Cost Management

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Sample Questions

1. Project Cost Management includes all of the following except:

A. Resource leveling
B. Resource planning
C. Cost estimating
D. Cost budgeting
E. Cost control

2. Which of the following choices indicates that a project has a burn rate of 1.2?
Hint: Burn rate is the same as the Cost Performance Index
A. The BCWS is 100 and the BCWP is 120.
 B. The ACWP is 100 and the BCWP is 120.
C. The ACWP is 120 and the BCWP is 100.
D. The BCWP is 100 and the BCWS is 120.

3. The Input to Cost Budgeting includes all of the following except:

A. Cost estimates
B. Cost baseline
C. WBS
D. Project schedule

4. During the six month update on a 1 year, $50,000 project, the analysis shows that the
BCWS is $25,000; the BCWP is $20,000 and the ACWP is $15,000. What can be determined
from these figures?
A. The project is behind schedule and over cost.
B. The project is ahead of schedule and under cost.
C. The project is ahead of schedule and over cost.
D. The project is behind schedule and under cost.

5. Earned value is:

A. Actual cost of work performed.
B. Completed work value.
C. Budgeted cost of work performed.
D. Percent complete.
E. All except A.

6. Which of the following Cost Management processes are concerned with cost baseline?
A. Cost estimating
B. Cost budgeting
C. Cost control
D. B and C
E. A and B
 7. Cost control is concerned with:
A. Allocating the overall estimates to individual work packages in order to establish a cost
baseline.
B. Influencing the factors which create changes to the cost baseline to ensure that changes
are beneficial.
C. Determining that the cost baseline has changed.
D. B and C
E. A and B

8. Which of the following statements concerning bottom-up estimating is true?

A. The cost and accuracy of bottom-up estimating is driven by the size of the individual work
items.
B. Smaller work items increase both cost and accuracy.
C. Larger work items increase both cost and accuracy.
D. A and C
E. A and B

9. Percent complete is calculated by:

A. ACWP / BAC
B. BCWP - ACWP
C. BCWP / BAC
D. EAC / BAC

10. Life cycle costing:

A. Includes acquisition, operating, and disposal costs when evaluating various alternatives.
B. Includes only the cost of the development or acquisition of a product or service.
C. Does not take into consideration the effect of project decisions on the cost of using the
resulting product.
D. B and C

11. Analogous estimating:

A. Uses bottom-up estimating techniques.
B. Uses the actual costs from a previous, similar project.
C. Is synonymous with top-down estimating.
D. A and B
E. B and C

12. Estimate at Completion is determined by:

A. ETC + ACWP
B. BAC - ETC
C. BAC / CPI
D. A and C
E. A and B

13. Parametric cost estimating involves:

A. Calculating individual cost estimates for each work package.
B. Using rates and factors based on historical experience to estimate costs.
C. Using the actual cost of a similar project to estimate total project costs.
D. A and B
E. B and C

14. A cost management plan is:

A. A plan for describing how cost variances will be managed.
B. A subsidiary element of the project charter.
C. An input to the Cost Estimating process.
D. A and C
E. A and B

15. Cost estimating:

A. Involves developing an estimate of the costs of the resources needed to complete project
activities.
B. Includes identifying and considering various costing alternatives.
C. Involves allocating the overall estimates to individual work items.
D. A and C
E. A and B
 16. Which of the following Input belongs to Resource Planning?
A. Scope statement
B. Resource pool description
C. Organizational policies
D. Historical information
E. All of the above are Input to Resource Planning

The following table is for questions 17 - 20

Task BCWS ACWP BCWP
1 9,500 10,000 9,500
2 15,000 13,000 11,000
3 13,000 13,000 13,000
4 8,000 8,000 9,000
5 10,000 10,000 9,000
17. Which task is most over budget?
A. Task 1
B. Task 2
C. Task 3
D. Task 4
E. Task 5

18. Which task is ahead of schedule and under cost?

A. Task 1
B. Task 2
C. Task 3
D. Task 4
E. Task 5

19. Which task is on schedule with a cost variance of $0?

A. Task 1
B. Task 2
C. Task 3
D. Task 4
 E. Task 5

20. Which task has the greatest schedule variance?

A. Task 1
B. Task 2
C. Task 3
D. Task 4
E. Task 5

21. Which process is not included in Project Cost Management

A. Resource planning
B. Estimating
C. Budgeting
D. Control
E. Closeout

22. BCWS is the sum of the approved cost estimate for activities scheduled to be performed
during a given period.
A. True
B. False

23. Two Point Delphi Estimate, The Best and Worst Case effort calculation:
A. Calculate (Best + Worst) / 2
B. Calculate (Best + 2) / Worst
C. Calculate (2 + Worst) / Best
D. None of the above

24. Three Point Statistical Estimating Formula Group: Expected Value =

A. (Optimistic + (4 X Most Likely) + Pessimistic) X 6
B. (Optimistic + (4 X Most Likely) + Pessimistic) / 6
C. (Optimistic + (4 X Most Likely) X Pessimistic) / 6
D. (Optimistic + (4 + Most Likely) + Pessimistic) / 6
 25. The relationship between the budgeted actual cost, actual work completed, and work
planned will determine the:
A. Schedule estimate at completion
B. Cost estimate at completion
C. Cost Performance Index
D. Schedule Performance Index
E. Both A and B

26. All work packages are complete:

A. at EAC time
B. when BAC is equal to EAC
C. when BCWP intersects BCWS
D. when schedule variance is zero
E. C and D

27. Earned value is:

A. the base line plan
B. completed work value
C. cost / cost variance
D. percent over o under budget
E. A and B

28. You could tell Richard was worried about his project. His folks had been working on the
project since Independence Day. Here it was already Halloween and they were just finishing
up work that was supposed to have been completed by Labor Day. "Oh dear", he confided
to his friend. "Instead of completing by Christmas, at this rate I expect we won't be done
until
A. New Year's Day
B. St. Patrick's Day
C. Easter
D. Mother's Day
E. The 4th of July
 29. Richard was so concerned about his project that he woke up dreaming about it. He
thought to himself, "Well, our BCWP is 2, our ACWP is 4, and our BCWS is 6, so that
means
A. Our productivity was less than planned
B. Our cost estimate at completion is 6
C. Our CPI and SPI are both positive
D. Our cost variance is negative
E. A, C, and D

30. The measurement which best shows the difference between actual work and actual costs
is
A. Cost variance
B. Percent Over or under
C. Schedule variance
D. CPI
E. This is not a valid measurement

31. Rework costs __________ times budgeted costs

A. +75, -25
B. +25, -10
C. 85
D. 10 to 15
E. 25 to 50

32. If part of a project's costs will be paid in future years, the best way to determine the
value of those costs in today's dollars is
A. Estimated project pay-out
B. Return on investment
C. Net present value
D. Discounted cash flow
E. Internal rate of return

33. If the ACWP exceeds the BCWP, the cost estimate at completion will
 A. Increase
B. Decrease
C. Depend on the BCWS
D. Exceed the schedule estimate at completion
E. A and D

34. If the BCWS = $1,000,000, the BAC = $2,000,000, the ACWP = $1,500,00, the BCWP =
$500,000 and you are halfway through the project after two years, what is the cost estimate
at completion?
A. $2,000,000
B. $4,000,000
C. $6,000,000
D. $8,000,000
E. Cannot be determined without the EAC

35. Cost management requires a critical look at future expenditures and the controls
exercised over those expenditures. The three types of cost estimates through which project
expenditures are made are __________.
A. Rough order of magnitude, guestimate, and actual
B. Traditional, classical, and contemporary
C. Order of magnitude, budget, and definitive
D. Concept, budget, and design
E. Engineering, quoted, and definitive

36. The cost estimate with the most precise estimate (i.e. the smallest range of error) is the
__________ estimate.
A. Engineering
B. Budget
C. Concept
D. Definitive
E. Contingency

37. The cost estimate that has a range for error of minus 10 percent to plus 25 percent is the
__________ estimate.
 A. Budget
B. Definitive
C. Parametric
D. Analogy
E. Contingency

38. There are usually two types of reserves in a project's budget. The __________ reserve is
for cost variances from the plan because of inaccurate estimates or pricing and costs
overruns, while the __________ is to accommodate costs for project work that were not
included in the plan through error or oversight.
A. project; budget overrun allowance
B. engineering; management allowance
C. management; contingency allowance
D. management; mismanagement allowance
E. planned; unplanned work allowance

39. Feasibility studies are evaluations of both the technical and economic aspects of a
potential project. In the economic area, one would look at such items as interest rates,
present worth factors, capitalization costs, and __________.
A. human resource skills
B. depreciation costs
C. prospective projects managers
D. implementation of cost controls
E. availability of cost accounting methods

40. Project financing can be extremely complex and can come from a variety of sources.
However, __________ is not potential source of financing for a project.
A. borrowing money from a bank
B. selling stocks in the project or corporation
C. selling bonds on the project
D. selling lottery tickets on the project
E. leasing or renting existing property to another

41. Life cycle costing is a concept whereby all costs for a system are completed to determine
 the total cost of ownership. Life cycle cost categories include __________.
A. purchase, repair, and operation
B. development, procurement, and operation / maintenance
C. procurement, lease, and disposal
D. procurement, operation, and disposal
E. operation, maintenance, and storage

42. The integration of cost and schedule to provide measures of the project's performance is
the earned value system, or contract performance measurement. The baseline for the
earned value system is depicted as a slight "S" curve because __________.
A. there are fewer costs at project initiation until the work is fully staffed
B. the are workers who have not been paid, so the expense is not shown on the chart
C. there are more expenses to get a project started than are required on a normal operating
basis
D. this is just a traditional method of plotting the costs and has no relationship to the actual
expenditures
E. this approximation has proven to be nearly correct when all costs and expenditures have
been accounted for at project completion

43. The pricing of a project can be extremely complex in the development of valid cost
estimates and price quotes from vendors. The tool that facilitates the pricing of a project by
a structured decomposition of the total into individual elements of labor, material, and
equipment is the __________.
A. project management plan
B. budget
C. responsibility matrix
D. configuration management plan
E. work breakdown structure

44. In estimating the cost of work, the best source of cost information can be obtained from
the __________.
A. customer
B. historical records
C. senior engineers
D. top management
 E. independent consultants

45. Setting up a cost control system requires matching the work packages to the cost
accounting system. The direct mapping of the work packages to the accounting is
accomplished by establishing a __________.
A. work package cost / price
B. work breakdown structure element
C. cost correlation matrix
D. computer coded bar chart
E. code of accounts

46. Cost overruns on a project have major impacts on the profitability of operations, but
__________ do(es) not necessarily contribute to cost overruns of a project budget.
A. a change in contract scope
B. delays in schedule
C. lack of work force experience
D. integration uncertainty for project elements
E. contractor claims for out-of-scope work

47. Suppose the contingency allowance established to cover unforeseen activities of a project
has been set at eight percent of the total project cost. The total dollars in the contingency
allowance should be __________ as the project nears completion.
A. retained at the remaining dollar level
B. increased to meet unidentified surprises
C. decreased to reduce the accounting work
D. spent to ensure there is no extra money shown in the budget
E. reduced to a percentage of the remaining work

48. Suppose a contract in force for six months and the work is progressing, and then the
buyer requests some changes in the design. The changes do not affect completed work but
add some new items and subtract some existing items. The cost to the buyer to accomplish
these changes is __________.
A. increased by the amount of added work
B. unchanged because the contract is in place
 C. decreased because the work has not been started
D. unchanged because the buyer (customer) is always right
E. unknown because the cost of the changed work is not specified

49. In the earned values system, the focus is on "cost of work," which is divided into
"scheduled" and "performed" work. This is further defined as "budgeted" and "actual"
work. The formula "BCWP - BCWS" provides the __________.
A. cost difference
B. schedule variance
C. overrun conditions
D. schedule difference
E. cost variance

50. Indices can provide an indication of the status of a project. In the earned values system,
there are two indices: Cost Performance Index (CPI) and Schedule Performance Index
(SPI). The formula for CPI is __________.
A. ACWP / BCWS
B. ACWP / BCWP
C. BCWP / ACWP
D. BCWS / ACWP
E. BCWS / BCWS

51. Suppose that in the earned value system, the status of the project is reported as BCWS =
100, ACWP = 110, BCWP = 95. The project is now __________.
A. underspent and behind schedule
B. overspent and ahead of schedule
C. underspent and ahead of schedule
D. overspent and behind schedule
E. cannot be determined from available data

52. Projects have direct and indirect costs that the project manager must track to ensure
the budget is not exceeded. The project manager has the most control over direct costs such
as __________.
A. bonuses, fees, and awards
 B. labor, materials, and equipment
C. labor, supervision, and fees
D. overhead, G&A, and fees
E. G&A, facilities, and transportation

53. Suppose the corporate CEO has decided to delay the start of a major project by one
year and you have been asked to compute the difference in cost to complete the three-year
project. The only major increase will be in the labor and material costs. Assume the labor is
level for the entire three years and the material will be purchased at the midpoint (i.e. 18
months after project start). The project was to start immediately with a cost for labor at
$12,000,000 per year, and total material cost is:
A. $1,250,000
B. $770,000
C. $1,289,168
D. $5,191,682
E. $2,112,238

54. A project is being advertised to solicit bidders. The buyer has asked for two types of
price: first, if payment is made in total upon completion of the project; second, if payment is
made 50 percent at the midpoint of completion and 50 percent upon total completion. This
is a two-year project that is being priced at $10,000,000 when the cost of money is not
included. Assume money is borrowed in two equal increments - at the start of year 1 and
year 2. If the interest rate over the two years is eight percent, the total bid under each
option (i.e., payment at the end; payment at midpoint) is __________.
A. $11,844,000; $11,412,000
B. $10,400,000; $10,040,000
C. $10,800,000; $10,400,000
D. $11,232,000; $10,832,000
E. $12,484,000; $11,244,000

55. The cost of money and cash flow can adversely affect the financial status of the project.
One method of encouraging early payment of invoices is to offer a discount for payment
within a few days. If an invoice for $10,000 was paid within (x) days (see each possible
answer for value of x), the method "two 10, net 30" would provide a savings of __________.
A. $100 (x = 30)
B. $200 (x = 30)
C. $300 (x = 10)
 D. $200 (x = 10)
E. cannot be determined from available data

56. Project financial audits are used to determine the current status of the financial health
of a project, but __________ is / are not an area for financial audit.
A. a project budget system
B. a project computer system
C. a project change control
D. a project status reporting
E. cash-flow projections

57. A project audit is often a three-step process using different skills to assess the condition
of the health of the project. The first audit, or first audit opportunity, is at the __________
phase.
A. start of the planning
B. start of the implementation
C. end of the planning
D. end of the implementation
E. middle of the implementation

58. The budget for a project is the baseline from which future expenditures are measured.
Of the following, __________ do(es) not cause change to the budget baseline during project
implementation.
A. change orders to the contract
B. expenditures to buy materials
C. revised cost estimates made in-house
D. changes to subcontractor's scope of work
E. correction to the work breakdown structure to eliminate some tasks

59. In the earned value system for determining project status, there are several methods of
accepting credit for the completion of work. In the most common method, full credit is
allowed after the work package is complete. A second method is to allow full credit when 50
percent of the work package is complete to permit the performing contractor (seller) to
receive credit for work-in-process. From the seller's point of view, __________.
A. either method is acceptable under an incremental payment schedule contract
 B. the credit at 100 percent completion is better for either a lump-sum or incremental
payment contract because the accounting is more accurate
C. the credit at 100 percent completion is better because the accounting lags the work-in-
process by 30 days in any type of payment schedule
D. the credit at 50 percent completion is better because it improves the cash flow under an
incremental payment schedule
E. the credit at 50 percent completion is better because it reduces the billing cycle

60. Because of the investment or risk associated with a project, the decision may be to
ensure a high profitability. When this is the case, senior management should agree on profit
__________ of the project.
A. capability at the beginning
B. margin (rate) at the midpoint
C. margin (rate) at the end
D. goals at the beginning
E. goals at the end

61. Estimating costs for a project is difficult because of the lack of historical cost records,
the uncertainty regarding the future state of the economy, and the lack of understanding as
to the full scope of work. Successive estimating is one method of accounting for the
uncertainty of cost estimating by __________.
A. making three estimates and taking the average
B. continually making estimates as the project progresses
C. also including the range of potential error for an estimated item
D. using two or more cost estimating techniques to arrive at an average cost
E. delaying estimates until all information is acquired

62. The degree of uncertainty (lack of information) in a project affects the ability of cost
estimators to make precise estimates to determine the total cost. One method to resolve the
uncertainty is influence diagramming, which is used to evaluate __________.
A. price, net worth, and net present value
B. alternative outcomes, risk factors, and give quantities
C. risk factors, price, and alternatives
D. price, quantities, and time of purchase
E. risk factors, contract type, and project duration
 63. The most accurate estimates (and the most expensive to produce) are __________.
A. analogous estimates
B. parametric estimates
C. top-down estimates
D. bottom-up estimates
E. function point estimates

64. The __________ identifies the project elements that cost will be allocated to.
A. work breakdown structure
B. PERT estimates
C. earned value
D. order of magnitude estimate
E. BCWR

65. The EAC is a forecasting technique based on past project performance. It can be
calculated using the formula __________.
A. cumulative actuals + (ETC x CPI)
B. cumulative actuals + new estimate for cost of work remaining
C. cumulative actuals + remaining budget
D. all of the above
E. none of the above

66. The best way to manage the costs of change requests is to __________.
A. accept them orally
B. allow them to happen in ad hoc fashion
C. impose change unilaterally
D. document and authorize all changes
E. use the earned value system

67. Materials management is crucial to the success of the project when resources are needed
at a specified time and place to ensure continued progress. An assessment of the materials
costs should consider not only the cost of purchase but also __________.
A. transportation, deterioration, and storage
 B. storage, damage, and deterioration
C. transportation, storage, and shortage
D. transportation, shortage, and loss
E. quantities, storage, and damage

68. Project financing is critical to large projects where neither the owner (buyer) or
contractor (seller) has sufficient funds available to cover the costs incurred during project
implementation. In such cases, a third party must provide the necessary capital. the third
party evaluates the feasibility of financing the project based on __________.
A. the participants' business reasons for the project
B. the share of ownership to be retained
C. the level of risk the participants are to share
D. the project's anticipated cash flow and tax benefits, if any
E. all of the above

69. The financing plan for a project should detail the methods of obtaining and dispensing
the capital over the full duration of the project. In preparing the plan and considering risk
and reward, management should ensure that participants' credit standing is preserved,
maximum leverage is used, tax benefits are optimized, flexibility is incorporated into
ownership, and __________.
A. additional tax relief is pursues
B. lines of credit are opened
C. accesses to sources of new capital are maintained
D. maximum financing is used
E. late receipt of funds is avoided

70. Investors are often used to obtain the necessary financing for major projects, which can
transfer the ownership to the investors. The system is then leased back for operation and
use. The major advantage for the investors is __________, and the major advantage for the
user of the system is __________.
A. control of a business; low risk for operation and maintenance
B. high internal rate of return; favorable tax write-off
C. favorable tax write-off; new source of funds
D. ownership without risk of operation; favorable tax write-off
 E. reduced quality (performance) risk; reduced cost risk

71. Lending institutions are eager to finance projects that have an excellent potential for
being successful and repaying the loans. Timely repayment of the debt depends largely on
__________.
A. the willingness of the owners to make payments
B. future cash flows to be generated by the entity
C. the debt-to-liquidity ratio
D. the entity's internal rate of return on operations
E. future ownership and operating cycles

72. The success of a project is usually considered its ability to meet the objectives
established prior to the start of the project. In a more global view, to become a functioning
entity the project must have working capital, which consists of __________.
A. cash, inventories, sales, and receivables
B. cash, sales, receipts, and receivables
C. receipts, savings, receivables, and inventories
D. cash, receivables, inventories, and payables
E. sales, receipts, inventories, and stock

73. Under any type of contract, the owner (buyer) is always concerned with the cost of a
project and the contractor's (seller's) expenditure rates. Although the fixed price contract
transfers much of the risk to the contractor, the owner has a lot at risk in terms of meeting
his objectives. One of the best methods of controlling contractor expenditure rates under
any type of contract is to __________.
A. hold back a portion of the payment until all work is completed to the satisfaction of the
technical inspectors
B. ensure that only fixed price contracts are awarded and that payment is only upon
satisfactory completion of the project
C. have an "owner's representative" monitor and track all expenditures and have power to
disapprove any expenditure that is not justified to him
D. track and pay the costs of the contract by phases or stages and evaluate the costs at each
review / decision point
E. set up a duplicate project accounting system, track all costs, and validate the costs as
being the best value for the owner
 74. The budget for a major project lasting several years is usually prepared to reflect
expenditures on an annual basis. The budget is, therefore, compared to expenditures at the
end of each accounting cycle (i.e. each year). This poses a potential problem because
__________.
A. the budget will always be greater than the rate of expenditure when delays are
encountered in paying the billings
B. the expenditure rate will be viewed optimistically (underspent) and the project manager
will attempt to increase expenditures
C. the budget is not representative of the expenditure rate when there is an increase to the
scope of work
D. the budget changes too frequently to permit a valid comparison of the plan versus the
actual expenditures
E. schedule delays or restructuring of the work load will affect costs during the accounting
periods and give false indications of expenditure rates