Construction Management Cost Estimating & Financial Management 2 — Questions and Answers
Question 1: Earned Value Management (EVM) calculates Schedule Performance Index (SPI) as:
- Earned Value ÷ Planned Value (EV/PV) (Correct answer)
- Actual Cost ÷ Earned Value (AC/EV)
- Earned Value ÷ Actual Cost (EV/AC)
- Planned Value ÷ Budget at Completion (PV/BAC)
Correct answer: Earned Value ÷ Planned Value (EV/PV)
SPI = EV/PV; a value below 1.0 indicates the project is behind schedule relative to the planned baseline.
Question 2: In Earned Value Management, a Cost Performance Index (CPI) of 0.85 means:
- For every $1 spent, only $0.85 of budgeted work is accomplished (Correct answer)
- The project is 15% ahead of schedule
- The project will finish 15% under budget
- The contractor earns $0.85 profit per dollar billed
Correct answer: For every $1 spent, only $0.85 of budgeted work is accomplished
CPI = EV/AC; a CPI of 0.85 signals the project is over budget — $1.18 is being spent for every $1.00 of budgeted work completed.
Question 3: A construction project's contingency budget is best described as:
- A reserve for identified and unidentified risks within the project scope (Correct answer)
- Profit set aside after project completion
- The owner's allowance for scope additions
- Overhead costs for the home office
Correct answer: A reserve for identified and unidentified risks within the project scope
Contingency is a planned reserve within the project budget to cover cost growth from known risks and unforeseen scope uncertainties, not for profit or scope changes.
Question 4: The term 'cost-to-complete' (CTC) in project financial management refers to:
- The estimated cost needed to finish the remaining work (Correct answer)
- Total costs spent to date on the project
- The original budget minus contingency
- A contractor's final invoice to the owner
Correct answer: The estimated cost needed to finish the remaining work
Cost-to-complete is a forward-looking forecast of expenses required to finish all remaining project activities, used to update the Estimate at Completion (EAC).
Question 5: Which document does a contractor typically submit monthly to request payment for completed work?
- Application for payment (pay application) (Correct answer)
- Certified payroll report
- Contractor's daily log
- Notice of completion
Correct answer: Application for payment (pay application)
A monthly application for payment, referencing the Schedule of Values, is the standard mechanism for contractors to formally request compensation for work completed.
Question 6: Break-even analysis in construction helps a contractor determine:
- The minimum revenue required to cover all fixed and variable costs (Correct answer)
- The optimal crew size for maximum productivity
- The safest markup percentage for competitive bidding
- The point at which retainage is released
Correct answer: The minimum revenue required to cover all fixed and variable costs
Break-even analysis identifies the volume of work or revenue at which total costs equal total income, with no profit or loss, guiding pricing and capacity decisions.
Construction Management Cost Estimating & Financial Management 2
Earned Value Management (EVM) calculates Schedule Performance Index (SPI) as: