Deck 7: Budgeting and Cost Estimation

Question 1

If a project budget is under funded, it will often __________.

A)stimulate increased performance
B)improve utilization of resources
C)frustrate committed stakeholders
D)reduce costs

Answer 1

C

Question 2

In order to develop a budget, the PM must forecast __________.

A)the resources required
B)when resources will be needed
C)the cost of resources
D)All of the above

Answer 2

D

Question 3

If projects include repetitive tasks with significant human input, the __________ rate should be factored into the cost estimate.

A)inflation
B)hurdle
C)interest
D)learning

Answer 3

D

Question 4

If a project budget is over funded, it will often __________.

A)produce waste
B)encourage slack management
C)improve morale
D)produce waste and encourage slack management

Question 5

The pattern of deviations in cost and usage used for exception reporting to management is called __________.

A)simulations
B)assumptions
C)variances
D)summaries

Question 6

The budget process generally begins when the top management invites each division to submit a__________ for the upcoming year.

A)budget request
B)predictive budget
C)budget estimate
D)predictive request

Question 7

A work element whose cost is fully developed would __________.

A)exclude the cost of labor and resources
B)include only the profit and direct costs
C)exclude the cost of special machinery and overheads
D)include direct costs plus overhead and G&A charges

Question 8

___________ costs are not associated with any specific product or class of products and are typically charged as a fixed percentage of some direct cost.

A)General and administrative
B)Overhead
C)Direct
D)Indirect

Question 9

The traditional organizational budget is __________.

A)category-oriented
B)project-oriented
C)program-oriented
D)project-oriented or program-oriented

Question 10

The project's budget should __________.

A)associate resource use with the achievement of organizational goals
B)allow funds to be spent without linkage to achievement
C)not reflect the timing of expenses associated with the use of resources
D)never be changed during project execution

Question 11

An easy method of evaluating risk in certain situations by modifying project parameters and evaluating the corresponding changes is __________.

A)Monte Carlo simulations
B)risk mitigation
C)project budgeting
D)risk analysis

Question 12

A possible reason for the poor record of project cost overruns is __________.

A)scope creep
B)project managers use optimistic cost estimates
C)project managers are unaware of some costs
D)all of the above

Question 13

__________ costs vary with output.

A)General and administrative
B)Overhead
C)Direct
D)Indirect

Question 14

__________ budgeting allows income and expenditures to be aggregated across projects.

A)Category-oriented
B)Activity-oriented
C)Project-oriented
D)Expense-oriented

Question 15

The __________ form of budgeting has the advantage of using individuals closer to the work to provide estimates of resource requirements.

A)top-down budgeting
B)work element costing
C)bottom-up budgeting
D)iterative budgeting

Question 16

Identify the statement that is not correct regarding a project budget.

A)The budget is included in a project plan.
B)The budget is not an expression of organizational policy.
C)The budget serves as a control mechanism for the project.
D)The budget serves as a standard for comparison of planned and actual usage of resources.

Question 17

Research suggests that lower level managers and project team members believe that senior managers have a strong bias towards __________ cost.

A)over estimating
B)justifying
C)explaining
D)under estimating

Question 18

__________ budgeting aggregates income and expenditures by project or program, often in addition to aggregation by organizational unit or activity.

A)Activity based
B)Capital
C)Operational
D)Project

Question 19

The authors identify __________ estimation errors as the two types of generic estimation errors.

A)small and large
B)random and planned
C)certain and uncertain
D)random and systematic

Question 20

Unless the project manager is familiar with the firm's __________ it will be very difficult to exercise budget control.

A)accounting system
B)budget plans
C)marketing procedures
D)cost accounting

Question 21

Suppose that a person requires eight hours to complete a work element on the first attempt. That person has a learning rate of 90 percent for this work element. This person should require __________ hours to complete this work element on the fourth attempt.

Question 22

The __________ charge is composed of the costs of senior management, the various data functions, and any other expenses not included in overhead. Often, these charges are a fixed percentage of either the direct costs or the total of all direct and indirect costs.

Question 23

A work element in the project plan requires 50 hours of labor each by four carpenters. The carpenters are paid $15 per hour and incur an overhead rate equal to 80 percent of their direct labor charges. Based on this data, the appropriate cost is __________.

Question 24

Explain why senior managers view the bottom-up budgeting process as being risky.

Question 25

Describe the bottom-up budgeting process.

Question 26

A budget strategy that is based on collecting the judgments and experiences of top and middle managers is referred to as the __________.

Question 27

Suggests some reasons why an organization would support projects that show a significant incremental profit over direct costs but are not profitable when costs fully accounted for.

Question 28

__________ states that adding manpower to a late software project makes it later.

Question 29

The pattern of constraints in a budget embodies organizational __________.

Question 30

Each time the output doubles, the worker hours per unit decrease to a fixed percentage of their previous value. That percentage is called the __________ rate.

Question 31

Using the data from problem 31, the appropriate cost is __________ if the carpenters consume 10 percent of the workday performing personal activities.

Question 32

The determination of costs for a new process should utilize a __________, or operations sequence sheet which describes the operation in which the new process would be used.

Question 33

A __________ is a plan for allocating resources. The allocation of resources indicates the degree to which different activities of an organization are fully supported.

Question 34

You have been asked to estimate the costs for a project to build an industrial power plant. Based on historical data, the steam turbine accounts for 30 percent of the total costs for the plant. If the steam turbine costs $300,000, the expected top-down estimated cost for this project would be __________.

Question 35

Identify some of the common problems faced by the project budgeter.

Question 36

__________ relies on well-known statistical correlations between various factors such as the total cost of a house relative to the square feet of living area.

Question 37

Suggest some reasons why the authors insist that the project manager must be familiar with the organization's accounting system.

Question 38

Describe the top-down budgeting process.

Question 39

Given a project salary cost of $400,000 per year and forecasted wage increases of 5 percent per year, calculate the nondiscounted total salary cost over a three-year project lifecycle.

Question 40

Suppose that a person requires 60 minutes to complete a work element on the first attempt. On the second attempt, the work element is completed in 48 minutes. The learning rate for this person is __________% for this work element.