CCT Cost Estimation & Budgeting 5 — Questions and Answers
Question 1: When preparing a cash flow forecast, which component represents the timing difference between when costs are incurred and when payments are made?
- Payment lag (Correct answer)
- Retainage
- Escalation
- Float
Correct answer: Payment lag
Payment lag is the delay between incurring a cost and actually disbursing payment, which affects the timing of cash outflows.
Question 2: A definitive estimate for a construction project typically has an accuracy range of:
- -5% to +10% (Correct answer)
- -30% to +50%
- -15% to +25%
- -10% to +20%
Correct answer: -5% to +10%
A definitive (Class 1) estimate is the most accurate, prepared from complete design documents, with a typical accuracy of -5% to +10%.
Question 3: What is the difference between 'cost of work' and 'value of work done' in progress measurement?
- Cost of work is actual expenditure; value of work done is the budgeted cost of completed work (Correct answer)
- Cost of work includes overhead; value of work done excludes it
- Cost of work is the forecast; value of work done is the actual
- Cost of work and value of work done are interchangeable terms
Correct answer: Cost of work is actual expenditure; value of work done is the budgeted cost of completed work
Cost of work (actual cost) measures what was spent, while value of work done (earned value) measures the budgeted cost of physically completed work.
Question 4: Which cost estimating technique is best suited when a new project is similar to a previously completed project but with known differences in scope or size?
- Analogous estimating with adjustments (Correct answer)
- Parametric estimating
- Bottom-up estimating
- Monte Carlo simulation
Correct answer: Analogous estimating with adjustments
Analogous estimating with adjustments uses historical data from a similar project and modifies it to account for known differences.
Question 5: In project budgeting, 'management reserve' differs from 'contingency reserve' primarily because:
- Management reserve is for unknown unknowns; contingency reserve is for known unknowns (Correct answer)
- Management reserve is part of the cost baseline; contingency is not
- Management reserve is approved by the team; contingency by the sponsor
- Management reserve is a fixed dollar amount; contingency is a percentage
Correct answer: Management reserve is for unknown unknowns; contingency reserve is for known unknowns
Management reserve covers unforeseeable events (unknown unknowns), while contingency reserve covers identified risks (known unknowns) that may or may not occur.
Question 6: What is the purpose of a cost risk analysis (Monte Carlo simulation) in estimating?
- To quantify the probability of completing the project within a given budget (Correct answer)
- To identify the critical path in the project schedule
- To calculate the exact contingency reserve required
- To rank project risks by severity and likelihood
Correct answer: To quantify the probability of completing the project within a given budget
Monte Carlo simulation runs thousands of iterations with random variable values to produce a probability distribution of possible cost outcomes.
Question 7: Which document formally authorizes a project team to incur costs against a specific work package or control account?
- Work authorization document (Correct answer)
- Change order
- Cost account plan
- Project charter
Correct answer: Work authorization document
A work authorization document (WAD) formally authorizes the performer to begin work and charge costs to a specific control account.
CCT Cost Estimation & Budgeting 5
When preparing a cash flow forecast, which component represents the timing difference between when costs are incurred and when payments are made?