Chapter 7

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

True

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

True

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

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

True

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

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

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

budgetary

Accountants define _____ as a resource sacrificed or foregone to to achieve a specific objective.

cost

The _____ is the measure of work performed expressed in terms of the budget authorized for that work.

earned value (EV)

________ are a means of measuring software size based on what the software does for end users.

Function points

Which costs are difficult to measure in monetary terms?

Intangible costs

A(n) _____ is a time-phased budget that project managers use to measure and monitor cost performance.

cost baseline

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

cost budgeting

Which statement is true regarding indirect costs?

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

Project costs, like project schedules, grow out of the basic documents that initiate a project, like the _____.

project charter

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

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

True

The main outputs of the _____ process are activity cost estimates, basis of estimates, and project document updates.

74. The main outputs of the _____ process are activity cost estimates, basis of estimates, and project document updates.

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

Intangible costs can be easily measured in monetary terms.

False

Which is true of earned value?

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

_____ are revenues minus expenditures.

Profits

Which statement is true of tangible costs?

They can be easily measured.

In addition to providing input for budgetary estimates, the process of _____ provides a cost baseline.

cost budgeting

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

cost budgeting

The main outputs of the _____ process are a cost performance baseline, project funding requirements, and project document updates.

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?

definitive

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

Cash flow analysis

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

False

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

False

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

False

Analogous estimates are called activity-based costing.

False

Analogous estimates are the most accurate technique to estimate costs.

False

Contingency reserves are also known as unknown unknowns.

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

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 is true of the schedule performance index (SPI)?

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

Which statement is true of a order of magnitude estimate?

It provides an estimate of what a project will cost.

_____ theory states that when many items are produced repetitively, the unit cost of those items decreases in a regular pattern as more units are produced.

Learning curve

_____ costing considers the total cost of ownership, or development plus support costs, for a project.

Life cycle

_____ costing helps to see a big-picture view of the cost of a project throughout its life cycle.

Life cycle

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 bottom-up estimates?

They are time-intensive and expensive to develop.

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

True

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

True

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

True

Estimates should become more accurate as time progresses.

True

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

True

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

True

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

True

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

True

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

True

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

True

The cost incurred for the work performed on an activity during a specific time period is known as the _____.

actual cost (AC)

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

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

ballpark

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

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 best defines cost variance?

earned value minus the actual cost

Which statement best defines schedule variance?

earned value minus the planned value

The cost performance index can be used to calculate the _____ which gives an approximate cost of completing a project based on performance to date.

estimate at completion (EAC)

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

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

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

parametric

What is the first step in project cost management?

plan how costs will be managed

What is another term used for budget?

planned value

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

project cost management

A cost management plan is a subsidiary of the _____ plan.

project management

How are profits best defined?

revenues minus expenditures

What term is used for analogous estimates?

top-down

Which is an input of the process of controlling costs?

work performance data

In practice, many people find that using a combination or hybrid approach involving analogous, bottom up, and/or parametric modeling provides the best _____.

cost estimates

The main output of the planning cost management process is a(n) _____.

cost management plan

The _____ index is the ratio of earned value to planned value.

schedule performance

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?

sunk

_____ is a project performance measurement technique that integrates scope, time, and cost data.

Earned value management (EVM)

A(n) _____ estimate is done very early in a project or even before a project is officially started.

rough order of magnitude (ROM)

The time frame for a(n) _____ estimate is often three or more years prior to project completion.

rough order of magnitude (ROM)

Project managers must conduct cash flow analysis to determine _____.

net present value

The additional percentage or dollar amount by which actual costs exceed estimates is known as a(n) _____.

overrun