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

Accepted Answer

If a project budget is under funded, it will often frustrate committed stakeholders as they will have to make compromises and sacrifices in order to complete the project within the limited funds available. It may also result in delays or reduced quality of work. While it may stimulate increased performance and better utilization of resources, this is not guaranteed and will depend on the specific circumstances of the project. It is less likely to reduce costs, as the lack of funding may actually result in additional costs in terms of delays or rework.

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

Accepted Answer

To develop a budget, the PM must forecast all of the above, including the resources required, when the resources will be needed, and the cost of resources. Only by forecasting all of these factors can the PM create an accurate budget that will allow the project to be completed successfully.

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

Accepted Answer

The learning rate should be factored into the cost estimate if the project includes repetitive tasks with significant human input. The learning rate accounts for the decrease in time and effort required to complete a task as an individual or team gains experience and knowledge. Therefore, factoring in the learning rate can impact the overall cost and timeline of the project.

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

Accepted Answer

When a project budget is overfunded, it tends to produce waste due to unnecessary spending and encourage slack management because there is less pressure to efficiently allocate resources.

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

Accepted Answer

The pattern of deviations in cost and usage used for exception reporting to management is called variances. Simulations refer to the process of creating a model to imitate a real-world process or system. Assumptions are accepted as true without proof or demonstration. Summaries are brief statements that present the main points or a condensed version of information.

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

Accepted Answer

The budget process typically begins when top management invites each division to submit a budget request for the upcoming year. This request will include estimates for revenue, expenses, and capital expenditure. Predictive budget, budget estimate, and predictive request are not commonly used terms in budgeting process.

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

Accepted Answer

A work element whose cost is fully developed would include not only the direct costs (such as labor and resources) but also the indirect costs (overhead and general and administrative charges) that are associated with performing the work.

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

Accepted Answer

Overhead costs are not associated with any specific product or class of products and are typically charged as a fixed percentage of some direct cost. General and administrative costs are specific to the management and administrative functions of a business, while direct costs are specific to the production and distribution of a product. Indirect costs refer to expenses incurred that are not directly related to the production or distribution of a product.

Question 9

The traditional organizational budget is __________.
A)category-oriented
B)project-oriented
C)program-oriented
D)project-oriented or program-oriented

Accepted Answer

Traditional organizational budgets are typically category-oriented, meaning they are broken down by functional area or department (e.g. marketing, finance, operations).

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

Accepted Answer

The project's budget should associate resource use with the achievement of organizational goals. This means that the budget should be linked to specific project goals and the resources needed to meet those goals. This ensures that funds are being used effectively and efficiently towards achieving the desired outcomes. The budget should also be regularly reviewed and adjusted as necessary during project execution to ensure that resources are being used appropriately. Option B is incorrect as funds should not be spent without a clear link to achievement, option C is incorrect as the timing of expenses is important to ensure resources are available at the right time, and option D is incorrect as budgets may need to be adjusted during execution to reflect changing circumstances.

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

Accepted Answer

Monte Carlo simulations involve modifying project parameters and evaluating the impact on project outcomes, which is a method of risk analysis. Risk mitigation involves developing strategies to reduce or avoid risk. Project budgeting is the process of allocating resources for project activities. Therefore, the best answer is A, Monte Carlo simulations.

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

Accepted Answer

All of the options (scope creep, optimistic cost estimates, and unawareness of costs) can contribute to project cost overruns, so the best choice is D.

Question 13

__________ costs vary with output.
A)General and administrative
B)Overhead
C)Direct
D)Indirect

Accepted Answer

Direct costs are those that vary with output, meaning as the level of production increases or decreases, so does the cost. Examples of direct costs are raw materials, labor, and production supplies. General and administrative costs, overhead costs, and indirect costs may or may not vary with output.

Question 14

__________ budgeting allows income and expenditures to be aggregated across projects.
A)Category-oriented
B)Activity-oriented
C)Project-oriented
D)Expense-oriented

Accepted Answer

Project-oriented budgeting allows income and expenditures to be aggregated across projects, which means that budgeting is done on a project-by-project basis rather than on a category or activity basis. This allows for a more detailed analysis of the budget and provides better insight into the financial status of each project.

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

Accepted Answer

Bottom-up budgeting involves collecting estimates from individuals closer to the work, which makes it more accurate and reliable. Top-down budgeting is based on senior management's estimates, which may not reflect the true resource requirements. Work element costing involves breaking down the project into smaller work elements and estimating the resources needed for each one. Iterative budgeting involves revising the budget over several iterations, which may not be feasible in all situations.

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.

Accepted Answer

The budget is an important expression of organizational policy as it reflects the financial goals and constraints of the organization. So, the statement that is not correct is B.

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

Accepted Answer

Research indicates that senior managers tend to have a bias towards underestimating costs, which can lead to unrealistic expectations and potential project failure. Lower level managers and project team members are more likely to have a realistic understanding of the costs and resources required for a project.

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

Accepted Answer

Project budgeting aggregates income and expenditures by project or program, allowing for more detailed analysis and control of project finances. This is different from activity-based budgeting, which aggregates income and expenditures by specific activities or tasks within an organization. Capital budgeting focuses on long-term investments in fixed assets, while operational budgeting focuses on day-to-day expenses and revenue.

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

Accepted Answer

The authors identify random and systematic estimation errors as the two types of generic estimation errors. Random estimation errors are unpredictable and do not have a consistent direction, while systematic estimation errors are consistent and can be caused by factors such as bias or measurement inaccuracies.

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

Accepted Answer

The accounting system of the firm is essential for budget control as it provides information on expenditures, income, and financial status. The project manager needs to be familiar with how expenses are recorded, the budgeting process, and financial reports to effectively manage the budget. Without this understanding, budget control will be challenging.

Quiz 7: Budgeting and Cost Estimation

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

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

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

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

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

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

A work element whose cost is fully developed would __________.

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

The traditional organizational budget is __________.

The project's budget should __________.

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

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

__________ costs vary with output.

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

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

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

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

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

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

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