System Analysis & Design: Project Management - CH 7: Project Cost Management

What type of estimate is a cost estimation tool that involves estimating individual work items or activities and summing them to get a project total? Answers: a. budgetary b. bottom-up c. analogous d. parametric

bottom-up

What type of estimate is a cost estimation tool used to allocate money into an organization's budget? Answers: a. definitive b. rough order of magnitude c. budgetary d. ballpark

budgetary

Which is true of earned value? Answers: a. It is also known as the planned value. b. It is based solely on the total cost estimate to be spent on an activity. c. It is an estimate of the value of the physical work actually completed. d. It is the actual cost plus the planned cost.

It is an estimate of the value of the physical work actually completed.

It is important for project managers to understand that every cost estimate is unique. Answers: True False

True

The main goal of which process is to produce a cost baseline for measuring project performance and project funding requirements? Answers: a. cost estimating b. cost planning c. cost controlling d. cost budgeting

cost budgeting

What type of estimate is used for making many purchasing decisions for which accurate estimates are required and for estimating final project costs? Answers: a. budgetary b. final c. definitive d. rough order of magnitude

definitive

Which type of estimate should be used if the cost estimate for a project is used a basis for contract awards and performance reporting? Answers: a. definitive b. budgetary c. analogous d. rough order of magnitude

definitive

Which statement best defines cost variance? Answers: a. planned value minus the rate of performance b. rate of performance minus earned value c. earned value minus the actual cost d. planned value plus actual costs

earned value minus the actual cost

What is the purpose of a cost performance index (CPI)? Answers: a. indicate that the planned and actual costs are equal if CPI is more than one b. indicate that a project is under budget if CPI is less than one c. estimate the ratio of earned value to planned value d. estimate the projected cost of completing the project

estimate the projected cost of completing the project

Which process involves developing an approximation of the costs of resources needed to complete a project? Answers: a. estimating costs b. controlling costs c. determining the budget d. finalising the cost baseline

estimating costs

Which process helps develop an accurate projection of a project's financial expenses and benefits? Answers: a. life cycle costing b. fast tracking c. crashing d. critical path analysis

life cycle costing

What does the process of controlling costs primarily involve? Answers: a. finalising the procedures for project costs b. determining a basis for estimates c. managing changes to the project budget d. determining the policies for project costs

managing changes to the project budget

What is the first step in project cost management? Answers :a. allocate project cost estimates to individual material resources b. control project costs and monitor cost performance c. plan how costs will be managed d. develop several estimates of costs for different types of resources

plan how costs will be managed

Soles is a footwear company which has recently set up its store in Ambrosia. To manufacture its products, Soles incurs a range of different costs. Which would be an example of an indirect cost? Answers: a. Salary paid to factory workers b. Electricity used to run its factories c. Cost of machines to produce shoes d. Cost of leather used to manufacture shoes

Electricity used to run its factories

A budgetary estimate is the most accurate of the three types of estimates. Answers: True False

False

A negative schedule variance means that it took less time than planned to perform the work. Answers: True False

False

Analogous estimates are called activity-based costing. Answers: True False

False

In an earned value chart, when the actual cost line is right on or above the earned value line, it indicates that costs are less than planned. Answers: True False

False

Which statement is true of bottom-up estimates? Answers: a. They are time-intensive and expensive to develop. b. They are also known as parametric estimating. c. They are based on the actual cost of a previous, similar project. d. They are most accurate when they involve large, extensive work items.

They are time-intensive and expensive to develop.

Which statement is true of tangible costs? Answers: a. They are difficult to quantify. b. They cannot be calculated in monetary terms. c. They can be easily measured. d. Their examples include goodwill and prestige.

They can be easily measured.

A cost management plan can include organizational procedures links, control thresholds, and process descriptions. Answers: True False

True

Definitive estimates are made one year or less prior to project completion. Answers: True False

True

IT project managers must be able to present and discuss project information both in financial and technical terms. Answers: True False

True

In a bottom-up estimate, the size of the individual work items is one of the factors that drives the accuracy of the estimates. Answers: True False

True

One of the reasons why project cost estimates are inaccurate is because human beings are biased toward underestimation. Answers: True False

True

Parametric models are reliable when the models are flexible in terms of the project's size. Answers: True False

True

Which type of estimate uses the actual cost of a previous, similar project as the basis for estimating the cost of the current project? Answers: a. definitive estimates b. bottom-up estimates c. analogous estimates d. parametric estimates

analogous estimates

Intangible costs can be easily measured in monetary terms. Answers: True False

False

Overrun is the additional percentage amount by which estimates exceed actual costs. Answers: True False

False

Which is true of the schedule performance index (SPI)? Answers: a. It is the ratio of planned value to actual costs. b. It can be used to estimate the projected time to complete the project. c. It means that a project is behind schedule if an SPI is greater than one. d. It means that a project is ahead of schedule if SPI is lesser than one or hundred percent.

It can be used to estimate the projected time to complete the project

What is another term used for budget? Answers: a. earned value b. actual cost c. indirect cost d. planned value

planned value

How are profits best defined? Answers: a. revenues plus expenses b. expenses plus net income c. costs plus revenues d. revenues minus expenditures

revenues minus expenditures

Which method is used for determining the estimated annual costs and benefits for a project? Selected Answers: a. Cash flow analysis b. Requirements analysis c. Critical path analysis d. Present value analysis

Cash flow analysis

The primary output of the planning cost management process is a change request. Answers: True False

False

Spreadsheets are a common tool for cost estimating, cost budgeting, and cost control. Answers: True False

Selected Answer:True

The formulas for variances and indexes start with EV, the earned value. Answers: True False

True

Which process results in a cost baseline as a main output?

cost budgeting

Work performance information and cost forecasts are main outputs of which process? Answers: a. cost estimating b. cost budgeting c. cost pricing d. cost control

cost control

Which is an output of the process of controlling costs? Answers: a. project funding requirements b. cost forecasts c. basis of estimates d. scope baselines

cost forecasts

Which statement best defines schedule variance? Selected Answers: a. earned value minus the actual cost b. planned value plus the rate of performance c. planned value plus the earned value d. earned value minus the planned value

earned value minus the planned value

Estimates should become more accurate as time progresses. Answers: True False

True

Newtech Inc. hires John for the position of a software programmer to work on their new project. Salary paid to John by Newtech Inc. would be an example of which type of costs? Answers: a. indirect b. direct c. intangible d. sunk

direct

It is important for project managers to focus on indirect costs because they can be easily controlled. Answers: True False

False

Which reserves allow for future situations that are unpredictable? Answers: a. Known unknowns b. Management reserves c. Contingency reserves d. Cost baseline reserves

Management reserves

Determining the budget involves allocating the project cost estimate to individual work items over time. Answers: True False

True

What is a rough order of magnitude estimate also referred to as? Answers: a. definitive b. budgetary c. ballpark d. final

ballpark

Which statement is true regarding indirect costs? Answers: a. those that can be easily controlled by managers. b. those that cannot be allocated to projects. c. not directly related to the products or services of a project. d. directly related to performing the project.

not directly related to the products or services of a project.

Analogous estimates are the most accurate technique to estimate costs. Answers: True False

False

Contingency reserves are also known as unknown unknowns. Answers: True False

False

If cost variance is a positive number, it means that performing the work costs more than planned. Answers: True False

False

If the cost performance index (CPI) is less than 100 percent, the project is under budget. Answers: True False

False

When deciding what projects to invest in or continue, one should include sunk costs. Answers: True False

False

Which costs are difficult to measure in monetary terms? Answers: a. Fixed costs b. Direct costs c. Tangible costs d. Intangible costs

Intangible costs

Which statement is true of a order of magnitude estimate? Answers:a. Its timeframe is always less than a year prior to project completion. b. It is used to allocate money into an organization's budget. c. It is a type of estimate that is done in the final stages of a project. d. It provides an estimate of what a project will cost.

It provides an estimate of what a project will cost.

Which is most likely to be a reason for inaccuracies in information technology cost estimates? Answers: a. Estimates take a long time to be worked out. b. Only software development provides the scope for estimates to be accurate. c. People lack estimating experience. d. Human beings are biased toward overestimation.

People lack estimating experience.

Which statement is true of contingency reserves? Answers: a. They are also known as unknown unknowns. b. They allow for future situations that can be partially planned for. c. They allow for dollar amounts to be used to cover existing, fixed costs. d. They are not included in a cost baseline.

They allow for future situations that can be partially planned for.

Which statement is true of analogous estimates? Answers: a. They are most reliable when previous projects are similar in fact with current projects. b. Their main disadvantage is that they cost more than other techniques. c. They use project characteristics in a mathematical model to estimate project costs. d. They are the only technique which do not require expert judgement.

They are most reliable when previous projects are similar in fact with current projects.

A schedule performance index of one means that the project is on schedule. Answers: True False

True

Budgetary estimates are made even before a project is officially started. Answers: True False

True

If an important supplier goes out of business, management reserves can be set aside to cover the resulting costs. Answers: True False

True

Project managers must conduct cash flow analysis to determine net present value. Answers: True False

True

Supporting details for an estimate include the ground rules and assumptions used in creating the estimate. Answers: True False

True

The project management plan and project funding requirements are inputs of the process of controlling costs. Answers: True False

True

Which process involves allocating the overall cost estimate to individual work items to establish a baseline for measuring performance? Answers: a. determining the budget b. controlling costs c. finalizing policies for project costs d. estimating costs

determining the budget

Variances are calculated by subtracting the actual cost from which value? Answers: a. schedule variance b. rate of performance c. planned value d. earned value

earned value

Which type of estimating uses project characteristics in a mathematical model to estimate project costs?

parametric

What type of management includes the processes required to ensure that a project team completes a project within an approved budget? Answers: a. project quality management b. project cost management c. project scope management d. project time management

project cost management

Good Earth, a company manufacturing packaged food products, sets up its stores in Baltonia. However, a year later, the company closes the store down due to high operating costs. In such a scenario, the money spent in paying for the rent of the store in Baltonia would be an example of which costs? Answers: a. sunk b. intangible c. recurring d. direct

sunk

What term is used for analogous estimates? Answers: a. top-down b. bottom-up c. parametric d. budgetary

top-down

Which is an input of the process of controlling costs? Answers: a. change requests b. scope baseline c. work performance data d. cost forecasts

work performance data