Deck 7: Budgeting and Cost Estimation

Question 1

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

A)Category-oriented
B)Activity-oriented
C)Project-oriented
D)Expense-oriented

Answer 1

C

Question 2

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

Answer 2

D

Question 3

___________ 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

Answer 3

B

Question 4

__________ costs vary with output.

A)General and administrative
B)Overhead
C)Direct
D)Indirect

Question 5

If a project budget is underfunded,it will often __________.

A)stimulate increased performance
B)improve utilization of resources
C)frustrate committed stakeholders
D)reduce costs

Question 6

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

Question 7

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

Question 8

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

Question 9

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

Question 10

A __________ is a plan for allocating resources.The allocation of resources indicates the degree to which different activities of an organization are supported fully.

A)budget
B)direct cost
C)management plan
D)allocation effort

Question 11

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 biased

Question 12

The traditional organizational budget is __________.

A)category-oriented
B)project-oriented
C)program-oriented
D)project-oriented or program-oriented

Question 13

The pattern of constraints in a budget embodies organizational __________.

A)policy
B)effort
C)human resource management
D)risk management

Question 14

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

A)simulations
B)assumptions
C)variances
D)summaries

Question 15

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.

Question 16

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

Question 17

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

Question 18

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

Question 19

__________ 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

Question 20

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

Question 21

Describe the top-down budgeting process.

Question 22

A work element in the project plan requires 50 hours of labor each by four carpenters.The carpenters are paid $15 per hour and incur an overhead rate equal to 80 percent of their direct labor charges.Based on this data,the appropriate total cost is __________.

A)$2,400
B)$3,000
C)$5,400
D)$4,600

Question 23

A work element in the project plan requires 50 hours of labor each by four carpenters.The carpenters are paid $15 per hour and incur an overhead rate equal to 80 percent of their direct labor charges.The total cost would be __________ if the carpenters consume 10 percent of the workday performing personal activities.

A)$5,940
B)$4,860
C)$5,000
D)$5,360

Question 24

Suppose that a person requires eight hours to complete a work element on the first attempt.That person has a learning rate of 90 percent for this work element.This person should require __________ hours to complete this work element on the fourth attempt.

A)7)2
B)6)48
C)5)83
D)8)8

Question 25

The __________ charge is composed of the costs of senior management,the various data functions,and any other expenses not included in overhead.Often,these charges are a fixed percentage of either the direct costs or the total of all direct and indirect costs.

A)salary
B)project management
C)ethical
D)G&A

Question 26

Suppose that a person requires 60 minutes to complete a work element on the first attempt.On the second attempt,the work element is completed in 48 minutes.The learning rate for this person is __________% for this work element.
a)80
b)60
c)70
d)120

Question 27

____ are where the defined responses to the risks are detailed,but their amounts are not yet precisely known.

A)Known-unknowns
B)Unknown-knowns
C)Known-knowns
D)Unknown-unknowns

Question 28

You have been asked to estimate the costs for a project to build an industrial power plant.Based on historical data,the steam turbine accounts for 30 percent of the total costs for the plant.If the steam turbine costs $300,000,the expected top-down estimated cost for this project would be __________.

A)$1,000,000
B)$100,000
C)$10,000
D)$900,000

Question 29

Each time the output doubles,the worker hours per unit decrease to a fixed percentage of their previous value.That percentage is called the __________ rate.

A)inflation
B)hurdle
C)interest
D)learning

Question 30

Identify some of the common problems faced by the project budgeter.

Question 31

A budget strategy that is based on collecting the judgments and experiences of top and middle managers is referred to as the __________ approach or method.

A)parametric estimating
B)statistical equivalence
C)bottom-up estimating
D)top-down estimating

Question 32

The advantage of the______ process is that it is generally associated with participative management.

A)bottom-up
B)top-down
C)Murphy's
D)Efficient

Question 33

Given a project salary cost of $400,000 per year and forecasted wage increases of 5 percent per year,calculate the nondiscounted total salary cost over a three-year project lifecycle.

A)$1,200,000
B)$61,000
C)$1,261,000
D)$1,240,000

Question 34

__________ states that adding manpower to a late software project makes it later.

A)Brooks' Law
B)Murphy's Law
C)Smith's Law
D)The Rule of Thumb

Question 35

Unknown-unknowns are not part of the baseline budget and are referred to as

A)management reserves
B)contingency reserves
C)PMBOK reserves
D)Buffered reserves

Question 36

__________ relies on well-known statistical correlations between various factors such as the total cost of a house relative to the square feet of living are a.

A)Parametric estimating
B)Statistical equivalence
C)Bottom-up estimating
D)Top-down estimating

Question 37

______________ issues are present when bidders "low-ball" a bid or when some bidders get a "last look."

A)Ethical
B)Strategic
C)Efficient
D)Effective

Question 38

The determination of costs for a new process should utilize a __________,or operations sequence sheet,which describes the operation in which the new process would be used.

A)route sheet
B)budget sheet
C)cost estimation
D)flowchart

Question 39

Describe the bottom-up budgeting process.

Question 40

Many lower-level managers often treat the entire budgeting process as if it were a __________,a situation in which any individual's gain is another individual's loss.This can make competition among junior managers quite intense.

A)zero-sum game
B)pie-chart dilemma
C)Brooks' Law result
D)Top-down approach

Question 41

Explain why senior managers view the bottom-up budgeting process as being risky.

Question 42

Suggest some reasons why an organization would support projects that show a significant incremental profit over direct costs but are not profitable when costs fully accounted for.

Question 43

Suggest some reasons why the authors insist that the project manager must be familiar with the organization's accounting system.