must be achieved to meet the targeted budget at completion. The project currently has an EV of 27.5, a PV of 30 and an AC of 29. If your original budget was 35 and you are using the EAC method, what estimate do you provide? A. 0.21 B. 0.91 C. 0.95 D. 0.72

C. 0.95 p. 261-267 - This question requires you to calculate the TCPI or the To-Complete Performance Index using the EAC formula. This formula is: (BAC - EV) / (EAC - AC). The EAC is calculated using the CPI method. TCPI = (BAC - EV) / (EAC - AC) TCPI = (BAC - EV) / ((BAC/CPI) - AC) TCPI = (BAC - EV) / ((BAC/(EV/AC)) - AC) TCPI = (35 - 27.5)/ ((35/(27.5/29) - 29) BAC = 35 EV = 27.5 AC = 29 EAC = (BAC/CPI) -> (BAC/(EV/AC) CPI = (EV/AC)

12. You are leading a project that is a low profile project for the organization. The project was originally scheduled to take 10 months at a total cost of $70,000. Your title is that of a project coordinator, and you often have to struggle to get the resources you need. You have already spent $40,000 even though you were only scheduled to spend $37,500. If you have already produced $37,500 worth of work what is your current SPI? A. -2.50 B. 0 C. 1.00 D. It cannot be determined

C. 1.00 SPI = EV/PV p. 261-267 - The Schedule Performance Index, or SPI, is calculated by taking the Earned Value (EV or amount of work produced) and dividing it by the Planned Value (PV, budget or planned spending). A project is on schedule if the result is 1.

59. Value analysis is performed to get: A. The team to buy into the project. B. More value from the cost analysis. C. A less costly way of doing the same work. D. Management to buy into the project.

C. A less costly way of doing the same work. The primary purpose of value analysis is finding a less costly way to do the same work.

1. One way to compute EAC is to take the cumulative actual costs and: A. Add the BAC. B. Add the cumulative earned value. C. Add the BAC - cumulative earned value. D. Divide by the CPI.

C. Add the BAC - cumulative earned value p. 264-265. There are several ways to calculate the Estimate At Completion or EAC. The most common of these include: Creating an entirely new estimate Cumulative actual costs + (Original Total Budget - Cumulative Earned Value) Cumulative Actual Costs + ((Original Total Budget - Cumulative Earned Value) / Cumulative CPI) Cumulative Actual Costs + ((Original Total Budget - Cumulative Earned Value) / (Cumulative CPI * SPI))

20. Which of the following cost estimating techniques involves using the actual costs from previous, similar projects as its basis? A. Bottom-up estimating B. Parametric estimating C. Analogous estimating D. Monte Carlo estimating

C. Analogous estimating p. 244 - Analogous estimating represents a technique used usually early in a project to develop cost and schedule estimates. It makes use of comparative analysis and argues that if two projects are similar their costs should be similar as well. This method runs a significant accuracy risk because often the details of the projects are not that similar.

35. Which of the following is not an output of the Control Costs Process? A. Work performance measurements B. Budget forecasts C. Approved changes D. Change requests

C. Approved changes p. 167 - The outputs from the cost control process include: Work performance measurements Cost forecasts Change requests Project management plan updates Project document updates

2. Your boss comes into your office and asks how much more money it is going to take to complete your project. What do you provide her? A. The most current EAC. B. The project budget plus a variance. C. The most current ETC. D. The worst case scenario value.

C. The most current ETC. p. 264-265. This question is asking how much more money is required. This is money in addition to the money already spent. This is the definition of the Estimate to Complete or ETC.

27. Your manager comes into your office to discuss a project you are leading. In your latest status report you indicated a burn rate of 0.86. If you have spent $192,000 what else do you know to be true? A. You had budgeted to spend $165,000 B. Your SPI is 0.86 C. You have produced $165,000 of work D. Your cost variance is less than your schedule variance

C. You have produced $165,000 of work p. 263. The "burn rate" measures the rate you are "burning" or spending your money versus how much work product you are obtaining. It is another way to say CPI. It is expressed as a numerical value with a target of one. It is defined by the formula of earned value / actual costs.

What it the difference between Contingency and Management reserves?

Contingency reserve is used to respond to known unknowns, and is controlled by the project manager. Management reserves are used to respond to unknown unknowns, and controlled by senior management

26. You are preparing your monthly status report for your project. Assuming the variances to date are typical, what would the estimate to complete the project be assuming your project was budgeted to cost $90,000 and take thirty-six weeks if you have actually spent $50,000, have produced $65,000 worth of product and were scheduled to have spent $60,000? A. $25,000 B. $64,000 C. $69,000 D. $19,000

D. $19,000 p. 261-267 - To correctly answer this question you must first determine exactly what is being asked. In this question you are being asked for an estimate to complete the project (ETC). In this case you are told that the variances that have been seen to date are typical. Therefore, your correct formula is ETC = (BAC - EV) / CPI. ETC = (BAC - EV)/CPI (Est To Comp for typical varianc) = ($90K - $65K)/($65K/50K) BAC= $90K (Budget at Completion) EV = $65K (Earned Value) AC = $50K (Actual Cost) CPI = (EV / AC) ($65K/50K)

20. You are a project manager working on a project that had an original budget of $300,000 and was forecast to take seventy-two weeks. The project currently has delivered on $65,000 worth of the project and has spent $100,000. If the variances to date are believed to be typical and the project had planned to spend $75,000 what is the estimate at completion? A. $335,000 B. $532,540 C. $235,000 D. $461,540

D. $461,540 p. 261-267 - The key to this question is the fact that the variances are believed to be typical. This means whatever is happening will continue to happen at approximately the same rate. With this piece of information you should have known to use the following formula: EAC = $100K + ($300K - 65K)/(65K/$100K) EAC = AC + ((BAC - EV)/CPI) AC = Actual Costs ($100K) BAC = Budget At Completion ($300K) EV = Earned Value ($65K) CPI =(EV / AC) ($65K/100K) = .65

21. You are a project manager working on a project that had an original budget of $500,000 and was forecast to take eight months. The project currently has delivered on $35,000 worth of the project and has spent $50,000. If the variances to date are believed to be typical and the project had planned to spend $40,000 what is the estimate at completion? A. $515,000 B. $816,330 C. $465,000 D. $714,290

D. $714,290 p. 261-267 - The key to this question is the fact that the variances are believed to be typical. This means whatever is happening will continue to happen at approximately the same rate. With this piece of information you should have known to use the following formula: EAC = $50K + ($500K - 35K)/(35K/$65K) EAC = AC + ((BAC - EV)/CPI) AC = Actual Costs ($50K) BAC = Budget At Completion ($500K) EV = Earned Value ($35K) CPI =(EV / AC) ($35K/50K) = .7

16. Your manager comes into your office and asks about your project that is currently in the initiating phase. They specifically want to know what the budget for your project is. If your team estimated the project at $500,000 what do you tell your boss? A. Approximately $1,000,000 B. $500,000 to $1,000,000 C. $750,000 to $250,000 D. $875,000 to $375,000

D. $875,000 to $375,000 (ROM estimate which is +75% to -25%) p. 241. Remember, according to PMI®, you never give a single number. You always provide a range. In this case that fact excludes two of the answers. Since you are in the initiation phase of the project you are using the ROM estimate which is +75% to -25% . That provides a range of 375,000 to $875,000.

25. You are preparing your monthly status report for your project. Assuming the variances to date are typical, what would the ETC be assuming your project was budgeted to cost $125,000 and take twelve months and if you have actually spent $42,000, have produced $37,500 worth of product and were scheduled to have spent $39,000? A. $87,500 B. $129,500 C. $140,000 D. $98,000

D. $98,000 p. 261-267 - To correctly answer this question you must first determine exactly what is being asked. In this question you are being asked for an estimate to complete the project (ETC). In this case you are told that the variances that have been seen to date are typical. Therefore, your correct formula is ETC = (BAC - EV)/CPI (Est To Comp for typical varianc) = ($125K - $37.5K)/($37.5K/42K) BAC= $125K EV = $37.5K AC = $42K CPI = (EV / AC) ($37.5K/42K)

14. Which of the following ranges best represents a definitive estimate? A. +100% to -100% B. +75% to -25% C. +50% to 100% D. +10% to -5%

D. +10% to -5% p. 241. The definitive estimate is the final project estimate given to all management and resources. It is never a single number and always represented by a range. The correct range for a definitive estimate is +10% to -5%.

11. You are preparing your monthly status report for your project. Your project had an original budget of $950,000 and an original schedule of 11 months. Your currently have spent $400,000 and had budgeted to spend $405,000. You have produced $391,000 worth of product. Your Vice President is very eager to review your report as your project is important to the company's success. What is the Schedule Variance for the project? A. -9,000 B. 0.98 C. 14 D. -14,000

D. -14,000 Schedule Variance (SV) = EV - PV ($391K - $405K) p. 261-267 - The Schedule Variance or SV, represents an indicator of how far away from the original schedule baseline the project actually is. To calculate it take the Earned Value (EV) and subtract the Planned Value (PV). A project is on target if the SV is equal to 0.

8. Your boss enters your office and asks for the cost variance on your project that has an AC of $290, a PV of $300, and an EV of $270. What value do you provide them? A. -30 B. 0.95 C. 0.92 D. -20

D. -20 Cost Variance (CV) = EV - AC ($270K - $290K) p. 261-267 - The Cost Variance or CV, represents an indicator of how far away from the original cost baseline the project actually is. To calculate it take the Earned Value (EV) and subtract the actual costs. A project is on target if the CV is equal to 0.

9. Your boss enters your office and asks for the cost variance on your project that has an AC of $400, a PV of $405, and an EV of $391. What value do you provide them? A. -5 B. 1.30 C. 1.08 D. -9

D. -9 Cost Variance (CV) = EV - AC ($391K - $400K) p. 261-267 - The Cost Variance or CV, represents an indicator of how far away from the original cost baseline the project actually is. To calculate it take the Earned Value (EV) and subtract the actual costs. A project is on target if the CV is equal to 0.

57. You are leading a project for an external customer. The client representative asks that you provide a written cost estimate that is 25% higher than your estimate of the project's cost. They justify the request by telling you their company 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 25% as a lump sum contingency to handle project risks. B. Add the 25% to the 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. This is an ethics question. PMI's standards are very clear in this area. Although it is a largely western way of thinking about this topic you should only present the actual estimate.

53. You are meeting with the project sponsor. They voice concern about the setup costs of the project escalating. You assure them that this is not an issue. Why? A. Because good project management will ensure the costs do not escalate. B. Because project setup represents an opportunity cost. C. Because project setup represents an overhead cost. D. Because project setup represents a fixed cost.

D. Because project setup represents a fixed cost. The setup of a project does not have a direct tie to the amount or number of products produced. It is generally done before any production occurs and therefore is a fixed cost.

33. Which of the following is not a tool or technique used in the control costs process? A. Forecasting B. Variance analysis C. Project management software D. Reserve analysis

D. Reserve analysis p. 257 - The tools and techniques used in the control costs process include: Expert judgment Data analysis To-complete performance index (TCPI) Project management information system

7. Which of the following variables represents the formula: Earned Value minus Planned Value? A. SPI B. CV C. CPI D. SV

D. SV Schedule Variance (SV) = EV - PV p. 261-267 - The Schedule Variance or SV, represents an indicator of how far off of the original schedule baseline the project actually is. To calculate the SV take the Earned Value and subtract the Planned Value. A project is on schedule if the SV is equal to 0.

48. In which of the project management process groups would you make a ROM estimate? A. The planning process group B. The executing process group C. The monitoring and controlling process group D. The initiating process group

D. The initiating process group p. 168 - A Rough Order of Magnitude estimate, or ROM, is done in the initiating phases of the project. This estimate has a range of -25% to -75% the widest variance, and is therefore used as the earliest estimate in the project, often in a project charter.

45. You are the project manager on a large road project that has a current CV of $176,000. What does this mean? A. The project is $176,000 over budget. B. The project is $176,000 ahead of schedule. C. The project is $176,000 behind schedule. D. The project is $176,000 under budget.

D. The project is $176,000 under budget. p. 261-267. The cost variance, or CV is calculated using the formula Earned Value - Actual Cost. A project with a negative value is over budget and a project with a positive value is currently under budget.

41. You are the project manager on a project that has a CPI of 0.92. What do you know? A. The project is currently 8% behind schedule. B. When the project is delivering 92% of the work product. C. The project will end up being 92% over budget. D. The project is currently 8% over budget.

D. The project is currently 8% over budget. p. 261-267. The cost performance index or CPI is defined as the Earned Value divided by the Actual Costs. It tells you how close to the forecasted budget you actually are. If the CPI is 0.92 that tells you the project is 1 - .92 or 0.08 over budget.

10. Life cycle costing is often combined with what to improve decision making, reduce cost and execution time, and to improve the quality of the project? A. Earned value management B. Opportunity costing C. Professional project management D. Value engineering

D. Value engineering Life cycle costing is often combined with value engineering to improve decision making, reduce costs and execution time, and to improve the quality of the project.

What is the difference between Estimating vs. budgeting?

Estimating is the process of developing expected costs at the lowest level of delivery. Budgeting is the process of rolling those estimates up to obtain the overall project costs and then determining when that money is expected to be spent.

22. You are a project manager working on a project that had an original budget of $150,000 and was forecast to take eighteen weeks. The project currently has delivered on $53,000 worth of the project and has spent $61,000. If the variances to date are believed to be typical and the project had planned to spend $57,250 what is the estimate at completion? A. $172,640 B. $158,000 C. $186,490 D. $150,000

A. $172,640 p. 261-267 - The key to this question is the fact that the variances are believed to be typical. This means whatever is happening will continue to happen at approximately the same rate. With this piece of information you should have known to use the following formula: EAC = $61K + ($150K - 53K)/(53K/$61K) EAC = AC + ((BAC - EV)/CPI) AC = Actual Costs ($61K) BAC = Budget At Completion ($150K) EV = Earned Value ($53K) CPI =(EV / AC) ($53K/61K) = .868

24. You are currently leading a project that had an original budget of $300,000 and an original schedule of twenty-seven weeks. You currently have spent $100,000 and are currently over budget by $15,000. Your boss comes into your office and wants to discuss your project. Specifically, she wants to know how much more money it is going to take to complete the project. Assuming you have completed $ 78,000 of the deliverables and you expect the performance trends to not continue what do you tell her? A. $222,000 B. $285,000 C. $419,000 D. $322,000

A. $222,000 p. 261-267 - To correctly answer this question you must first determine exactly what is being asked. In this question you are being asked for an estimate to complete the project (ETC). In this case you are told that the variances that have been seen to date are not typical. Therefore, your correct formula is ETC = BAC - EV. (Est To Comp for non typical variances) = $300K - $78K

17. You are a project manager working on a project that had an original budget of $30,000 and was forecast to take eight months. The project currently has delivered on $18,000 worth of the project and has spent $22,500. If the variances to date are believed to be atypical and the project had planned to spend $20,000 what is the estimate at completion? A. $34,500 B. $37,500 C. $42,670 D. It cannot be determined

A. $34,500 p. 261-267 - The key to this question is the fact that the variances are believed to be atypical. With this piece of information, you know the formula should be EAC = $22.5 + $30K - $18K EAC = AC + BAC - EV (atypical) EAC = Estimate At Completion AC = Actual Costs BAC = Budget At Completion EV = Earned Value.

10. You are preparing your monthly status report for your project. Your project had an original budget of $150,000 and an original schedule of 18 months. You currently have spent $65,000 and had budgeted to spend $60,000. You have produced $55,000 worth of product. Your Vice President is very eager to review your report as your project is important to the company's success. What is the Cost Variance for the project? A. -10,000 B. -5,000 C. 0.85 D. 0.92

A. -10,000 Cost Variance (CV) = EV - AC ($55K - $65K) p. 261-267 - The Cost Variance or CV, represents an indicator of how far away from the original cost baseline the project actually is. To calculate it take the Earned Value (EV) and subtract the actual costs. A project is on target if the CV is equal to 0.

30. You have been asked to take over a project that senior management feels is critical to the organization, but has also determined to be failing. Originally, the project had a budget of $550,000. The project has only produced 2/3 of the required deliverables and has already spent $500,000. The $500,000 expenditure represents which of the following? A. Capital expenditure B. Sunk cost C. Indirect expenditure D. Direct cost

B. Sunk cost Sunk costs represent monies that have already been spent. They cannot be recovered. They are important to project managers because many organizations make project decisions based upon the money that has already been spent. This often leads to good money following bad.

27. Which of the following is the calculated projection of cost performance that must be achieved on the remaining work to meet a specified management goal? A. CPI B. TCPI C. EAC D. ETC

B. TCPI (To-Complete Performance Index) p. 261-267 - The To-Complete Performance Index is the calculated projection of cost performance that must be achieved on the remaining work to meet a specified management goal, such as the BAC or the EAC.

19. Which of the following is a formally recognized organizational process asset used in the Cost Estimating Process? A. Cost estimating policies B. Commercial databases C. Marketplace conditions D. Project team knowledge

B. Commercial databases p. 171 - Organizational process assets represent templates and information that help the project team complete the project. When it comes to the cost estimating process these assets formally include: Cost estimating policies Cost estimating templates Historical information

31. In which of the following steps would a project manager allocate overall cost estimates to the individual activities, tasks, deliverables or work packages to establish a performance measurement baseline? A. Estimate costs B. Determine budget C. Cost baselining D. Cost control

B. Determine budget p. 248-256 - Determine budget involves aggregating the various estimated costs for all the tasks, activities, deliverables, and/or work packages to establish a total cost baseline for the project.

4. Which of the following variables represents the amount of additional money that needs to be spent to complete the project? A. EAC B. ETC C. CPI D. SPI

B. ETC (Estimate to Complete) p. 261-267 - The Estimate to Complete provides a metric showing how much more money than has already been spent is needed to complete the project. This is in addition to the money that has already been spent. The ETC is correct.

55. When working with earned value management which primary term represents the actual output or work product? A. Planned value B. Earned value C. Actual cost D. CPI

B. Earned value p. 261-267. There are three key variables to establish the earned value calculations: Earned value - the work product Planned value - the budget Actual costs - how much you really spent

7. Which of the following falls under a project manager's ethical responsibility? A. Opportunity costing B. Life cycle costing C. Sunk costing D. Project costing

B. Life cycle costing Although project costing is a responsibility of the project manager, life cycle costing is an ethical responsibility. The project manager has the responsibility to ensure the product of the project is within the operating budget of the organization.

49. You have been asked to choose between two different projects that your organization might undertake. Which of the following would not be grounds for comparison? A. BCR B. Marginal analysis C. IRR D. NPV

B. Marginal analysis Marginal analysis, which uses the law of diminishing returns is an attempt to find the point investing $1 gets you exactly $1 in return and investing any more gives you less. In those situations, it usually does not make sense to invest more. This is an important measure, but does not help you compare projects. The Benefit/Cost Ratio, Internal Rate of Return and Net Present Value all can help compare projects.

1. Which of the following variables represents the budgeted cost for the work scheduled to be completed up to a given point? A. Actual cost B. Planned value C. Earned value D. Estimate at completion

B. Planned value p. 261-267 - The Planned Value is the budgeted cost for the work scheduled to be completed on an activity or WBS component up to a given point. This is sometimes referred to as the BCWS.

12. Which of the following describes the difference between costing and pricing? A. Costing includes profit and pricing does not B. Pricing includes profit and costing does not C. Pricing always includes a factor of cost D. Cost is always a multiplier of price

B. Pricing includes profit and costing does not Price is made up of the cost of the item plus the desired profit. Cost simply represents what the item took to produce in monetary terms.

56. You have been asked to select one of three projects for your organization using NPV. Project A has an NPV of $23,000 and will take two years to produce. Project B has an NPV of $41,000 and will take three years to produce, and Project C has an NPV of $35,000 and will take three years to produce. Which project would you select? A. Project A B. Project B C. Project C D. It cannot be determined

B. Project B This is a trick question of sorts. The question provides both the term of the project and the NPV. This would seem to indicate that you must do something with the term. However, the NPV takes into account the project term making this information unnecessary. All you have to do is select the largest value.

40. You are in the process of establishing the cost performance measurement system you will be using for a software development project. Which of the following methods would be best? A. Ask each resource for a percent of the deliverables that are complete and forecast future performance. B. Use the physical percent complete of the work product to calculate earned value and then forecast future performance. C. Use a 0% / 100% rule of reporting deliverable completeness and forecast future performance. D. Focus on the amount of money budgeted and actually spent in each period and then forecast future performance.

B. Use the physical percent complete of the work product to calculate earned value and then forecast future performance. p. 261-267. In most cases, the best way to report level of completeness is to use the actual level of physical completeness as part of the earned value calculations. This is the actual amount of work product produced. However, the real key to this question is to remember that PMI® always wants you to use earned value reporting.

37. Analogous estimating: A. Works best when done from the bottom up B. Uses actual costs from previous projects C. Can be done at any time in the project D. Is frequently used in the late planning phase of a project

B. Uses actual costs from previous projects p. 243 - Analogous estimating means using the actual cost of previous, similar projects as the basis for estimating the cost of the current project.

44. Your project has a SPI of 0.91 what does this tell you? A. You will likely deliver the project 9% behind schedule. B. You are currently 9% behind schedule. C. Your project has achieved 91% of its objectives. D. You are 9% over budget.

B. You are currently 9% behind schedule. p. 261-267. The Schedule Performance Index or SPI is defined as the Earned Value divided by the Planned Value. It tells you how close to the forecasted schedule you actually are. If the SPI is 0.91 you know that your project is currently 1 - 0.91 or 0.09 behind schedule.

5. Which of the following variables represents the total amount of money that is estimated to be spent when the project is completed? A. ETC B. CPI C. EAC D. SPI

C. EAC (Estimate At Completion) p. 261-267 - As a project continues it is important that you are constantly revising your estimates of how much money you are going to have to spend. This total number is represented by the Estimate At Completion or EAC.

43. Your project has a CPI of 0.87. What does this mean? A. You are behind schedule. B. You are 13% under budget. C. It is costing you more to produce each deliverable than forecasted. D. You are 87% over budget.

C. It is costing you more to produce each deliverable than forecasted. p. 261-267. The cost performance index or CPI is defined as the Earned Value divided by the Actual Costs. It tells you how close to the forecasted budget you actually are. If the CPI is 0.87 that tells you the project is 1 - .87 or 0.13 over budget.

9. Considering the effect project decisions have on the cost of using, maintaining, and supporting the product of the project is more commonly referred to as what? A. Project costing B. Ethical cost management C. Life cycle costing D. Professional cost responsibility

C. Life cycle costing Project cost management should consider the effect of project decisions on the cost of using, maintaining, and supporting the project's product or service, more commonly referred to as life cycle costing.

38. An executive is evaluating project A with BCR of 1.2 and project B with an NPV of $380,000. The two projects are mutually exclusive. The cost of choosing one of these projects and not obtaining the benefits of the other is called: A. Sunk cost B. Lost cost C. Opportunity cost D. Portfolio cost

C. Opportunity cost The opportunity cost for any selection is defined as the value of the next highest alternative.

5. Which of the following is primarily concerned with examining the value of the next highest alternative? A. Sunk costs B. Life cycle costs C. Opportunity cost D. Operational costs

C. Opportunity cost p. 712. Opportunity costs measure the value of the next highest alternative. This provides a way of measuring what you chose not to do.

32. You are part of a project management office within a large organization. All of the organization's resources are currently allocated to projects. A new project has just been brought to the PMO by senior management that must be given priority. To complete this new project you will have to take resources from the other projects which will cause them to be delayed. From which of the following projects should you take the resources? A. Project A with 17 resources, a NPV of $225,000, and no change management plan. B. Project B with nine resources, an IRR of 19%, BCR of 1.4, and no project cost control plan. C. Project C with seven resources, a benefit cost ratio of 1.2, and no project charter. D. Project D with 11 resources, capital expenses of US $195,000, a burn rate of 1.25 and no schedule management plan.

C. Project C with seven resources, a benefit cost ratio of 1.2, and no project charter. Each of these projects is in trouble, but only one of them should have never been started. That is project C. Project C does not have a project charter and should have never been started. Therefore, it should be the first place you go for resources. Remember, you never do a project without a charter no matter what the numbers say.

46. You are leading a project that is using resources in four different locations. Management has mandated that you use Earned Value Analysis. If the project is a software development project which of the following would not be necessary to determine the initial cost baseline? A. WBS B. Network diagram C. Scope change management plan D. Risk register

C. Scope change management plan p. 248 - The cost baseline is an output of the determine budget process. In order to determine which it is, you would need the WBS to see all the deliverables of the project, a network diagram to see the dependencies between deliverables, and the listing of potential risks to establish any contingency. However, you would not need your scope change management plan to determine the cost baseline.

24. If your original estimate was 38 weeks and you provided your sponsor with an estimate of 36 to 42 weeks what kind of estimate did you provide? A. Rough order of magnitude estimate B. Final estimate C. Budget estimate D. Definitive estimate

D. Definitive estimate p. 241. The definitive estimate is the final estimate provided in the project. It is the estimate used for baselines and represents a range of +10% to -5%.

52. You are placed in charge of a software development project. As part of your team building you determine that your resources do not have all the necessary skills. To improve their skills you decide to send them to an external class to obtain the required skills. Which of the following would best categorize this expense? A. Indirect cost B. External cost C. Fixed cost D. Direct cost

D. Direct cost In this case the training is directly related to the project and is therefore a direct cost of the project.

2. Which of the following variables represents the budgeted amount for the work completed on the schedule activity up to a given point? A. Planned value B. Actual costs C. Estimate to completion D. Earned value

D. Earned value p. 261-267 - The Earned Value is the budgeted amount for the work actually completed on the scheduled activity during a specified time period. This is sometimes referred to as the BCWP.

15. What is the Critical Ratio for a project that had an original budget of $75,000, an original schedule of twelve months, actual costs of $45,000, and has produced $50,000 worth of work? A. 1.11 B. 1.25 C. 1.39 D. It cannot be determined

D. It cannot be determined p. 261-267 - The critical ratio is calculated by first determining both the Cost Performance Index, or CPI (EV / AC) and the Schedule Performance Index or SPI (EV / PV). The Critical Ratio is then equal to the CPI * SPI. In this case you are missing the planned value so the critical ratio cannot be determined.

23. Reserve analysis is the process of looking at the estimated costs to deal with what? A. Unknown unknowns B. Certain events C. None of the above D. Known unknowns

D. Known unknowns p. 245 - Reserve analysis is the technique of looking for areas where there are known, potential risks, called known unknowns because you know they are possible, but you do not know when they are going to happen.

29. In preparing your monthly status report you determine that your project is behind schedule. You believe the variances are typical and using Earned Value Analysis you determine the project is 16% behind schedule. Your boss has offered to provide access to an additional six resources, but you are concerned about the impacts of Brooke's Law and also not providing appropriate reward for the cost of the additional resources. Your concerns are best expressed by which of the following? A. Crashing B. Parkinson's law C. Pareto principle D. Law of diminishing returns

D. Law of diminishing returns The law of diminishing returns argues that in every scenario there is a point where spending money will not get an equal amount of value in return. The rest of the question is simply subterfuge and should be ignored.

39. Jim and Sally are two project managers working for a large manufacturing organization who are discussing Jim's latest project. Sally comments that it is important that Jim consider both the operational and maintenance costs of the product being created in his project decisions. To what is Sally referring? A. Jim's professional responsibility B. Total project costing C. Parametric estimating D. Life cycle costing

D. Life cycle costing Life cycle costing is the requirement that the project manager take into consideration the cost of operation and the cost of maintenance for the product or service being created. It is an ethical responsibility of the project manager.

6. At lunch one of your fellow project managers laments about the high sunk costs on their project that is impacting key decisions. What are they likely saying? A. Money budgeted to be spent is impacting the project. B. The unseen costs of the project are impacting decisions. C. Their project should be cancelled. D. Money already spent on the project is impacting the decisions.

D. Money already spent on the project is impacting the decisions. p. 238. Sunk costs represent money that has already been spent on the project. Often these costs become so great that projects are forcibly continued to save face or for other reasons when they should be cancelled.

18. Which of the following is a formally recognized enterprise environmental factor that is an input to the cost estimating process? A. Cost estimation policies B. Historical information C. Lessons learned D. Published commercial information

D. Published commercial information p. 171 - Enterprise environmental factors are factors or conditions that exist within the area that the project resides. When discussing the factors for the estimate cost process, PMI® specifically calls out two: Market conditions Published commercial information Exchange rates and inflation