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Cost Analysis and Budgeting Flashcards

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  1. Which type of cost escalation factor accounts for changes in the purchasing power of money over time on a multi-year project?

    Answer: Inflation escalation

    Inflation escalation factors adjust future-year costs to account for the expected decrease in purchasing power over the project duration.

  2. A project has Total Budget at Completion (BAC) of $500,000 and the Estimate at Completion (EAC) is $590,000. What is the Variance at Completion (VAC)?

    Answer: -$90,000

    VAC = BAC − EAC = $500,000 − $590,000 = −$90,000, indicating a projected cost overrun of $90,000.

  3. In life-cycle costing, which phase typically represents the largest cumulative cost for a facility?

    Answer: Operations and maintenance over the facility's life

    Operations and maintenance costs typically dwarf initial construction costs over a facility's full life cycle, often representing 60–80% of total life-cycle cost.

  4. When using the 'Estimate to Complete' (ETC) formula ETC = (BAC − EV) / CPI, what assumption is being made?

    Answer: Future work will continue at the same efficiency as work completed to date

    Dividing remaining work by the current CPI assumes the project will continue performing at the same cost efficiency as it has so far.

  5. A cost estimator applies a 'square foot cost' method to a new office building. This is an example of which estimating approach?

    Answer: Parametric estimating

    Parametric estimating uses statistical relationships between historical costs and project parameters (like square footage) to produce rapid cost estimates.

  6. Which document formally authorizes a project team to spend funds up to a specified limit for a defined scope of work?

    Answer: Work authorization document

    A work authorization document (WAD) formally releases budget and authorizes the team to perform specific work within defined cost and schedule limits.

  7. An estimator is reconciling indirect costs. Which of the following is correctly classified as an indirect project cost?

    Answer: Project manager's salary allocated across multiple projects

    A project manager's salary spread across multiple projects is an indirect cost because it cannot be exclusively attributed to a single project.