Question 1

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

Accepted Answer

Top-down budgeting involves the budget being created by top-level management and then passed down through the organization. Middle managers are often involved in refining these budgets within their departments, but the initial direction and major decisions come from the top.

Question 2

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

Accepted Answer

Top-down budgeting involves assigning budgets to different departments or units without considering their actual needs or capabilities. This often leads to resistance and lack of ownership among the lower-level staff, resulting in poor acceptance of the budget. On the other hand, bottom-up budgeting involves involving the lower-level staff in the budgeting process, which enhances their buy-in and commitment to achieving the budget targets.

Question 3

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

Accepted Answer

Top-down budgeting can be suitable for projects with S-shaped life cycles, as it allows for budget allocation based on overall project milestones and phases, which are predictable in such life cycles.

Question 4

The result of game theory analysis is a Risk Priority Number.

Accepted Answer

Game theory analysis does not result in a Risk Priority Number. Game theory is used to analyze decision-making and strategies in situations with multiple stakeholders and potential outcomes. Risk Priority Number is a method used in risk assessment to prioritize potential risks based on likelihood, severity, and detectability.

Question 5

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

Accepted Answer

Bottom-up budgets involve breaking down tasks into smaller, more specific elements and estimating the cost and time required for each one. This approach can result in more accurate budgets because it considers all possible costs and includes detailed analysis of each task.

Question 6

Random errors will tend to cancel out.

Accepted Answer

Random errors are unpredictable and can either be positive or negative. When we take repeated measurements, the errors will tend to balance out with some measurements having a positive error and others having a negative error. As a result, the overall effect of the random errors will be reduced or canceled out.

Question 7

Qualitative risk analysis is not as important to a project's planning because there are not many qualitative concerns in project management.

Accepted Answer

Qualitative risk analysis is actually an important part of project planning as it helps to identify and prioritize potential risks based on their probability and impact. While quantitative risk analysis provides a more precise estimation of risk, qualitative risk analysis is essential in identifying risks that may not have clear numerical values or data available. Therefore, both qualitative and quantitative risk analysis are important for effective project management.

Question 8

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

Accepted Answer

Organizational culture can have a significant impact on how a firm approaches project budgeting. For example, a culture that values innovation and risk-taking may be more willing to allocate resources to experimental projects, while a more conservative culture may prioritize cost control and budget adherence. Additionally, a culture that values open communication and collaboration may be more likely to involve multiple stakeholders in the budgeting process, while a more hierarchical or siloed culture may restrict decision-making to a smaller group of individuals.

Question 9

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

Accepted Answer

The project budget is a financial expression of the project plan, which is based on the WBS. It represents the estimated costs of all the activities and resources required to complete the project successfully.

Question 10

Why is it necessary to consider the learning curve of resources on a project?
A) to estimate labor costs properly
B) to improve project team morale
C) because it always takes less time to do a task after someone has done it a few times
D) collective bargaining contracts require it
E) All of the above

Accepted Answer

The answer of Why is it necessary to consider the...

Question 11

Scenario analysis is not a popular technique for identifying risks.

Accepted Answer

Scenario analysis is a popular technique for identifying risks. It involves creating different hypothetical scenarios to identify and assess potential risks and their impact on the organization. By doing so, companies can gain a comprehensive understanding of the risks they face and develop effective risk management strategies.

Question 12

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

Accepted Answer

Accepting negative change and taking a loss on the project is not the best approach. The best approach is to have a change management plan in place to minimize the impact of change on the project and to adapt to the change in a way that ensures project success. This may involve adjusting timelines, budgets, or resources, and evaluating the risks and benefits of the change before making any decisions.

Question 13

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

Accepted Answer

The answer of A disaster is an event that may...

Question 14

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

Accepted Answer

This statement is generally false. Learning rates can vary depending on the individual and the specific task, regardless of whether it is physical or mental.

Question 15

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

Accepted Answer

The answer of With top-down budgeting, overlooking a small but...

Question 16

Learning curves can be used to help improve cost estimates.

Accepted Answer

Learning curves show the relationship between cumulative production quantity and the time required to produce each unit. By understanding this relationship, cost estimators can make more accurate predictions about labor and materials costs as production increases.

Question 17

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

Accepted Answer

Cost uncertainty typically decreases as a project progresses because more information becomes available, allowing for more accurate budgeting and forecasting.

Question 18

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

Accepted Answer

The PMBOK (Project Management Body of Knowledge) includes an entire knowledge area devoted to risk management, which covers processes for identifying, analyzing, responding to, and monitoring project risks. Therefore, the statement is false.

Question 19

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

Accepted Answer

Organizations can use both top-down and bottom-up budgeting depending on their specific needs and objectives. Top-down budgeting involves setting overall financial targets and then allocating resources to departments or teams, while bottom-up budgeting involves department or team leaders submitting their own budget proposals that are then consolidated into an overall budget. Both approaches have advantages and disadvantages, and organizations may use a combination of both to achieve the best results.

Question 20

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

Accepted Answer

Contingency planning should be done as a proactive measure, before any potential crises or financial troubles occur. It involves identifying potential risks and developing a plan of action to mitigate those risks in order to minimize negative impacts on the organization.

Quiz 4: Budgeting the Project

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