CEP Cost Estimation Techniques & Methods 3 — Questions and Answers
Question 1: What is the primary purpose of a Work Breakdown Structure (WBS) in cost estimating?
- To schedule project activities on a Gantt chart
- To organize project scope into manageable, estimable elements (Correct answer)
- To assign personnel to tasks
- To track actual costs against budget
Correct answer: To organize project scope into manageable, estimable elements
A WBS decomposes project scope hierarchically, providing the framework for assigning and accumulating costs.
Question 2: Which AACE estimate class typically corresponds to a 'definitive' estimate used for project control?
- Class 5
- Class 4
- Class 2
- Class 1 (Correct answer)
Correct answer: Class 1
Class 1 estimates have the highest degree of project definition (65–100% complete) and tightest accuracy range, making them suitable for project control.
Question 3: A facility that produced 500 units last year at $10M total cost is being expanded to 1,000 units. Using the 0.6 power factor, what is the estimated cost?
- $15.2M (Correct answer)
- $20.0M
- $12.5M
- $8.7M
Correct answer: $15.2M
Cost₂ = $10M × (1000/500)^0.6 = $10M × 2^0.6 = $10M × 1.516 ≈ $15.2M.
Question 4: In parametric estimating, a Cost Estimating Relationship (CER) is most accurately described as:
- A contract clause relating cost to scope changes
- A mathematical equation relating cost to one or more technical or physical parameters (Correct answer)
- A comparison of multiple vendor bids
- A risk-adjusted contingency formula
Correct answer: A mathematical equation relating cost to one or more technical or physical parameters
A CER is a statistical or empirical equation that expresses cost as a function of project parameters such as weight, area, or throughput.
Question 5: Which technique calculates an expected cost estimate using the weighted average formula: (O + 4M + P) / 6?
- Monte Carlo simulation
- PERT three-point estimating (Correct answer)
- Delphi method
- Earned value analysis
Correct answer: PERT three-point estimating
PERT three-point estimating uses optimistic (O), most likely (M), and pessimistic (P) values with a 1:4:1 weighting to calculate the expected estimate.
Question 6: What does 'escalation' address in a cost estimate?
- Scope increases approved by the owner
- The time value of money for financing costs only
- Changes in cost levels due to inflation or market conditions over the project timeline (Correct answer)
- Contractor overhead markups
Correct answer: Changes in cost levels due to inflation or market conditions over the project timeline
Escalation accounts for anticipated changes in labor, material, and equipment costs due to inflation or market dynamics over the project duration.
Question 7: When an estimate is described as 'budget-quality,' which AACE class is most likely being referenced?
- Class 1
- Class 3 (Correct answer)
- Class 5
- Class 2
Correct answer: Class 3
Class 3 estimates (budget-quality) are prepared when project definition is 10–40% complete and are used for budget authorization.
CEP Cost Estimation Techniques & Methods 3
What is the primary purpose of a Work Breakdown Structure (WBS) in cost estimating?