Deck 7: Project Cost Management

Question 1

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

Answer 1

True
Definitive estimates are made one year or less prior to project completion. They provide an accurate estimate of project costs.

Question 2

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

Answer 2

False
The main output of the planning cost management process process is a cost management plan. Planning cost management involves determining the policies, procedures, and documentation that will be used for planning, executing, and controlling project cost.

Question 3

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

Answer 3

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

Question 4

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

Question 5

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

Question 6

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

Question 7

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

Question 8

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 9

Intangible costs can be easily measured in monetary terms.

Question 10

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

Question 11

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

Question 12

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

Question 13

Estimates should become more accurate as time progresses.

Question 14

Analogous estimates are called activity-based costing.

Question 15

Contingency reserves are also known as unknown unknowns.

Question 16

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

Question 17

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

Question 18

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

Question 19

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

Question 20

Analogous estimates are the most accurate technique to estimate costs.

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

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 23

_____ 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 24

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

Question 25

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

Question 26

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

Question 27

Profits may be defined as:

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

Question 28

_____ 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 29

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

Question 30

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

Question 31

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 32

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

Question 33

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 34

_____ 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 35

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

Question 36

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 37

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

Question 38

_____ 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 39

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

Question 40

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 41

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 42

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 43

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 44

_____ 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 45

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 46

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 47

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 48

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 49

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

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

Question 50

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 51

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 52

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 53

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 54

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 55

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

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

Question 56

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 57

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 58

Analogous estimates are also known as _____ estimates.

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

Question 59

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 60

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 61

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 62

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 63

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 64

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 65

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 66

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 67

Project costs, like project schedules, grow out of the basic documents that initiate a project, like the _____.

Question 68

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

Question 69

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

Question 70

_____ are revenues minus expenditures.

Question 71

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

Question 72

Project managers must conduct cash flow analysis to determine _____.

Question 73

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 74

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 75

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

Question 76

Variances are calculated by subtracting the actual cost from _____.

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

Question 77

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

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

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

Question 80

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