Deck 4: Budgeting the Project

Question 1

Project budget is nothing more than the project plan, based on the WBS, expressed in monetary terms.

Answer 1

True

Question 2

A budget is a plan for allocating resources.

Answer 2

True

Question 3

The project manager recognizes an expense when an invoice is actually paid.

Answer 3

False

Question 4

Organizations can use both top-down and bottom-up budgeting.

Question 5

Bottom-up budgets are usually more accurate in the detailed tasks.

Question 6

Most organizations use top-down budgeting.

Question 7

For projects with S-shaped life cycles, top-down budgeting is most likely unacceptable.

Question 8

Individual elements of project budgets are generally more accurate in bottom-up budgeting.

Question 9

Budget cuts are usually disastrous to an exponential life-cycle project.

Question 10

Organizational tradition has little or no impact on the firm's project budgeting.

Question 11

Top-down budgeting typically results in better acceptance of the budget.

Question 12

Overhead and indirect charges should not be assigned to a project.

Question 13

With top-down budgeting, overlooking a small but important task can often cause a serious budgetary problem.

Question 14

A key advantage of top-down budgeting is that the overall budget costs can be estimated quite accurately.

Question 15

Budgeting a project is often more difficult than budgeting routine activities.

Question 16

Because project budgeting is for a special case and the organization's budgeting process is for routine work, the project manager need not be familiar with the organization's accounting system.

Question 17

The project's budget is merely the sum of its resource costs.

Question 18

Activity budgets show expenses by task and expected time period of the expenditure.

Question 19

A budget is a plan for allocating resources to project activities.

Question 20

The project budget acts as a project control.

Question 21

The best approach to handling change in projects is to accept the negative change and take a loss on the project.

Question 22

Mechanical tasks typically have higher learning rates than more mental tasks.

Question 23

The budgeting approach based on the collective judgments of top and middle managers is called:

A) top-down budgeting
B) bottom-up budgeting
C) activity budgeting
D) program budgeting
E) life cycle budgeting

Question 24

Direct resource costs such as for materials and machinery needed solely for a particular project are usually charged to the project without an overhead add-on.

Question 25

By very careful planning, a project manager can do away with cost uncertainty.

Question 26

The more difficult the task, the higher the learning rate.

Question 27

As a project unfolds, the cost uncertainty increases as the project moves towards completion.

Question 28

Mathematically, the learning curve can be expressed as Tn=T1×nr.

Question 29

A disaster is an event that may have an extraordinarily high cost if it occurs, but has a very low probability of occurring.

Question 30

The PMI does not devote much coverage to risk management in the PMBOK

Question 31

IT projects tend to have the highest record for meeting their goals of all major project types.

Question 32

According to the Oxford Review of Economic Policy, a study of 258 projects in 20 countries showed that projects are rarely over budget if they are well managed.

Question 33

Traditional organizational budgets are task-oriented, rather than activity-oriented.

Question 34

There is no way other than guessing to estimate the impact of learning on a project's task.

Question 35

Overhead and GS&A are rarely an issue when a project runs late.

Question 36

Expected value is a tool for risk analysis.

Question 37

For projects with S-shaped life cycles, the top-down budgeting process is never acceptable.

Question 38

Contingency planning is generally begun at that point in time when an organization finds itself in serious financial trouble.

Question 39

Boston's Big Dig highway/tunnel project is one of the few large construction projects to be finished both on time and under budget.

Question 40

The learning curve states that each time the output doubles, the worker hours per unit increase by a fixed percentage of their previous value.

Question 41

The name given to the budget process that aggregates income and expenditures across projects is:

A) activity-oriented budget
B) top-down budget
C) bottom-up budget
D) program-oriented budget
E) activity-based costing

Question 42

After major risk are identified which of the following data should NOT be obtained for analysis

A) probability of each risk occurring
B) Range or distribution of possible outcomes
C) probability of each outcome
D) the expected time of each outcome
E) the person responsible for each outcome

Question 43

Susan, a project manager, uses a work breakdown structure to list the elemental tasks of a project. She then asks the team members responsible for each of these tasks to give her an estimate of the cost required to accomplish each task. Next, she adds indirect costs such as administrative costs and a reserve for contingencies to the total task cost and files her budget with the accounting department. In this scenario, Susan is using _____.

A) top-down budgeting
B) bottom-up budgeting
C) agile project budgeting
D) dynamic matrix budgeting
E) lateral budgeting

Question 44

Devon, a project manager, is working on a software development project. He needs more coders to complete the project on time. As a result, he hires people and they are given on-the-job training by their coworkers. However, this significantly reduces the output of the team and leads to a delay in the project. The given scenario exemplifies:

A) integration management.
B) systems engineering.
C) the mythical man-month effect.
D) the boomerang effect.
E) the sleeper effect.

Question 45

Which of the following statements is not true about a firm and its project accounting?

A) each firm has its own rules with regard to the allocation of overhead
B) most firms must comply with the Sarbanes-Oxley Act
C) the project manager must rely on the accounting department to make special allowances for his/her project
D) most firms have their own accounting idiosyncrasies
E) unexpected charges may suddenly appear when the PM least expects it

Question 46

Which of the following is not a typical view of cost?

A) A commitment to pay someone for resources or services.
B) An expense when an invoice is received.
C) When an invoice is posted.
D) When the invoice is paid.

Question 47

A task is expected to take 20 hours of labor at $25 per hour. The required material cost is $500 and the organization charges 30% of direct labor for overhead. The total task cost is:

A) $500
B) $1,150
C) $1,250
D) $1,300
E) $1,500

Question 48

Victor, a project manager, is constructing a budget for a project to construct a house. He estimates that the materials will cost $100,000 and the project will require 15 people working 6 hours a day to ensure timely completion. He estimates the cost of labor at $15 per hour. Additional costs, safety equipment, and overheads are marked at a rate of 50 percent of direct labor. In this scenario, the total cost of the project will be _____.

A) $120,000
B) $102,025
C) $100,090
D) $100,900
E) $110,510

Question 49

Sean, a project manager, has to prepare the budget for a new project. He estimates the overall project cost by estimating the costs of the major tasks. He then gives these estimates to Raphael, an engineer who works under Sean, to split up the costs for each of the activities involved in accomplishing the major tasks. In this scenario, Sean is using _____.

A) top-down budgeting
B) bottom-up budgeting
C) agile project budgeting
D) dynamic matrix budgeting
E) lateral budgeting

Question 50

The first unit requires 10 hours to complete. If the industry uses an 80 percent learning rate, how long should the third unit take?

A) 10 hours
B) 9 hours
C) 8 hours
D) 7.02 hours
E) 6.40 hours

Question 51

There is a 30 percent chance that a new product development project will result in sales of $500,000 and a 70 percent chance that the project will result in sales of $100,0What is the expected value of this project?

A) $220,000
B) $240,000
C) $300,000
D) $320,000
E) $340,000

Question 52

Samuel, a project manager, and Martha, his subordinate, are working on a project. In the budgeting phase, Samuel is responsible for estimating the costs for Level 1 tasks and Martha is responsible for estimating the costs for Level 2 tasks. While collating the data, Samuel finds that the total estimated cost for Level 1 tasks is much lower than the total estimated cost for Level 2 tasks. Which of the following is a reason for this discrepancy?

A) Subordinates tend to have more experience than higher management in allocating costs.
B) Project managers are naturally pessimistic and want to build in protection for everything that might possibly go wrong.
C) Subordinates are usually optimistic and never admit that details have been forgotten or that anything can or will go wrong.
D) Jobs always look easier, faster, and cheaper to the project manager than to the subordinates who have to do them.
E) Project managers and subordinates are often dishonest in their estimations.

Question 53

There are three basic causes for change in projects and their budgets and/or schedules. Which of the following is not one of these?

A) Errors the cost estimator made about how to achieve the tasks identified in the project plan.
B) Inflation causes significant changes to the cost of labor and/or materials.
C) The project team or client learns more about the nature of the scope of the project or the setting in which it is to be used.
D) A new law is passed, a trade association sets a new standard, a governmental regulatory agency adopts a new policy.

Question 54

Stefan, a project manager in a publishing company, has undertaken a project to translate a book in French into English and to sell a million copies. He estimates that the cost of the materials will be $6000 and the project will require 30 hours of labor at $50 per hour. If the overheads for the project are estimated at a rate of 50 percent of the labor costs, the total cost of the project will be:

A) $1080.
B) $1,500.
C) $4,500.
D) $7,800.
E) $8,250.

Question 55

Pogmon Solutions, a computer manufacturer, is introducing a new product-a high-end gaming laptop. Its technicians take 21 hours to produce the first unit of the laptop, and the company follows a 78 percent learning curve. Given this information, the eighth unit of the laptop would approximately require _____.

A) 8 hours
B) 6 hours
C) 5 hours
D) 10 hours
E) 2 hours

Question 56

Rachel, a project manager, has undertaken a project to build a wall around a compound. She estimates that the cost of materials will be $520 and labor costs will be $10 for 20 hours. If the overheads for this project are 50 percent of the labor and material costs, the total cost will be:

A) $1080.
B) $1,560.
C) $880.
D) $780.
E) $960.

Question 57

Victoria, an artisan who produces handcrafted furniture, has to carve six ornate chairs to go around a table. It takes her 10 hours to complete the first chair. She estimates that her learning rate is 80 percent. Given this information, Victoria should be able to make the second chair in _____.

A) 8 hours
B) 6.3 hours
C) 5.12 hours
D) 3 hours
E) 2.12 hours

Question 58

Define top-down and bottom-up budgeting.

Question 59

William, a project manager, needs to prepare the budget for a new software development project. To do so, he takes inputs from other managers who have worked on similar projects in the past. After estimating the overall project cost, he gives the estimates to his team members so that they can split up the cost of each individual task involved in producing the required deliverable. In this scenario, William is using _____.

A) top-down budgeting
B) bottom-up budgeting
C) agile project budgeting
D) dynamic matrix budgeting
E) lateral budgeting

Question 60

The first unit required 6 hours. If the industry uses a 90 percent learning rate, how long should the fourth unit take?

A) 6 hours
B) 4.86 hours
C) 3.75 hours
D) 3.34 hours
E) 2.67 hours

Question 61

Briefly explain how learning curves can help improve the cost estimating process.

Question 62

Explain how uncertainty regarding the budget changes as a project progresses.

Question 63

Explain how you would use the shape of a project's life cycle to resolve budget conflicts between a superior and subordinate.

Question 64

Define the term learning rate.

Question 65

Briefly contrast the three different perspectives cost can be viewed from.

Question 66

How can you handle changes in the project budget?

Question 67

Contrast between activity budgeting and program budgeting.

Question 68

Explain the concept of Brook's "mythical man month."

Question 69

Risk management includes what three areas?