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Project Management Professional (PMP) ® Exam Prep Course 7 - Project Cost Management

PMP-COST MANAGEMENT

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0% found this document useful (0 votes)

342 views73 pages

Project Management Professional (PMP) ® Exam Prep Course 7 - Project Cost Management

PMP-COST MANAGEMENT

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kumar31052003

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Project Management Professional (PMP)®

Exam Prep
Course 7 - Project Cost Management
Slide 1

Project Cost Management

Looking Glass Development, LLC

(303) 663-5402 / (888) 338-7447
4610 S. Ulster St. #150 Denver, CO 80237
information@lookingglassdev.com

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Slide 2

Cost Management
All the process involved in planning, estimating,
budgeting and controlling costs so that the
project can be completed within the approved
budget. Planning Process Group

7. Project Cost
Management

7.1
Plan Cost
Management

Monitoring and Controlling Process Group

7.2
7. Project Cost Estimate
Costs
Management

7.4 7.3
Control Determine
Costs Budget

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Looking Glass Development, LLC.

Cost Management
 Primarily concerned with cost of resources.
 Also concerned with
– Life-cycle costing
– Opportunity cost
– Sunk costs

 The Cost Management Plan is part of

overall project management plan.
– Control thresholds
– Earned value rules
– Reporting formats
© Copyright and all rights reserved –
Looking Glass Development, LLC.

Cost Management
7.1 Plan Cost Management
Defining the rules which are used to manage
project costs.
It defines how the team will Planning Process Group

manage the money. 7. Project Cost

Management

7.1
Plan Cost
Management

7.2
Estimate
Costs

7.3
Determine
Budget

© Copyright and all rights reserved –

Looking Glass Development, LLC.

Cost Management
7.1 Plan Cost Management
Inputs Tools & Techniques Outputs
.1 Project charter .1 Expert judgment .1 Cost management
.2 Project management .2 Data analysis plan
plan .3 Meetings
.3 Enterprise
environmental factors
.4 Organizational process
assets

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Looking Glass Development, LLC.

Cost Management
7.2 Estimate Costs
Developing an approximation of the costs of
the resources needed to complete each
schedule activity Planning Process Group

7. Project Cost
Management

Cost Estimating ≠ Pricing 7.1

Plan Cost
Management

7.2
Estimate
Costs

7.3
Determine
Budget

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Looking Glass Development, LLC.

Cost Management
7.2 Estimate Costs
Inputs Tools & Techniques Outputs
.1 Project management .1 Expert judgment .1 Cost estimates
plan .2 Analogous estimating .2 Basis of estimates
.2 Project documents .3 Parametric estimating .3 Project documents
.3 Enterprise .4 Bottom-up estimating updates
environmental factors .5 Three-point
.4 Organizational process estimating
assets .6 Data analysis
.7 Project management
information system
.8 Decision making

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Looking Glass Development, LLC.

Cost Management
Accuracy of estimates increases as the
project progresses
Rough Order of Magnitude
-25% to +75%
Budget Estimate or the Budget
-5% to +10%

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Looking Glass Development, LLC.

Cost Management
7.3 Determine Budget
Aggregating the cost estimates of
individual activities or work packages to
establish a total Cost Baseline. Planning Process Group

7. Project Cost
Management

7.1
Plan Cost
Management

7.2
Estimate
Costs

7.3
Determine
Budget

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Looking Glass Development, LLC.

Cost Management
Accounting Terms
 Variable Costs – Costs that change as the units produced
changes.
 Fixed Costs – Costs that do not change with changes to
volume produced.
 Direct Costs – Costs that are directly attributed to
project work.
 Indirect Costs – Items that benefit more than one
project and are not attributed to a specific activity.
 Value Analysis or Engineering – Finding less costly ways
to do the same work. © Copyright and all rights reserved –
Looking Glass Development, LLC.

Cost Management
7.3 Determine Budget
Inputs Tools & Techniques Outputs
.1 Project management .1 Expert judgment .1 Cost baseline
plan .2 Cost aggregation .2 Project funding
.2 Project documents .3 Data analysis requirements
.3 Business documents .4 Historical information .3 Project documents
.4 Agreements review updates
.5 Enterprise .5 Funding limit
environmental factors reconciliation
.6 Organizational process .6 Financing
assets

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Looking Glass Development, LLC.

Cost Management
The difference
Funding Requirements between the
maximum
funding and the
end of the cost
baseline is
Management
Cumulative $

Reserve.

Cost Baseline
Actual Costs
Funding Requirements

Time

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Looking Glass Development, LLC.

Cost Management
Depreciation
Straight Line Depreciation – Present value
minus present cost.
Depreciation amt. to deduct
cost – residual value = each year till salvage value
useful life is reached

Production Method -
cost – residual value Depreciation amt. to
= deduct each year till
estimated units of useful life (production) salvage value is
reached

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Looking Glass Development, LLC.

Cost Management
Depreciation
Double Declining Balance (DDB) – Accelerated depreciation method. Begin
by dividing 100% by the term of the asset and doubling the result. Each
subsequent year, that same percentage is multiplied by the remaining
balance to be depreciated. Using a purchase price of $100,000 and a
residual of $25,000 on a five (5) year schedule:
 100% / 5 Year Term = 20%
 Double the 20% rate or 40%
 Year 1 value = $100,000 - ($100,000 * 40%) = $60,000
 Year 2 value = $60,000 – ($60,000 * 40%) = $36,000
 Year 3 value = $36,000 – ($36,000 * 40%) = $21,600
 Since this is less than the salvage value it is $25,000

© Copyright and all rights reserved –

Looking Glass Development, LLC.

Cost Management
Depreciation
Sum of the Years Digits (SYD) – Accelerated depreciation method.
Begin by adding the number of years in the schedule. For example,
for a five (5) year schedule add 1+2+3+4+5 = 15. Next, take the
asset value minus the residual value and divide it by this result
(15). If the salvage value is $25,000 then:
 Year 1 value = $100,000 – (5/15 * $75,000) = $75,000
 Year 2 value = $75,000 – (4/15 * $75,000) = $55,000
 Year 3 value = $55,000 – (3/15 * $75,000) = $40,000
 Year 4 value = $40,000 – (2/15 * $75,000) = $30,000
 Year 5 value = $30,000 – (1/15 * $75,000) = $25,000

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Looking Glass Development, LLC.

Cost Management
7.4 Control Costs
 Influencing the factors that create changes to the
cost baseline.
 Ensuring requested changes are agreed upon.
 Managing the actual changes when and as they
occur.
 Assuring that potential cost overruns do not exceed
the authorized funding periodically and in total for
the project. Monitoring and Controlling Process Group

7. Project Cost
Management

7.4
Control
Costs

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Looking Glass Development, LLC.

Cost Management
7.4 Control Costs
Inputs Tools & Techniques Outputs
.1 Project management .1 expert judgment .1 Work performance
plan .2 Data analysis information
.2 Project documents .3 To-complete .2 Cost forecasts
.3 Project funding performance index .3 Change requests
requirements .4 Project management .4 Project management
.4 Work performance data information system plan updates
.5 Organizational process .5 Project document
assets updates

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Looking Glass Development, LLC.

Cost Management
Cumulative Cost Curve EAC

VALUE PV BAC

SCHEDULE
AC VARIANCE

COST
VARIANCE

EV
SLIPPAGE
TIME
NOW
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Looking Glass Development, LLC.

Cost Management

In Alphabetical Order
Actual Costs Earned Value Planned Value
Minus Minus
CV = = SV
CPI = = SPI
Divided By Divided By

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Looking Glass Development, LLC.

Cost Management
Forecasting - ETC
 ETC based on new estimate.
 ETC based on atypical variances.
ETC = BAC-EV
 ETC based on typical variances.
ETC = (BAC-EV)/CPI
 ETC based on both the CPI & SPI.
ETC = (BAC-EV)/(CPI*SPI)
BAC = Budget at Completion
BAC-EV = Remaining Work
VAC = Variance at Completion
CPI*SPI = Critical Ratio
© Copyright and all rights reserved –
Looking Glass Development, LLC.

Cost Management
Forecasting - EAC
Using a new estimate
– EAC = AC + ETC
Using remaining budget
– EAC = AC + (BAC-EV)
Using CPI
– EAC = AC + ((BAC-EV)/CPI)
Using both CPI & SPI
– EAC = AC + ((BAC-EV)/(CPI*SPI))
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Looking Glass Development, LLC.

Cost Management
Forecasting - TCPI
 The calculated projection of cost performance
that must be achieved on the remaining work
to meet a specified management goal.
 Using BAC
– TCPI = (BAC – EV) / (BAC – AC)

 Using EAC
– TCPI = (BAC - EV) / (EAC - AC)

 VAC = BAC - EAC

Cost Management
Earned Schedule Theory
 Provides formulas for forecasting the project
completion date, using the earned schedule,
actual time and estimated duration.
 Schedule at Completion (SAC) — This is the
original planned completion duration of the
project.
 Earned Schedule (ES) — The duration from
the beginning of the project to the date the
planned value is supposed to equal to the
BAC.
 Actual Time (AT) — This is the duration from
the beginning of the project to status date.
© Copyright and all rights reserved –
Looking Glass Development, LLC.

Cost Management
Earned Schedule Theory
Time variance or (TV) — A measure of
schedule performance in time units rather
than cost units and is defined by the
formula:
TV = ES – AT
Time Estimate at Completion (TEAC) — The
forecast of time at completion and is
similar to EAC. It uses the same basic
formulas as EAC but replaces cost with
schedule.
© Copyright and all rights reserved –
Looking Glass Development, LLC.

Cost Management
Earned Schedule Theory
Time Variance at Completion (TVAC) — The
estimated amount of time either ahead or
behind schedule the project is. It uses the
following formula:
TVAC = SAC – TEAC

© Copyright and all rights reserved –

Looking Glass Development, LLC.

Cost Management
Cost Management – Summary
 Four (4) processes.
 Earned value concepts and calculations.
 Life cycle costing.
 Cost baseline.
 Estimating vs. budgeting.
 Types of estimates and estimating.
 Contingency and management reserve.

© Copyright and all rights reserved –

Looking Glass Development, LLC.

1. You are a project manager and have been asked to assess the value of an asset
on your project at the end of year four using straight line depreciation. Assuming
the asset costs $100,000 to purchase, has a residual value of $25,000, and is
depreciated based on a five year schedule what is the assessed value?
A. $25,000
B. $40,000
C. $65,000
D. $85,000

2. You are a project manager and have been asked to assess the value of an asset
on your project at the end of year three using straight line depreciation. Assuming
the asset costs $225,000 to purchase, has a residual value of $35,000, and is
depreciated based on a five year schedule what is the assessed value?
A. $187,000
B. $149,000
C. $111,000
D. $73,000

3. You are a project manager and have been asked to assess the value of an asset
on your project at the end of year one using straight line depreciation. Assuming
the asset costs $75,000 to purchase, has a residual value of $12,500, and is
depreciated based on a three year schedule what is the assessed value?
A. $75,000
B. $12,500
C. $33,333
D. $54,167

4. You are a project manager and have been asked to assess the value of an asset
on your project at the end of year three (3) using straight line depreciation.
Assuming the asset costs $50,000 to purchase, has a residual value of $10,000,
and is depreciated based on a three (3) year schedule what is the assessed
value?
A. $10,000
B. $13,333
C. $23,333
D. $36,667
5. You are a project manager and have been asked to assess the value of an asset
on your project at the end of year three using straight line depreciation. Assuming
the asset costs $250,000 to purchase, has a residual value of $50,000, and is
depreciated based on a five year schedule what is the assessed value?
A. $210,000
B. $175,000
C. $130,000
D. $110,000

6. You are a project manager for a manufacturing company. You are asked to
determine the depreciated value for a piece of equipment using the UOP method.
If the piece of equipment initially cost $1,000,000, has a residual value of
$25,000, has a useful life of 10,000,000 units produced, and has already
produced 1,000,000 units what is its current value?
A. $900,000
B. $902,500
C. $875,000
D. $800,000

7. You are a project manager for a manufacturing company. You are asked to
determine the depreciated value for a piece of equipment using the UOP method.
If the piece of equipment initially cost $750,000, has a residual value of $40,000,
has a useful life of 8,000,000 units produced, and has already produced
2,500,000 units what is its current value?
A. $375,500
B. $768,250
C. $625,500
D. $528,125

8. You are a project manager for a manufacturing company. You are asked to
determine the depreciated value for a piece of equipment using the UOP method.
If the piece of equipment initially cost $500,000, has a residual value of $65,000,
has a useful life of 7,500,000 units produced, and has already produced 310,000
units what is its current value?
A. $365,500
B. $532,250
C. $482,020
D. $525,010
9. You are a project manager for a manufacturing company. You are asked to
determine the depreciated value for a piece of equipment using the UOP method.
If the piece of equipment initially cost $250,000, has a residual value of $15,000,
has a useful life of 5,500,000 units produced, and has already produced
4,100,000 units what is its current value?
A. $72,652
B. $74,818
C. $76,534
D. $81,225

10. You are a project manager for a manufacturing company. You are asked to
determine the depreciated value for a piece of equipment using the UOP method.
If the piece of equipment initially cost $2,000,000, has a residual value of
$68,000, has a useful life of 15,000,000 units produced, and has already
produced 7,200,000 units what is its current value?
A. $1,072,640
B. $1,528,860
C. $925,310
D. $875,687

11. You are a project manager and have been asked to assess the value of an asset
on your project at the end of year two using DDB. Assuming the asset costs
$100,000 to purchase, has a residual value of $25,000, and is depreciated based
on a five year schedule what is the assessed value?
A. $60,000
B. $36,000
C. $25,000
D. $21,400

12. You are a project manager and have been asked to assess the value of an asset
on your project at the end of year three using DDB. Assuming the asset costs
$250,000 to purchase, has a residual value of $35,000, and is depreciated based
on a five year schedule what is the assessed value?
A. $54,000
B. $64,000
C. $90,000
D. $150,000
13. You are a project manager and have been asked to assess the value of an asset
on your project at the end of year four using DDB. Assuming the asset costs
$650,000 to purchase, has a residual value of $52,000, and is depreciated based
on a five year schedule what is the assessed value?
A. $390,000
B. $234,512
C. $140,375
D. $84,240

14. You are a project manager and have been asked to assess the value of an asset
on your project at the end of year two using DDB. Assuming the asset costs
$79,800 to purchase, has a residual value of $12,000, and is depreciated based
on a three year schedule what is the assessed value?
A. $26,600
B. $12,000
C. $6,500
D. $18,460

15. You are a project manager and have been asked to assess the value of an asset
on your project at the end of year two using DDB. Assuming the asset costs
$150,000 to purchase, has a residual value of $10,000, and is depreciated based
on a three year schedule what is the assessed value?
A. $50,000
B. $36,450
C. $16,667
D. $10,000

16. You are a project manager and have been asked to assess the value of an asset
on your project at the end of year three using SYD. Assuming the asset costs
$100,000 to purchase, has a residual value of $25,000, and is depreciated based
on a five year schedule what is the assessed value?
A. $55,000
B. $45,000
C. $40,000
D. $35,000
17. You are a project manager and have been asked to assess the value of an asset
on your project at the end of year two using SYD. Assuming the asset costs
$250,000 to purchase, has a residual value of $29,000, and is depreciated based
on a three year schedule what is the assessed value?
A. $65,833
B. $59,561
C. $55,610
D. $49,900

18. You are a project manager and have been asked to assess the value of an asset
on your project at the end of year three using SYD. Assuming the asset costs
$350,000 to purchase, has a residual value of $33,000, and is depreciated based
on a four year schedule what is the assessed value?
A. $48,750
B. $55,800
C. $61,900
D. $64,700

19. You are a project manager and have been asked to assess the value of an asset
on your project at the end of year two using SYD. Assuming the asset costs
$450,000 to purchase, has a residual value of $41,000, and is depreciated based
on a four year schedule what is the assessed value?
A. $159,900
B. $163,700
C. $165,500
D. $169,200

20. You are a project manager and have been asked to assess the value of an asset
on your project at the end of year three using SYD. Assuming the asset costs
$550,000 to purchase, has a residual value of $62,500, and is depreciated based
on a four year schedule what is the assessed value?
A. $111,250
B. $118,500
C. $125,200
D. $130,500
Review Questions – Part 2:

1. Which of the following variables represents the budgeted cost for the work
scheduled to be completed up to a given point?
A. Actual cost
B. Planned value
C. Earned value
D. Estimate at completion

2. Which of the following variables represents the budgeted amount for the work
completed on the schedule activity up to a given point?
A. Planned value
B. Actual costs
C. Estimate to completion
D. Earned value

3. Which of the following variables represents the total cost incurred in

accomplishing work on the scheduled activity during a specific time period?
A. Actual costs
B. Summary costs
C. Earned value
D. Planned value

4. Which of the following variables represents the amount of additional money that
needs to be spent to complete the project?
A. EAC
B. ETC
C. CPI
D. SPI

5. Which of the following variables represents the total amount of money that is
estimated to be spent when the project is completed?
A. ETC
B. CPI
C. EAC
D. SPI
6. Which of the following variables represents the formula: Earned Value minus
Actual Costs?
A. CV
B. CPI
C. SV
D. SPI

7. Which of the following variables represents the formula: Earned Value minus
Planned Value?
A. SPI
B. CV
C. CPI
D. SV

8. Your boss enters your office and asks for the cost variance on your project that
has an AC of $290, a PV of $300, and an EV of $270. What value do you provide
them?
A. -30
B. 0.95
C. 0.92
D. -20

9. Your boss enters your office and asks for the cost variance on your project that
has an AC of $400, a PV of $405, and an EV of $391. What value do you provide
them?
A. -5
B. 1.30
C. 1.08
D. -9

10. You are preparing your monthly status report for your project. Your project had
an original budget of $150,000 and an original schedule of 18 months. You
currently have spent $65,000 and had budgeted to spend $60,000. You have
produced $55,000 worth of product. Your Vice President is very eager to review
your report as your project is important to the company's success. What is the
Cost Variance for the project?
A. -10,000
B. -5,000
C. 0.85
D. 0.92
11. You are preparing your monthly status report for your project. Your project had
an original budget of $950,000 and an original schedule of 11 months. Your
currently have spent $400,000 and had budgeted to spend $405,000. You have
produced $391,000 worth of product. Your Vice President is very eager to review
your report as your project is important to the company's success. What is the
Schedule Variance for the project?
A. -9,000
B. 0.98
C. 14
D. -14,000

12. You are leading a project that is a low profile project for the organization. The
project was originally scheduled to take 10 months at a total cost of $70,000.
Your title is that of a project coordinator, and you often have to struggle to get the
resources you need. You have already spent $40,000 even though you were only
scheduled to spend $37,500. If you have already produced $37,500 worth of
work what is your current SPI?
A. -2.50
B. 0
C. 1.00
D. It cannot be determined

13. You are the program manager for a large software development company. You
are currently leading a project that has an original budget of $35,000 and an
original schedule of seven months. Currently the project has delivered on
$27,500 of the project. It has also spent $29,000. If the project was forecast to
spend $30,000 to date, what is the project's SPI?
A. 0.95
B. 0.92
C. 0.87
D. -1.5

14. What is the Critical Ratio for a project that had an original budget of $25,000, an
original schedule of ten months, actual costs of $10,000, has produced $9,000
worth of work, and was scheduled to have spent $10,000?
A. 0.90
B. -1
C. 0.81
D. It cannot be determined
15. What is the Critical Ratio for a project that had an original budget of $75,000, an
original schedule of twelve months, actual costs of $45,000, and has produced
$50,000 worth of work?
A. 1.11
B. 1.25
C. 1.39
D. It cannot be determined

16. What is the Critical Ratio for a project that had an original budget of $950,000, an
original schedule of eleven months, actual costs of $400,000, has produced
$391,000 worth of work, and was scheduled to have spent $405,000?
A. 0.94
B. 0.98
C. 0.97
D. It cannot be determined

17. You are a project manager working on a project that had an original budget of
$30,000 and was forecast to take eight months. The project currently has
delivered on $18,000 worth of the project and has spent $22,500. If the variances
to date are believed to be atypical and the project had planned to spend $20,000
what is the estimate at completion?
A. $34,500
B. $37,500
C. $42,670
D. It cannot be determined

18. You are a project manager working on a project that had an original budget of
$250,000 and was forecast to take 54 weeks. The project currently has delivered
on $90,000 worth of the project and has spent $100,000. If the variances to date
are believed to be atypical and the project had planned to spend $80,000 what is
the estimate at completion?
A. $277,780
B. $260,000
C. $246,910
D. It cannot be determined
19. You are a project manager working on a project that had an original budget of
$300,000 and was forecast to take seventy-two weeks. The project currently has
delivered on $65,000 worth of the project and has spent $100,000. If the
variances to date are believed to be atypical and the project had planned to
spend $75,000 what is the estimate at completion?
A. $461,540
B. $532,540
C. $335,000
D. $235,000

20. You are a project manager working on a project that had an original budget of
$300,000 and was forecast to take seventy-two weeks. The project currently has
delivered on $65,000 worth of the project and has spent $100,000. If the
variances to date are believed to be typical and the project had planned to spend
$75,000 what is the estimate at completion?
A. $335,000
B. $532,540
C. $235,000
D. $461,540

21. You are a project manager working on a project that had an original budget of
$500,000 and was forecast to take eight months. The project currently has
delivered on $35,000 worth of the project and has spent $50,000. If the variances
to date are believed to be typical and the project had planned to spend $40,000
what is the estimate at completion?
A. $515,000
B. $816,330
C. $465,000
D. $714,290

22. You are a project manager working on a project that had an original budget of
$150,000 and was forecast to take eighteen weeks. The project currently has
delivered on $53,000 worth of the project and has spent $61,000. If the variances
to date are believed to be typical and the project had planned to spend $57,250
what is the estimate at completion?
A. $172,640
B. $158,000
C. $186,490
D. $150,000
23. You are working on a project that had an original budget of $200,000 and was
originally forecast to take sixty weeks. As the project coordinator, you have been
somewhat frustrated with your project's performance. To date you have delivered
on $79,000 of the project's deliverables while you had budgeted $93,000 and
actually spent $98,000. The project has been progressing consistently and you
expect the trends the project has shown to continue. Based upon this
information, what do you expect the project's estimate at completion to be?
A. $219,000
B. $248,000
C. $292,000
D. $256,000

24. You are currently leading a project that had an original budget of $300,000 and
an original schedule of twenty-seven weeks. You currently have spent $100,000
and are currently over budget by $15,000. Your boss comes into your office and
wants to discuss your project. Specifically, she wants to know how much more
money it is going to take to complete the project. Assuming you have completed
$ 78,000 of the deliverables and you expect the performance trends to not
continue what do you tell her?
A. $222,000
B. $285,000
C. $419,000
D. $322,000

25. You are preparing your monthly status report for your project. Assuming the
variances to date are typical, what would the ETC be assuming your project was
budgeted to cost $125,000 and take twelve months and if you have actually
spent $42,000, have produced $37,500 worth of product and were scheduled to
have spent $39,000?
A. $87,500
B. $129,500
C. $140,000
D. $98,000
26. You are preparing your monthly status report for your project. Assuming the
variances to date are typical, what would the estimate to complete the project be
assuming your project was budgeted to cost $90,000 and take thirty-six weeks if
you have actually spent $50,000, have produced $65,000 worth of product and
were scheduled to have spent $60,000?
A. $25,000
B. $64,000
C. $69,000
D. $19,000

27. Which of the following is the calculated projection of cost performance that must
be achieved on the remaining work to meet a specified management goal?
A. CPI
B. TCPI
C. EAC
D. ETC

28. You are asked to produce an estimate of the performance rate that must be
achieved to meet the targeted budget at completion. If the project currently has
an EV of 18, a PV of 20 and an AC of 22.5. If your original budget was 30 and
you are using the EAC method, what estimate do you provide?
A. 0.80
B. 6.40
C. 0.81
D. 0.78

29. You are asked to produce an estimate of the performance rate that must be
achieved to meet the targeted budget at completion. The project currently has an
EV of 27.5, a PV of 30 and an AC of 29. If your original budget was 35 and you
are using the EAC method, what estimate do you provide?
A. 0.21
B. 0.91
C. 0.95
D. 0.72
30. You are asked to produce an estimate of the performance rate that must be
achieved to meet the targeted budget at completion. The project currently has an
EV of 18, a PV of 17.5 and an AC of 20. If your original budget was 55 and you
are using the EAC method, what estimate do you provide?
A. 0.90
B. 1.03
C. 0.93
D. 1.50
Review Questions – Part 3:

1. One way to compute EAC is to take the cumulative actual costs and:
A. Add the BAC.
B. Add the cumulative earned value.
C. Add the BAC - cumulative earned value.
D. Divide by the CPI.

2. Your boss comes into your office and asks how much more money it is going to
take to complete your project. What do you provide her?
A. The most current EAC.
B. The project budget plus a variance.
C. The most current ETC.
D. The worst case scenario value.

3. You are six months into a year-long project when your boss comes into your
office and asks how much money in total your project is going to cost at
completion. What do you provide him?
A. The most current ETC.
B. The most current EAC.
C. The project budget / CPI.
D. The project budget plus the latest variance estimate.

4. One way to compute ETC is to:

A. Create an entirely new estimate.
B. Take the BAC and add the cumulative EV
C. Take the BAC / CPI.
D. Take the BAC and add an entirely new estimate.

5. Which of the following is primarily concerned with examining the value of the next
highest alternative?
A. Sunk costs
B. Life cycle costs
C. Opportunity cost
D. Operational costs
6. At lunch one of your fellow project managers laments about the high sunk costs
on their project that is impacting key decisions. What are they likely saying?
A. Money budgeted to be spent is impacting the project.
B. The unseen costs of the project are impacting decisions.
C. Their project should be cancelled.
D. Money already spent on the project is impacting the decisions.

7. Which of the following falls under a project manager's ethical responsibility?

A. Opportunity costing
B. Life cycle costing
C. Sunk costing
D. Project costing

8. Which of the following is not typically part of the cost management plan?
A. Cost paradigms
B. Control thresholds
C. Earned value rules
D. Reporting formats

9. Considering the effect project decisions have on the cost of using, maintaining,
and supporting the product of the project is more commonly referred to as what?
A. Project costing
B. Ethical cost management
C. Life cycle costing
D. Professional cost responsibility

10. Life cycle costing is often combined with what to improve decision making,
reduce cost and execution time, and to improve the quality of the project?
A. Earned value management
B. Opportunity costing
C. Professional project management
D. Value engineering

11. In which of the following processes is the project cost management plan
developed?
A. The develop project management plan process
B. The estimate costs process
C. The determine budget process
D. The control costs process
12. Which of the following describes the difference between costing and pricing?
A. Costing includes profit and pricing does not
B. Pricing includes profit and costing does not
C. Pricing always includes a factor of cost
D. Cost is always a multiplier of price

13. Which of the following best represents a ROM estimate?

A. +100% to -100%
B. +75% to -25%
C. +50% to 100%
D. +10% to -5%

14. Which of the following ranges best represents a definitive estimate?

A. +100% to -100%
B. +75% to -25%
C. +50% to 100%
D. +10% to -5%

15. A coworker comes into your office and asks about your project that is currently in
the execution phase. They specifically want to know what the budget for your
project is. If your team estimated the project at $275,000 what do you tell your
coworker?
A. Approximately $302,500
B. $247,500 to $316,250
C. $261,250 to $302,500
D. Approximately $316,250

16. Your manager comes into your office and asks about your project that is currently
in the initiating phase. They specifically want to know what the budget for your
project is. If your team estimated the project at $500,000 what do you tell your
boss?
A. Approximately $1,000,000
B. $500,000 to $1,000,000
C. $750,000 to $250,000
D. $875,000 to $375,000
17. Your manager comes into your office and asks about your project that is currently
in the execution phase. They specifically want to know what the budget for your
project is. If your team estimated the project at $250,000 what do you tell your
boss?
A. $225,000 to $275,000
B. $237,500 to $275,000
C. $125,000 to $500,000
D. Approximately $275,000

18. Which of the following is a formally recognized enterprise environmental factor

that is an input to the cost estimating process?
A. Cost estimation policies
B. Historical information
C. Lessons learned
D. Published commercial information

19. Which of the following is a formally recognized organizational process asset used
in the Cost Estimating Process?
A. Cost estimating policies
B. Commercial databases
C. Marketplace conditions
D. Project team knowledge

20. Which of the following cost estimating techniques involves using the actual costs
from previous, similar projects as its basis?
A. Bottom-up estimating
B. Parametric estimating
C. Analogous estimating
D. Monte Carlo estimating

21. Which of the following cost estimating techniques involves calculating the costs
of individual tasks or activities and then summarizing the costs?
A. Analogous estimating
B. Bottom-up estimating
C. Parametric estimating
D. Monte Carlo estimating
22. Which of the following cost estimating techniques involves calculating the costs
of individual tasks or activities or work packages by determining the relationship
between them, historical data and other variables?
A. Parametric estimating
B. Bottom-up estimating
C. Analogous estimating
D. Monte Carlo estimating

23. Reserve analysis is the process of looking at the estimated costs to deal with
what?
A. Unknown unknowns
B. Certain events
C. None of the above
D. Known unknowns

24. If your original estimate was 38 weeks and you provided your sponsor with an
estimate of 36 to 42 weeks what kind of estimate did you provide?
A. Rough order of magnitude estimate
B. Final estimate
C. Budget estimate
D. Definitive estimate

25. If you have a burn rate of .92 which of the following is true?
A. The AC is 110 and the EV is 120
B. The AC is 120 and the EV is 110
C. The AC is 120 and the PV is 110
D. The EV is 110 and the PV is 120

26. If you have a burn rate of 1.21 which of the following is true?
A. The AC is $84,000 and the EV is $102,000
B. The AC is $102,000 and the EV is $84,000
C. The AC is $84,000 and the PV is $102,000
D. The EV is $102,000 and the PV is $84,000
27. Your manager comes into your office to discuss a project you are leading. In your
latest status report you indicated a burn rate of 0.86. If you have spent $192,000
what else do you know to be true?
A. You had budgeted to spend $165,000
B. Your SPI is 0.86
C. You have produced $165,000 of work
D. Your cost variance is less than your schedule variance

28. You have been assigned a project to deploy new desktop computers throughout
your organization. Your assignment to the project has occurred after the project
estimates have been completed and baselines have been established. You are
concerned that the cost estimates are unrealistic based upon your previous
experience. Which of the following is the best thing to do?
A. Determine if the contingency budget will cover the additional costs
B. Bring your project team together to determine the best solution
C. Meet with the project sponsor to examine possible solutions
D. Meet with the people who generated the cost estimate

29. In preparing your monthly status report you determine that your project is behind
schedule. You believe the variances are typical and using Earned Value Analysis
you determine the project is 16% behind schedule. Your boss has offered to
provide access to an additional six resources, but you are concerned about the
impacts of Brooke's Law and also not providing appropriate reward for the cost of
the additional resources. Your concerns are best expressed by which of the
following?
A. Crashing
B. Parkinson's law
C. Pareto principle
D. Law of diminishing returns

30. You have been asked to take over a project that senior management feels is
critical to the organization, but has also determined to be failing. Originally, the
project had a budget of $550,000. The project has only produced 2/3 of the
required deliverables and has already spent $500,000. The $500,000
expenditure represents which of the following?
A. Capital expenditure
B. Sunk cost
C. Indirect expenditure
D. Direct cost
31. In which of the following steps would a project manager allocate overall cost
estimates to the individual activities, tasks, deliverables or work packages to
establish a performance measurement baseline?
A. Estimate costs
B. Determine budget
C. Cost baselining
D. Cost control

32. You are part of a project management office within a large organization. All of the
organization's resources are currently allocated to projects. A new project has
just been brought to the PMO by senior management that must be given priority.
To complete this new project you will have to take resources from the other
projects which will cause them to be delayed. From which of the following
projects should you take the resources?
A. Project A with 17 resources, a NPV of $225,000, and no change
management plan.
B. Project B with nine resources, an IRR of 19%, BCR of 1.4, and no project
cost control plan.
C. Project C with seven resources, a benefit cost ratio of 1.2, and no project
charter.
D. Project D with 11 resources, capital expenses of US $195,000, a burn rate
of 1.25 and no schedule management plan.

33. Which of the following is not a tool or technique used in the control costs
process?
A. Forecasting
B. Variance analysis
C. Project management software
D. Reserve analysis

34. Which of the following is a tool or technique used in the control costs process?
A. Forecasting
B. Funding limit reconciliation
C. Reserve analysis
D. Parametric analysis
35. Which of the following is not an output of the Control Costs Process?
A. Work performance measurements
B. Budget forecasts
C. Approved changes
D. Change requests

36. Parametric estimating:

A. Uses project characteristics in a mathematical model
B. Uses an algorithm to calculate project costs
C. Uses top-down estimating
D. Represent the most common estimating technique

37. Analogous estimating:

A. Works best when done from the bottom up
B. Uses actual costs from previous projects
C. Can be done at any time in the project
D. Is frequently used in the late planning phase of a project

38. An executive is evaluating project A with BCR of 1.2 and project B with an NPV
of $380,000. The two projects are mutually exclusive. The cost of choosing one
of these projects and not obtaining the benefits of the other is called:
A. Sunk cost
B. Lost cost
C. Opportunity cost
D. Portfolio cost

39. Jim and Sally are two project managers working for a large manufacturing
organization who are discussing Jim's latest project. Sally comments that it is
important that Jim consider both the operational and maintenance costs of the
product being created in his project decisions. To what is Sally referring?
A. Jim's professional responsibility
B. Total project costing
C. Parametric estimating
D. Life cycle costing
40. You are in the process of establishing the cost performance measurement
system you will be using for a software development project. Which of the
following methods would be best?
A. Ask each resource for a percent of the deliverables that are complete and
forecast future performance.
B. Use the physical percent complete of the work product to calculate earned
value and then forecast future performance.
C. Use a 0% / 100% rule of reporting deliverable completeness and forecast
future performance.
D. Focus on the amount of money budgeted and actually spent in each
period and then forecast future performance.

41. You are the project manager on a project that has a CPI of 0.92. What do you
know?
A. The project is currently 8% behind schedule.
B. When the project is delivering 92% of the work product.
C. The project will end up being 92% over budget.
D. The project is currently 8% over budget.

42. You are the project manager on a project that has a cost performance index of
0.79. What does this mean?
A. The project is only producing 79 cents of value for every dollar invested.
B. The project is 21% behind schedule.
C. The project is 79% over budget.
D. The project is likely to cost 79% more than planned.

43. Your project has a CPI of 0.87. What does this mean?
A. You are behind schedule.
B. You are 13% under budget.
C. It is costing you more to produce each deliverable than forecasted.
D. You are 87% over budget.

44. Your project has a SPI of 0.91 what does this tell you?
A. You will likely deliver the project 9% behind schedule.
B. You are currently 9% behind schedule.
C. Your project has achieved 91% of its objectives.
D. You are 9% over budget.
45. You are the project manager on a large road project that has a current CV of
$176,000. What does this mean?
A. The project is $176,000 over budget.
B. The project is $176,000 ahead of schedule.
C. The project is $176,000 behind schedule.
D. The project is $176,000 under budget.

46. You are leading a project that is using resources in four different locations.
Management has mandated that you use Earned Value Analysis. If the project is
a software development project which of the following would not be necessary to
determine the initial cost baseline?
A. WBS
B. Network diagram
C. Scope change management plan
D. Risk register

47. You are the project manager for a major road project. You have been asked to
estimate the cost for your project using the formula of number of miles of road
multiplied by the number of lanes multiplied by the cost per lane mile of road.
What kind of estimate is this?
A. Parametric estimate
B. Analogous estimate
C. Rough order of magnitude estimate
D. Bottom up estimate

48. In which of the project management process groups would you make a ROM
estimate?
A. The planning process group
B. The executing process group
C. The monitoring and controlling process group
D. The initiating process group

49. You have been asked to choose between two different projects that your
organization might undertake. Which of the following would not be grounds for
comparison?
A. BCR
B. Marginal analysis
C. IRR
D. NPV
50. Which of the following is a tool for determining when investing any additional
money will not produce an equivalent return?
A. Marginal analysis
B. Benefit cost ratio analysis
C. Cost benefit ratio analysis
D. Internal rate of return analysis

51. You have been asked to choose one of three projects. Project A has an NPV of
$75,000. Project B has an NPV of $81,000. Project C has an NPV of $62,500.
What is the opportunity cost of selecting Project B?
A. $81,000
B. $62,500
C. $75,000
D. $6,000

52. You are placed in charge of a software development project. As part of your team
building you determine that your resources do not have all the necessary skills.
To improve their skills you decide to send them to an external class to obtain the
required skills. Which of the following would best categorize this expense?
A. Indirect cost
B. External cost
C. Fixed cost
D. Direct cost

53. You are meeting with the project sponsor. They voice concern about the setup
costs of the project escalating. You assure them that this is not an issue. Why?
A. Because good project management will ensure the costs do not escalate.
B. Because project setup represents an opportunity cost.
C. Because project setup represents an overhead cost.
D. Because project setup represents a fixed cost.

54. You have been asked to determine a less costly way to complete the same work.
Which of the following tools would you use?
A. Value analysis
B. Six sigma analysis
C. Marginal analysis
D. Benefit cost analysis
55. When working with earned value management which primary term represents the
actual output or work product?
A. Planned value
B. Earned value
C. Actual cost
D. CPI

56. You have been asked to select one of three projects for your organization using
NPV. Project A has an NPV of $23,000 and will take two years to produce.
Project B has an NPV of $41,000 and will take three years to produce, and
Project C has an NPV of $35,000 and will take three years to produce. Which
project would you select?
A. Project A
B. Project B
C. Project C
D. It cannot be determined

57. You are leading a project for an external customer. The client representative
asks that you provide a written cost estimate that is 25% higher than your
estimate of the project's cost. They justify the request by telling you their
company budgeting process requires managers to estimate pessimistically to
ensure enough money is allocated for projects. What is the best way to handle
this?
A. Add the 25% as a lump sum contingency to handle project risks.
B. Add the 25% to the cost estimate by spreading it evenly across all project
activities.
C. Create one cost baseline for budget allocation and a second one for the
actual project management plan.
D. Ask for information on risks that would cause your estimate to be too low.

58. What type of cost is team development?

A. Direct
B. Indirect
C. Required
D. Fixed
59. Value analysis is performed to get:
A. The team to buy into the project.
B. More value from the cost analysis.
C. A less costly way of doing the same work.
D. Management to buy into the project.

60. You have been assigned as the project manager for a medium-sized information
technology project. Upon receiving your charter, the project sponsor asks if the
project can be completed within the target budget. Which of the following is the
best way to handle this?
A. Build an estimate in the form of a range of possible results.
B. Ask the team members to help estimate the cost based on the project
charter.
C. Based on the information you have, calculate a parametric estimate.
D. Provide an analogous estimate based on past history.

61. Early in the life of your project, you are having a discussion with the sponsor
about which estimating techniques should be used. You want a form of expert
judgment, but the sponsor argues for analogous estimating. It would be best to:
A. Agree to analogous estimating, as it is a form of expert judgment.
B. Suggest life cycle costing as a compromise.
C. Determine why the sponsor wants such an accurate estimate.
D. Try to convince the sponsor to allow expert judgment because it is
typically more accurate.

62. You have just completed the initiating processes of a small project and are
moving into project planning when a project stakeholder asks you for the project's
budget and cost baseline. What should you tell her?
A. The project budget can be found in the project charter, which has just
been completed.
B. The project budget and baseline will not be finalized and accepted until
planning processes are completed.
C. The project management plan will not contain the project's budget and
baseline; this is a small project.
D. It is impossible to complete an estimate before the project management
plan is created.
Answer Key – Part 1:
1. B
Answer B. This question requires you to calculate the depreciation using the
formula below then subtracting that result from the purchase price four times.
Current Asset Value - ((cost - residual value)/useful life)

2. C
Answer C. This question requires you to calculate the depreciation using the
formula below then subtracting that result from the purchase price three times.
Current Asset Value - ((cost - residual value)/useful life)

3. D
Answer D. Question requires you to calculate the depreciation using the formula
below then subtracting that result from the purchase price one time. Current
Asset Value - ((cost - residual value)/useful life)

4. A
Answer A. This question requires you to calculate the depreciation using the
formula below then subtracting that result from the purchase price three times.
Current Asset Value - ((cost - residual value)/useful life)

5. C
Answer C. This question requires you to calculate the depreciation using the
formula below then subtracting that result from the purchase price three times.
Current Asset Value - ((cost - residual value)/useful life)

6. B
Answer B. The Unit of Production Method, or UOP is defined by first calculating
the amount of value the asset loses with each unit produced. This is done with
the formula below. This result is then multiplied by the number of units produced
giving you the lost value. By subtracting this number from the original purchase
price you obtain the result. Current Asset Value - (Units Produced * ( (cost -
residual value)/estimated units of useful life (production)) )
7. D
Answer D. The Unit of Production Method, or UOP is defined by first calculating
the amount of value the asset loses with each unit produced. This is done with
the formula below. This result is then multiplied by the number of units produced
giving you the lost value. By subtracting this number from the original purchase
price you obtain the result. Current Asset Value - (Units Produced * ( (cost -
residual value)/estimated units of useful life (production)) )

8. C
Answer C. The Unit of Production Method, or UOP is defined by first calculating
the amount of value the asset loses with each unit produced. This is done with
the formula below. This result is the multiplied by the number of units produced
giving you the lost value. By subtracting this number from the original purchase
price you obtain the result. Current Asset Value - (Units Produced * ( (cost -
residual value)/estimated units of useful life (production)) )

9. A
Answer A. The Unit of Production Method, or UOP is defined by first calculating
the amount of value the asset loses with each unit produced. This is done with
the formula below. This result is the multiplied by the number of units produced
giving you the lost value. By subtracting this number from the original purchase
price you obtain the result. Current Asset Value - (Units Produced * ( (cost -
residual value)/estimated units of useful life (production)) )

10. A
Answer A. The Unit of Production Method, or UOP is defined by first calculating
the amount of value the asset loses with each unit produced. This is done with
the formula below. This result is the multiplied by the number of units produced
giving you the lost value. By subtracting this number from the original purchase
price you obtain the current value. Current Asset Value - (Units Produced * (
(cost - residual value)/estimated units of useful life (production)) )

11. B
Answer B. Double Declining Balances or DDB is an accelerated depreciation
method. Begin by calculating depreciation as if using the straight line method.
Then determine the total percentage of the asset that is depreciated the first year
and double it. Each subsequent year, that same percentage is multiplied by the
remaining balance to be depreciated.
12. A
Answer A. Double Declining Balances or DDB is an accelerated depreciation
method. Begin by calculating depreciation as if using the straight line method.
Then determine the total percentage of the asset that is depreciated the first year
and double it. Each subsequent year, that same percentage is multiplied by the
remaining balance to be depreciated.

13. D
Answer D. Double Declining Balances or DDB is an accelerated depreciation
method. Begin by calculating depreciation as if using the straight line method.
Then determine the total percentage of the asset that is depreciated the first year
and double it. Each subsequent year, that same percentage is multiplied by the
remaining balance to be depreciated.

14. B
Answer B. Double Declining Balances or DDB is an accelerated depreciation
method. Begin by calculating depreciation as if using the straight line method.
Then determine the total percentage of the asset that is depreciated the first year
and double it. Each subsequent year, that same percentage is multiplied by the
remaining balance to be depreciated.

15. C
Answer C. Double Declining Balances or DDB is an accelerated depreciation
method. Begin by calculating depreciation as if using the straight line method.
Then determine the total percentage of the asset that is depreciated the first year
and double it. Each subsequent year, that same percentage is multiplied by the
remaining balance to be depreciated.

16. C
Answer C. SYD or Sum of the Year Digits is an accelerated depreciation method.
Begin by adding the number of years in the schedule. For example, for a five
year schedule add 1+2+3+4+5 = 15. Next, take the asset value minus the
residual value and divide it by this result (15). This creates the amount you will
use at the end of each year to reduce the value of the asset.
17. A
Answer A. SYD or Sum of the Year Digits is an accelerated depreciation method.
Begin by adding the number of years in the schedule. For example, for a five
year schedule add 1+2+3+4+5 = 15. Next, take the asset value minus the
residual value and divide it by this result (15). This creates the amount you will
use at the end of each year to reduce the value of the asset.

18. D
Answer D. SYD or Sum of the Year Digits is an accelerated depreciation method.
Begin by adding the number of years in the schedule. For example, for a five
year schedule add 1+2+3+4+5 = 15. Next, take the asset value minus the
residual value and divide it by this result (15). This creates the amount you will
use at the end of each year to reduce the value of the asset.

19. B
Answer B. SYD or Sum of the Year Digits is an accelerated depreciation method.
Begin by adding the number of years in the schedule. For example, for a five
year schedule add 1+2+3+4+5 = 15. Next, take the asset value minus the
residual value and divide it by this result (15). This creates the amount you will
use at the end of each year to reduce the value of the asset.

20. A
Answer A. SYD or Sum of the Year Digits is an accelerated depreciation method.
Begin by adding the number of years in the schedule. For example, for a five
year schedule add 1+2+3+4+5 = 15. Next, take the asset value minus the
residual value and divide it by this result (15). This creates the amount you will
use at the end of each year to reduce the value of the asset.
Answer Key – Part 2:
1. B
Answer B. PMBOK Guide p. 261-267 - The Planned Value is the budgeted cost
for the work scheduled to be completed on an activity or WBS component up to a
given point. This is sometimes referred to as the BCWS.

2. D
Answer D. PMBOK Guide p. 261-267 - The Earned Value is the budgeted
amount for the work actually completed on the scheduled activity during a
specified time period. This is sometimes referred to as the BCWP.

3. A
Answer A. PMBOK Guide p. 261-267 - The Actual Costs are the total costs
incurred in accomplishing work on the schedule activity during a specified time
period. The actual costs are sometimes referred to as ACWP or actual costs of
work performed.

4. B
Answer B. PMBOK Guide p. 261-267 - The Estimate to Complete provides a
metric showing how much more money than has already been spent is needed to
complete the project. This is in addition to the money that has already been
spent. The ETC is correct.

5. C
Answer C. PMBOK Guide p. 261-267 - As a project continues it is important that
you are constantly revising your estimates of how much money you are going to
have to spend. This total number is represented by the Estimate At Completion
or EAC.

6. A
Answer A. PMBOK Guide p. 261-267 - The Cost Variance or CV, represents an
indicator of how far away from the original cost baseline the project actually is. To
calculate it, take the Earned Value (EV) and subtract the Actual Costs. A project
is on target if the CV is equal to 0.
7. D
Answer D. PMBOK Guide p. 261-267 - The Schedule Variance or SV, represents
an indicator of how far off of the original schedule baseline the project actually is.
To calculate the SV take the Earned Value and subtract the Planned Value. A
project is on schedule if the SV is equal to 0.

8. D
Answer D. PMBOK Guide p. 261-267 - The Cost Variance or CV, represents an
indicator of how far away from the original cost baseline the project actually is. To
calculate it take the Earned Value (EV) and subtract the actual costs. A project is
on target if the CV is equal to 0.

9. D
Answer D. PMBOK Guide p. 261-267 - The Cost Variance or CV, represents an
indicator of how far away from the original cost baseline the project actually is. To
calculate it take the Earned Value (EV) and subtract the actual costs. A project is
on target if the CV is equal to 0.

10. A
Answer A. PMBOK Guide p. 261-267 - The Cost Variance or CV, represents an
indicator of how far away from the original cost baseline the project actually is. To
calculate it take the Earned Value (EV) and subtract the actual costs. A project is
on target if the CV is equal to 0.

11. D
Answer D. PMBOK Guide p. 261-267 - The Schedule Variance or SV, represents
an indicator of how far away from the original schedule baseline the project
actually is. To calculate it take the Earned Value (EV) and subtract the Planned
Value (PV). A project is on target if the SV is equal to 0.

12. C
Answer C. PMBOK Guide p. 261-267 - The Schedule Performance Index, or SPI,
is calculated by taking the Earned Value (EV or amount of work produced) and
dividing it by the Planned Value (PV, budget or planned spending). A project is
on schedule if the result is 1.
13. B
Answer B. PMBOK Guide p. 261-267 - The Schedule Performance Index, or SPI,
is calculated by taking the Earned Value (EV or amount of work produced) and
dividing it by the Planned Value (PV, budget or planned spending). A project is
on schedule if the result is 1.

14. C
Answer C. PMBOK Guide p. 261-267 - The critical ratio is calculated by first
determining both the Cost Performance Index, or CPI (EV / AC) and the
Schedule Performance Index or SPI (EV / PV). The Critical Ratio is then equal to
the CPI * SPI.

15. D
Answer D. PMBOK Guide p. 261-267 - The critical ratio is calculated by first
determining both the Cost Performance Index, or CPI (EV / AC) and the
Schedule Performance Index or SPI (EV / PV). The Critical Ratio is then equal to
the CPI * SPI. In this case you are missing the planned value so the critical ratio
cannot be determined.

16. A
Answer A. PMBOK Guide p. 261-267 - The critical ratio is calculated by first
determining both the Cost Performance Index, or CPI (EV / AC) and the
Schedule Performance Index or SPI (EV / PV). The Critical Ratio is then equal to
the CPI * SPI.

17. A
Answer A. PMBOK Guide p. 261-267 - The key to this question is the fact that
the variances are believed to be atypical. With this piece of information, you
know the formula should be EAC = AC + BAC - EV.

18. B
Answer B. PMBOK Guide p. 261-267 - The key to this question is the fact that
the variances are believed to be atypical. With this piece of information, you
know the formula should be EAC = AC + BAC - EV.

19. C
Answer C. PMBOK Guide p. 261-267 - The key to this question is the fact that
the variances are believed to be atypical. With this piece of information, you
know the formula should be EAC = AC + BAC - EV.
20. D
Answer D. PMBOK Guide p. 261-267 - The key to this question is the fact that
the variances are believed to be typical. This means whatever is happening will
continue to happen at approximately the same rate. With this piece of information
you should have known to use the following formula: EAC = AC + ((BAC -
EV)/CPI).

21. D
Answer D. PMBOK Guide p. 261-267 - The key to this question is the fact that
the variances are believed to be typical. This means whatever is happening will
continue to happen at approximately the same rate. With this piece of information
you should have known to use the following formula: EAC = AC + ((BAC -
EV)/CPI).

22. A
Answer A. PMBOK Guide p. 261-267 - The key to this question is the fact that
the variances are believed to be typical. This means whatever is happening will
continue to happen at approximately the same rate. With this piece of information
you should have known to use the following formula: EAC = AC + ((BAC -
EV)/CPI).

23. B
Answer B. PMBOK Guide p. 261-267 - The key to this question is the fact that
the variances are believed to be typical. This means whatever is happening will
continue to happen at approximately the same rate. With this piece of information
you should have known to use the following formula: EAC = AC + ((BAC -
EV)/CPI).

24. A
Answer A. PMBOK Guide p. 261-267 - To correctly answer this question you
must first determine exactly what is being asked. In this question you are being
asked for an estimate to complete the project (ETC). In this case you are told that
the variances that have been seen to date are not typical. Therefore, your correct
formula is ETC = BAC - EV.
25. D
Answer D. PMBOK Guide p. 261-267 - To correctly answer this question you
must first determine exactly what is being asked. In this question you are being
asked for an estimate to complete the project (ETC). In this case you are told that
the variances that have been seen to date are typical. Therefore, your correct
formula is ETC = (BAC - EV) / CPI.

26. D
Answer D. PMBOK Guide p. 261-267 - To correctly answer this question you
must first determine exactly what is being asked. In this question you are being
asked for an estimate to complete the project (ETC). In this case you are told that
the variances that have been seen to date are typical. Therefore, your correct
formula is ETC = (BAC - EV) / CPI.

27. B
Answer B. PMBOK Guide p. 261-267 - The To-Complete Performance Index is
the calculated projection of cost performance that must be achieved on the
remaining work to meet a specified management goal, such as the BAC or the
EAC.

28. A
Answer A. PMBOK Guide p. 261-267 - This question requires you to calculate
the TCPI or the To-Complete Performance Index using the EAC formula. This
formula is: (BAC - EV) / (EAC - AC). The EAC is calculated using the CPI
method.

29. C
Answer C. PMBOK Guide p. 261-267 - This question requires you to calculate
the TCPI or the To-Complete Performance Index using the EAC formula. This
formula is: (BAC - EV) / (EAC - AC). The EAC is calculated using the CPI
method.

30. A
Answer A. PMBOK Guide p. 261-267 - This question requires you to calculate
the TCPI or the To-Complete Performance Index using the EAC formula. This
formula is: (BAC - EV) / (EAC - AC). The EAC is calculated using the CPI
method.
Answer Key – Part 3:
1. C
Answer C. PMBOK Guide p. 264-265. There are several ways to calculate the
Estimate At Completion or EAC. The most common of these include:
- Creating an entirely new estimate
- Cumulative actual costs + (Original Total Budget - Cumulative Earned Value)
- Cumulative Actual Costs + ((Original Total Budget - Cumulative Earned Value) /
Cumulative CPI)
- Cumulative Actual Costs + ((Original Total Budget - Cumulative Earned Value) /
(Cumulative CPI * SPI))

2. C
Answer C. PMBOK Guide p. 264-265. This question is asking how much more
money is required. This is money in addition to the money already spent. This is
the definition of the Estimate to Complete or ETC.

3. B
Answer B. PMBOK Guide p. 264-265. This question is asking how much money
will you have spent when the project has been completed. This is the Estimate at
Completion or EAC.

4. A
Answer A. PMBOK Guide p. 264-265. There are three ways to calculate ETC or
Estimate to Complete. They include:
- Create an entirely new estimate
- Assume the variances are atypical (BAC- Cumulative EV)
- Assume the variances are typical (BAC - cumulative EV) / (CPI* SPI)
- Using the critical ratio (BAC - cumulative EV) / CPI

5. C
Answer C. PMBOK Guide p. 712. Opportunity costs measure the value of the
next highest alternative. This provides a way of measuring what you chose not to
do.

6. D
Answer D. PMBOK Guide p. 238. Sunk costs represent money that has already
been spent on the project. Often these costs become so great that projects are
forcibly continued to save face or for other reasons when they should be
cancelled.
7. B
Answer B. Although project costing is a responsibility of the project manager, life
cycle costing is an ethical responsibility. The project manager has the
responsibility to ensure the product of the project is within the operating budget of
the organization.

8. A
Answer A. Control thresholds, earned value rules and reporting formats are all
typically part of the cost management plan. "Cost paradigms" is a nonexistent
term for the purposes of project management.

9. C
Answer C. Project cost management should consider the effect of project
decisions on the cost of using, maintaining, and supporting the project's product
or service, more commonly referred to as life cycle costing.

10. D
Answer D. Life cycle costing is often combined with value engineering to improve
decision making, reduce costs and execution time, and to improve the quality of
the project.

11. A
Answer A. PMBOK Guide p. 235 - Although it is not formally called out in the cost
management processes, the PMBOK Guide specifies that the cost management
plan is initially produced as part of the development of the project management
plan.

12. B
Answer B. Price is made up of the cost of the item plus the desired profit. Cost
simply represents what the item took to produce in monetary terms.

13. B
Answer B. PMBOK Guide p. 241. Early in a project's life cycle you are not likely
to have a lot of detailed information. Therefore, you need to provide a wide
ranging estimate. The Rough Order of Magnitude estimate does just that. It is a
range of +75% to -25% of the original estimate.
14. D
Answer D. PMBOK Guide p. 241. The definitive estimate is the final project
estimate given to all management and resources. It is never a single number and
always represented by a range. The correct range for a definitive estimate is
+10% to -5%.

15. C
Answer C. PMBOK Guide p. 241. Remember, according to PMI, you never give a
single number. You always provide a range. In this case that fact excludes two of
the answers. Since you are in the execution phase of the project you are using
the definitive estimate which is +10% to -5%. That provides a range of 261,250 to
$302,500.

16. D
Answer D. PMBOK Guide p. 241. Remember, according to PMI, you never give a
single number. You always provide a range. In this case that fact excludes two of
the answers. Since you are in the initiation phase of the project you are using the
ROM estimate which is +75% to -25% . That provides a range of 375,000 to
$875,000.

17. B
Answer B. PMBOK Guide p. 241. Remember, according to PMI, you never give a
single number. You always provide a range. In this case that fact excludes one of
the answers. Since you are in the planning phase of the project you are using the
definitive estimate which is +10% to -5%. That provides a range of $237,500 to
$275,000.

18. D
Answer D. PMBOK Guide p. 171 - Enterprise environmental factors are factors or
conditions that exist within the area that the project resides. When discussing the
factors for the estimate cost process, PMI specifically calls out two:
- Market conditions
- Published commercial information
- Exchange rates and inflation
19. B
Answer B. PMBOK Guide p. 171 - Organizational process assets represent
templates and information that help the project team complete the project. When
it comes to the cost estimating process these assets formally include:
- Cost estimating policies
- Cost estimating templates
- Historical information

20. C
Answer C. PMBOK Guide p. 244 - Analogous estimating represents a technique
used usually early in a project to develop cost and schedule estimates. It makes
use of comparative analysis and argues that if two projects are similar their costs
should be similar as well. This method runs a significant accuracy risk because
often the details of the projects are not that similar.

21. B
Answer B. PMBOK Guide p. 244. Bottom-up estimating involves completing the
estimates at the lowest possible level, the task or activity, and then summing the
work packages as you go higher up the WBS. PMI considers this the most
accurate and detailed form of estimating.

22. A
Answer A. PMBOK Guide p. 244. Relationships between historical data and
other variables to calculate a cost estimate represent parametric estimating.

23. D
Answer D. PMBOK Guide p. 245 - Reserve analysis is the technique of looking
for areas where there are known, potential risks, called known unknowns
because you know they are possible, but you do not know when they are going
to happen.

24. D
Answer D. PMBOK Guide p. 241. The definitive estimate is the final estimate
provided in the project. It is the estimate used for baselines and represents a
range of +10% to -5%.
25. B
Answer B. PMBOK Guide p. 263. The "Burn Rate" measures the rate you are
"burning" or spending your money versus how much work product you are
obtaining. It is another way to say CPI. It is expressed as a numerical value with
a target of one. It is defined by the formula of Earned Value / Actual Costs.

26. A
Answer A. PMBOK Guide p. 263. The "Burn Rate" measures the rate you are
"burning" or spending your money versus how much work product you are
obtaining. It is another way to say CPI. It is expressed as a numerical value with
a target of one. It is defined by the formula of Earned Value / Actual Costs.

27. C
Answer C. PMBOK Guide p. 263. The "burn rate" measures the rate you are
"burning" or spending your money versus how much work product you are
obtaining. It is another way to say CPI. It is expressed as a numerical value with
a target of one. It is defined by the formula of earned value / actual costs.

28. B
Answer B. Your best answer is to always work with your project team first to
determine alternatives. Remember, the PMI standards are all about examining
alternatives and presenting recommendations. You would not want to meet with
anyone else until you have met with your team.

29. D
Answer D. The law of diminishing returns argues that in every scenario there is a
point where spending money will not get an equal amount of value in return. The
rest of the question is simply subterfuge and should be ignored.

30. B
Answer B. Sunk costs represent monies that have already been spent. They
cannot be recovered. They are important to project managers because many
organizations make project decisions based upon the money that has already
been spent. This often leads to good money following bad.

31. B
Answer B. PMBOK Guide p. 248-256 - Determine budget involves aggregating
the various estimated costs for all the tasks, activities, deliverables, and/or work
packages to establish a total cost baseline for the project.
32. C
Answer C. Each of these projects is in trouble, but only one of them should have
never been started. That is project C. Project C does not have a project charter
and should have never been started. Therefore, it should be the first place you
go for resources. Remember, you never do a project without a charter no matter
what the numbers say.

33. D
Answer D. PMBOK Guide p. 257 - The tools and techniques used in the control
costs process include:
- Expert judgment
- Data analysis
- To-complete performance index (TCPI)
- Project management information system

34. A
Answer A. PMBOK Guide p. 167 - The tools and techniques used in the control
costs process include:
- Expert judgment
- Data analysis
- To-complete performance index (TCPI)
- Project management information system

35. C
Answer C. PMBOK Guide p. 167 - The outputs from the cost control process
include:
- Work performance measurements
- Cost forecasts
- Change requests
- Project management plan updates
- Project document updates

36. A
Answer A. PMBOK Guide p. 244 - Parametric estimating involves using project
characteristics in a mathematical model to predict total project costs.

37. B
Answer B. PMBOK Guide p. 243 - Analogous estimating means using the actual
cost of previous, similar projects as the basis for estimating the cost of the
current project.
38. C
Answer C. The opportunity cost for any selection is defined as the value of the
next highest alternative.

39. D
Answer D. Life cycle costing is the requirement that the project manager take into
consideration the cost of operation and the cost of maintenance for the product
or service being created. It is an ethical responsibility of the project manager.

40. B
Answer B. PMBOK Guide p. 261-267. In most cases, the best way to report level
of completeness is to use the actual level of physical completeness as part of the
earned value calculations. This is the actual amount of work product produced.
However, the real key to this question is to remember that PMI always wants you
to use earned value reporting.

41. D
Answer D. PMBOK Guide p. 261-267. The cost performance index or CPI is
defined as the Earned Value divided by the Actual Costs. It tells you how close to
the forecasted budget you actually are. If the CPI is 0.92 that tells you the project
is 1 - .92 or 0.08 over budget.

42. A
Answer A. PMBOK Guide p. 261-267. The cost performance index or CPI is
defined as the Earned Value divided by the Actual Costs. It tells you how close to
the forecasted budget you actually are. If the CPI is 0.79 that tells you the project
is 1 - .79 or 0.21 over budget.

43. C
Answer C. PMBOK Guide p. 261-267. The cost performance index or CPI is
defined as the Earned Value divided by the Actual Costs. It tells you how close to
the forecasted budget you actually are. If the CPI is 0.87 that tells you the project
is 1 - .87 or 0.13 over budget.

44. B
Answer B. PMBOK Guide p. 261-267. The Schedule Performance Index or SPI is
defined as the Earned Value divided by the Planned Value. It tells you how close
to the forecasted schedule you actually are. If the SPI is 0.91 you know that your
project is currently 1 - 0.91 or 0.09 behind schedule.
45. D
Answer D. PMBOK Guide p. 261-267. The cost variance, or CV is calculated
using the formula Earned Value - Actual Cost. A project with a negative value is
over budget and a project with a positive value is currently under budget.

46. C
Answer C. PMBOK Guide p. 248 - The cost baseline is an output of the
determine budget process. In order to determine which it is, you would need the
WBS to see all the deliverables of the project, a network diagram to see the
dependencies between deliverables, and the listing of potential risks to establish
any contingency. However, you would not need your scope change management
plan to determine the cost baseline.

47. A
Answer A. PMBOK Guide p. 172 - Parametric estimating is a technique that uses
a statistical relationship between historical data and other variables to calculate a
cost estimate. In other words a mathematical model.

48. D
Answer D. PMBOK Guide p. 168 - A Rough Order of Magnitude estimate, or
ROM, is done in the initiating phases of the project. This estimate has a range of
-25% to -75% the widest variance, and is therefore used as the earliest estimate
in the project, often in a project charter.

49. B
Answer B. Marginal analysis, which uses the law of diminishing returns is an
attempt to find the point investing $1 gets you exactly $1 in return and investing
any more gives you less. In those situations, it usually does not make sense to
invest more. This is an important measure, but does not help you compare
projects. The Benefit/Cost Ratio, Internal Rate of Return and Net Present Value
all can help compare projects.

50. A
Answer A. Marginal analysis, which uses the law of diminishing returns is an
attempt to find the point investing $1 gets you exactly $1 in return and investing
any more gives you less. In those situations, it usually does not make sense to
invest more.
51. C
Answer C. Opportunity cost is defined as the value of the next highest, not
selected alternative. In this case, the correct answer is $75,000.

52. D
Answer D. In this case the training is directly related to the project and is
therefore a direct cost of the project.

53. D
Answer D. The setup of a project does not have a direct tie to the amount or
number of products produced. It is generally done before any production occurs
and therefore is a fixed cost.

54. A
Answer A. This is a simple memorization question. You must remember that
value analysis is all about determining the least costly way to complete work (e.g.
obtain the most value).

55. B
Answer B. PMBOK Guide p. 261-267. There are three key variables to establish
the earned value calculations:
- Earned value - the work product
- Planned value - the budget
- Actual costs - how much you really spent

56. B
Answer B. This is a trick question of sorts. The question provides both the term of
the project and the NPV. This would seem to indicate that you must do
something with the term. However, the NPV takes into account the project term
making this information unnecessary. All you have to do is select the largest
value.

57. D
Answer D. This is an ethics question. PMI's standards are very clear in this area.
Although it is a largely western way of thinking about this topic you should only
present the actual estimate.

58. A
Answer A. Team development or training is considered a direct cost to the
project as it represents paying for the skills required to complete the project.
59. C
Answer C. The primary purpose of value analysis is finding a less costly way to
do the same work.

60. A
Answer A. With such limited information, it is best to estimate in a range. The
range can be narrowed as planning progresses and risks are addressed.

61. A
Answer A. Determining why the sponsor wants such an accurate estimate
sounds like a good idea at first; however, analogous estimates are less accurate
than other forms of estimating, as they are prepared with a limited amount of
detailed information. You need to realize that analogous estimating is a form of
expert judgment.

62. B
Answer B. The overall project budget may be included in the project charter but
not the detailed costs. Even small projects should have a budget and a schedule.
It is not impossible to create a project budget before the project management
plan is created. However, it is not wise to do so, as the budget will not be
accurate. The project budget and baseline are not finalized and accepted until
the planning processes are completed.

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Project Management Professional (PMP) ® Exam Prep Course 7 - Project Cost Management

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Project Management Professional (PMP) ® Exam Prep Course 7 - Project Cost Management

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Project Management Professional (PMP)®

Project Cost Management

Looking Glass Development, LLC

Monitoring and Controlling Process Group

© Copyright and all rights reserved –

 The Cost Management Plan is part of

manage the money. 7. Project Cost

© Copyright and all rights reserved –

© Copyright and all rights reserved –

Cost Estimating ≠ Pricing 7.1

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© Copyright and all rights reserved –

© Copyright and all rights reserved –

© Copyright and all rights reserved –

© Copyright and all rights reserved –

© Copyright and all rights reserved –

© Copyright and all rights reserved –

© Copyright and all rights reserved –

© Copyright and all rights reserved –

© Copyright and all rights reserved –

© Copyright and all rights reserved –

© Copyright and all rights reserved –

 VAC = BAC - EAC

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© Copyright and all rights reserved –

3. Which of the following variables represents the total cost incurred in

4. One way to compute ETC is to:

7. Which of the following falls under a project manager's ethical responsibility?

13. Which of the following best represents a ROM estimate?

14. Which of the following ranges best represents a definitive estimate?

18. Which of the following is a formally recognized enterprise environmental factor

36. Parametric estimating:

37. Analogous estimating:

58. What type of cost is team development?

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