Deck 4: Budgeting the Project

Question 1

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

Answer 1

False

Question 2

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

Answer 2

True

Question 3

Most organizations use top-down budgeting.

Answer 3

True

Question 4

Learning curve theory states that performance of labor per unit will improve by a percentage each time production increases by the same percentage.

Question 5

The project budget acts as a project control.

Question 6

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 7

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

Question 8

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

Question 9

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

Question 10

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

Question 11

Calculating the Tracking Signal can not only reveal if estimates are biased, it can also tell how severe the bias is.

Question 12

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

Question 13

Learning curve theory states that performance of labor per unit will improve by a fixed percentage each time production doubles.

Question 14

A budget is a plan for allocating resources.

Question 15

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

Question 16

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

Question 17

Expected value is a tool for risk analysis.

Question 18

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

Question 19

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

Question 20

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

Question 21

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 22

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

Question 23

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

Question 24

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

Question 25

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

Question 26

Random errors will tend to cancel out.

Question 27

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

Question 28

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

Question 29

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

Question 30

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

Question 31

Scenario analysis is not a popular technique for identifying risks.

Question 32

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

Question 33

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

Question 34

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

Question 35

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

Question 36

Learning curves can be used to help improve cost estimates.

Question 37

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

Question 38

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

Question 39

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

Question 40

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

Question 41

Contrast activity versus program budgeting.

Question 42

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 43

List the steps in performing FMEA.

Question 44

A requirement of top-down budgeting is:

A) involvement of the project team
B) estimating the detailed level of the project's tasks
C) applying the learning curve to labor time estimates
D) all of the above
E) none of the above

Question 45

What is the Game Theory approach?

Question 46

Define the term learning rate.

Question 47

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 48

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 49

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 50

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 51

Define Top-down and Bottom-Up budgeting.

Question 52

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 $100,000. What is the expected value of this project?

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

Question 53

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

Question 54

Which of the following is not true regarding bottom-up budgeting?

A) The method tends to be inaccurate in the detailed tasks.
B) The WBS is used to identify the elemental tasks.
C) It is rarely used.
D) It is a good managerial training technique.
E) All of the above are true concerning top-down budgeting.

Question 55

Reason for cost uncertainty in projects include;

A) Prices may escalate
B) Different resources may be required
C) The project may take a different amount of time than was expected
D) All of the following

Question 56

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 57

A problem with bottom-up budgeting is:

A) individual team members overstate their budget needs
B) lack of involvement from the project team
C) underestimating the project task's budget requirements
D) all of the above
E) none of the above

Question 58

Which of the following is not true regarding top-down budgeting?

A) It is based on the collective judgments of top and middle managers.
B) Overall project costs are estimated by top and middle managers and then passed on to the next lower level.
C) The overall budget cost is generally not very accurate.
D) Overlooking small but important tasks can lead to a serious budgetary problem.
E) All of the above are true concerning top-down budgeting.

Question 59

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

Question 60

Risk management includes what three areas?

Question 61

Explain how budget uncertainly changes as the project progresses.

Question 62

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

Question 63

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

Question 64

What are the key elements of contingency planning?