Deck 7: Project Cost Management

Question 1

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

Answer 1

True
Explanation: Cash flow analysis is a method of determining the estimated annual costs and benefits for a project and the resulting annual cash flow. Project managers must conduct cash flow analysis to determine net present value.

Question 2

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

Answer 2

False
Explanation: Direct costs can be directly related to creating the products and services of the project. Project managers should focus on direct costs because they can be controlled.

Question 3

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

Answer 3

False
Explanation: A definitive estimate provides an accurate estimate of project costs. It provides details for purchases and estimates actual costs.

Question 4

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

Question 5

Analogous estimates are the most accurate technique to estimate costs.

Question 6

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

Question 7

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

Question 8

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

Question 9

Contingency reserves are also known as unknown unknowns.

Question 10

Intangible costs can be easily measured in monetary terms.

Question 11

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

Question 12

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

Question 13

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

Question 14

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

Question 15

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

Question 16

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

Question 17

Estimates should become more accurate as time progresses.

Question 18

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

Question 19

Analogous estimates are called activity-based costing.

Question 20

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

Question 21

Which of the following 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

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

Question 23

Which of the following 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 24

Profits may be defined as:

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

Question 25

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

Question 26

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

Question 27

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

Question 28

One of the main outputs of the _____ process is a cost baseline.

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

Question 29

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

Question 30

_____ 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 31

_____ involves allocating the overall cost estimate to individual work items to establish a baseline for measuring performance.

A)Determining the budget
B)Finalising policies for project costs  
C)Controlling costs
D)Estimating costs

Question 32

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

Question 33

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

Question 34

The process of controlling costs primarily involves:

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 35

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

Question 36

_____ is a method 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 37

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

Question 38

Work performance information and cost forecasts are main outputs of the _____ process.

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

Question 39

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 40

_____ 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 41

Indirect costs are:

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 42

Which of the following is true of a rough 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 43

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 of the following 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 44

Which of the following 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 45

Which of the following reserves allows for future situations that are unpredictable?

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

Question 46

Which of the following 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 47

A _____ 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 48

Analogous estimates are also known as _____ estimates.

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

Question 49

The first step in project cost management is:

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

Question 50

Which of the following 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 51

_____ uses project characteristics in a mathematical model to estimate project costs.

A)Rough order of magnitude estimating
B)Parametric estimating  
C)Bottom-up estimating
D)Analogous estimating

Question 52

If the cost estimate for a project is a basis for contract awards and performance reporting, it should be a(n) _____ estimate and as accurate as possible.

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

Question 53

Which of the following 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 54

_____ are those costs that are difficult to measure in monetary terms.

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

Question 55

A cost estimation tool which involves estimating individual work items or activities and summing them to get a project total is known as a(n) _____ estimate.

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

Question 56

Which of the following types of estimate use 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 57

A cost estimation tool which is used to allocate money into an organization's budget is known as a _____ estimate.

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

Question 58

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 _____ costs.

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

Question 59

A rough order of magnitude estimate can be referred to as a _____ estimate.

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

Question 60

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 _____ costs.

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

Question 61

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

Question 62

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

Question 63

The _____ 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 64

Project managers must conduct cash flow analysis to determine _____.

Question 65

Schedule variance is:

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

Question 66

Cost variance is:

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

Question 67

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

Question 68

_____ are revenues minus expenditures.

Question 69

The budget is one of the three values of earned value management and is also known as _____.

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

Question 70

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

Question 71

Which of the following 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 72

Variances are calculated by subtracting the actual cost from _____.

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

Question 73

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

Question 74

The cost performance index (CPI):

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

Question 75

Which of the following is an output of the process of controlling costs?

A)Cost forecasts
B)Project funding requirements  
C)Basis of estimates
D)Scope baselines

Question 76

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

Question 77

Which of the following is an input of the process of controlling costs?

A)Cost forecasts
B)Work performance data  
C)Change requests
D)Scope baseline

Question 78

Which of the following 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 79

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

Question 80

The main goal of the _____ 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