Deck 7: Project Cost Management

Question 1

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

Answer 1

True
Explanation: Management reserves allow for future situations that are unpredictable. For example, if a project manager gets sick for two weeks or an important supplier goes out of business, management reserves could be set aside to cover the resulting costs.

Question 2

 Estimates should become more accurate as time progresses.

Answer 2

True
Explanation: Estimates are usually done at various stages of a project and should become more accurate as time progresses.

Question 3

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

Answer 3

True
Explanation: The size of the individual work items and the experience of the estimators drive the accuracy of the estimates. Using smaller work items increases the accuracy of the cost estimate because the people assigned to do the work develop the cost estimate instead of someone unfamiliar with the work.

Question 4

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

Question 5

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

Question 6

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

Question 7

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

Question 8

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

Question 9

 Contingency reserves are also known as unknown unknowns.

Question 10

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

Question 11

 Intangible costs can be easily measured in monetary terms.

Question 12

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

Question 13

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

Question 14

 Analogous estimates are the most accurate technique to estimate costs.

Question 15

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

Question 16

 Analogous estimates are called activity-based costing.

Question 17

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

Question 18

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

Question 19

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

Question 20

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

Question 21

 Which statement is true of tangible costs?

A) They cannot be calculated in monetary terms.
B) They can be easily measured.
C) They are difficult to quantify.
D) Their examples include goodwill and prestige.

Question 22

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

A) critical path analysis
B) fast tracking
C) life cycle costing
D) crashing

Question 23

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

A) determining the budget
B) finalizing policies for project costs
C) controlling costs
D) estimating costs

Question 24

 What does the process of controlling costs primarily involve?

A) determining the policies for project costs
B) managing changes to the project budget
C) finalising the procedures for project costs
D) determining a basis for estimates

Question 25

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

A) Critical path analysis
B) Cash flow analysis
C) Present value analysis
D) Requirements analysis

Question 26

 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.

Question 27

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

Question 28

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

Question 29

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

Question 30

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

A) project scope management
B) project quality management
C) project time management
D) project cost management

Question 31

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

Question 32

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

Question 33

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

Question 34

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

Question 35

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

A) cost controlling
B) cost estimating
C) cost budgeting
D) cost planning

Question 36

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

A) determining the budget
B) finalising the cost baseline
C) controlling costs
D) estimating costs

Question 37

 How are profits best defined?

A) expenses plus net income
B) costs plus revenues
C) revenues plus expenses
D) revenues minus expenditures

Question 38

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

Question 39

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

A) cost budgeting
B) cost estimating
C) cost control
D) cost pricing

Question 40

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

Question 41

 Which costs are difficult to measure in monetary terms?

A) Intangible costs
B) Direct costs
C) Tangible costs
D) Fixed costs

Question 42

 Which type of estimate uses the actual cost of a previous, similar project as the basis for estimating the cost of the current project?

A) definitive estimates
B) parametric estimates
C) bottom-up estimates
D) analogous estimates

Question 43

 Which statement is true of contingency reserves?

A) They allow for future situations that can be partially planned for.
B) They are also known as unknown unknowns.
C) They are not included in a cost baseline.
D) They allow for dollar amounts to be used to cover existing, fixed costs.

Question 44

 Which statement is true of a order of magnitude estimate?

A) It is used to allocate money into an organization's budget.
B) It provides an estimate of what a project will cost.
C) Its timeframe is always less than a year prior to project completion.
D) It is a type of estimate that is done in the final stages of a project.

Question 45

 Which reserves allow for future situations that are unpredictable?

A) Contingency reserves
B) Management reserves
C) Known unknowns
D) Cost baseline reserves

Question 46

 Which type of estimate should be used if the cost estimate for a project is used a basis for contract awards and performance reporting?

A) budgetary
B) definitive
C) rough order of magnitude
D) analogous

Question 47

 What is the first step in project cost management?

A) allocate project cost estimates to individual material resources
B) plan how costs will be managed
C) control project costs and monitor cost performance
D) develop several estimates of costs for different types of resources

Question 48

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

A) budgetary
B) definitive
C) rough order of magnitude
D) final

Question 49

 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?

A) direct
B) indirect
C) sunk
D) intangible

Question 50

 Which statement is true of bottom-up estimates?

A) They are based on the actual cost of a previous, similar project.
B) They are also known as parametric estimating.
C) They are most accurate when they involve large, extensive work items.
D) They are time-intensive and expensive to develop.

Question 51

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

A) budgetary
B) definitive
C) rough order of magnitude
D) ballpark

Question 52

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

A) Estimates take a long time to be worked out.
B) People lack estimating experience.
C) Human beings are biased toward overestimation.
D) Only software development provides the scope for estimates to be accurate.

Question 53

 Which statement is true regarding indirect costs?

A) directly related to performing the project.
B) those that cannot be allocated to projects.
C) those that can be easily controlled by managers.
D) not directly related to the products or services of a project.

Question 54

 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?

A) budgetary
B) parametric
C) bottom-up
D) analogous

Question 55

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

A) definitive
B) budgetary
C) final
D) ballpark

Question 56

 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?

A) Cost of machines to produce shoes
B) Salary paid to factory workers
C) Electricity used to run its factories
D) Cost of leather used to manufacture shoes

Question 57

 Which statement is true of analogous estimates?

A) Their main disadvantage is that they cost more than other techniques.
B) They are the only technique which do not require expert judgement.
C) They are most reliable when previous projects are similar in fact with current projects.
D) They use project characteristics in a mathematical model to estimate project costs.

Question 58

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

A) rough order of magnitude estimating
B) parametric
C) bottom-up 
D) analogous

Question 59

 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?

A) recurring
B) direct
C) sunk
D) intangible

Question 60

 What term is used for analogous estimates?

A) bottom-up
B) top-down
C) parametric
D) budgetary

Question 61

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

Question 62

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

A) It can be used to estimate the projected time to complete the project.
B) It means that a project is behind schedule if an SPI is greater than one.
C) It means that a project is ahead of schedule if SPI is lesser than one or hundred percent.
D) It is the ratio of planned value to actual costs.

Question 63

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

Question 64

 Which statement best defines cost variance?

A) planned value plus actual costs
B) earned value minus the actual cost
C) rate of performance minus earned value
D) planned value minus the rate of performance

Question 65

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

A) cost budgeting
B) cost planning
C) cost controlling
D) cost estimating

Question 66

 _____ 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.

Question 67

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

A) indicate that a project is under budget if CPI is less than one
B) estimate the projected cost of completing the project
C) indicate that the planned and actual costs are equal if CPI is more than one
D) estimate the ratio of earned value to planned value

Question 68

 What is another term used for budget?

A) earned value
B) actual cost
C) indirect cost
D) planned value

Question 69

 _____ are revenues minus expenditures.

Question 70

 Which is an input of the process of controlling costs?

A) cost forecasts
B) work performance data
C) change requests
D) scope baseline

Question 71

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

Question 72

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

Question 73

 Which is true of earned value?

A) It is the actual cost plus the planned cost.
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 also known as the planned value.

Question 74

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

Question 75

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

A) earned value
B) schedule variance
C) planned value
D) rate of performance

Question 76

 Project managers must conduct cash flow analysis to determine _____.

Question 77

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

Question 78

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

Question 79

 Which statement best defines schedule variance?

A) earned value minus the planned value
B) earned value minus the actual cost
C) planned value plus the earned value
D) planned value plus the rate of performance

Question 80

 Which is an output of the process of controlling costs?

A) cost forecasts
B) project funding requirements
C) basis of estimates
D) scope baselines