Chapter 7 - Project Cost Management

Intangible costs can be easily measured in monetary terms

False

It is important for project managers to focus on indirect costs because they can be easily controlled

False

Overrun is the additional percentage amount by which estimates exceed actual costs.

False

Which is true of the schedule performance index (SPI)?

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

Which is true of earned value?

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

Which statement is true of a order of magnitude estimate?

It provides an estimate of what a project will cost.

Which statement is true of bottom-up estimates?

They are time-intensive and expensive to develop.

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

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.

True

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?

bottom-up

Which statement best defines schedule variance?

earned value minus the planned value

What is the purpose of a cost performance index (CPI)?

estimate the projected cost of completing the project

Which process involves developing an approximation of the costs of resources needed to complete a project?

estimating costs

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

sunk

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?

Electricity used to run its factories

Analogous estimates are called activity-based costing.

False

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

True

The project management plan and project funding requirements are inputs of the process of controlling costs.

True

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

False

Which method is used for determining the estimated annual costs and benefits for a project?

Cash flow analysis

Budgetary estimates are made even before a project is officially started.

True

Estimates should become more accurate as time progresses.

True

It is important for project managers to understand that every cost estimate is unique.

True

What is a rough order of magnitude estimate also referred to as?

ballpark

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

cost budgeting

Which statement best defines cost variance?

earned value minus the actual cost

What is the first step in project cost management?

plan how costs will be managed

What type of management includes the processes required to ensure that a project team completes a project within an approved budget?

project cost management

How are profits best defined?

revenues minus expenditures

What term is used for analogous estimates?

top-down

A budgetary estimate is the most accurate of the three types of estimates.

False

Analogous estimates are the most accurate technique to estimate costs.

False

Contingency reserves are also known as unknown unknowns.

False

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

False

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

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.

False

The primary output of the planning cost management process is a change request.

False

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

False

Which costs are difficult to measure in monetary terms?

Intangible costs

Which reserves allow for future situations that are unpredictable?

Management reserves

Which is most likely to be a reason for inaccuracies in information technology cost estimates?

People lack estimating experience.

Which statement is true of contingency reserves?

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

Which statement is true of analogous estimates?

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

Which statement is true of tangible costs?

They can be easily measured.

A schedule performance index of one means that the project is on schedule.

True

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

True

Project managers must conduct cash flow analysis to determine net present value.

True

Spreadsheets are a common tool for cost estimating, cost budgeting, and cost control.

True

The formulas for variances and indexes start with EV, the earned value.

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?

analogous estimates

What type of estimate is a cost estimation tool used to allocate money into an organization's budget?

budgetary

Work performance information and cost forecasts are main outputs of which process?

cost control

Which is an output of the process of controlling costs?

cost forecasts

What type of estimate is used for making many purchasing decisions for which accurate estimates are required and for estimating final project costs?

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?

definitive

Which process involves allocating the overall cost estimate to individual work items to establish a baseline for measuring performance?

determining the budget

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?

direct

Variances are calculated by subtracting the actual cost from which value?

earned value

Which statement is true regarding indirect costs?

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

What is another term used for budget?

planned value

Which is an input of the process of controlling costs?

work performance data

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

True

Definitive estimates are made one year or less prior to project completion.

True

Determining the budget involves allocating the project cost estimate to individual work items over time.

True

The main goal of which process is to produce a cost baseline for measuring project performance and project funding requirements?

cost budgeting

Which process helps develop an accurate projection of a project's financial expenses and benefits?

life cycle costing

What does the process of controlling costs primarily involve?

managing changes to the project budget

Parametric models are reliable when the models are flexible in terms of the project's size.

True

Supporting details for an estimate include the ground rules and assumptions used in creating the estimate.

True

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

parametric