CPE CPE Project Management & Engineering Economics 2

Question 1

In engineering economics, what is 'internal rate of return' (IRR)?

Accepted Answer

The discount rate at which a project's NPV equals zero

Answer

IRR is the discount rate that makes NPV equal to zero; projects are accepted when IRR exceeds the company's hurdle rate (minimum acceptable return).

Question 2

What is a 'change order' in a capital construction project?

Accepted Answer

A formal document modifying the original scope, schedule, or cost of a contract

Answer

A change order is a mutually agreed-upon amendment to the contract that adjusts scope, price, or schedule when work differs from the original agreement.

Question 3

Which project delivery method is described as 'Design-Build'?

Accepted Answer

A single contractor is responsible for both design and construction under one contract

Answer

In Design-Build, the owner contracts with a single entity responsible for completing both design and construction, reducing coordination risk and potentially shortening schedules.

Question 4

What does the '80/20 rule' (Pareto principle) suggest when applied to plant maintenance costs?

Accepted Answer

Roughly 20% of equipment typically accounts for 80% of maintenance costs

Answer

The Pareto principle predicts that a small fraction of assets usually drives the majority of maintenance expenditure, guiding prioritization efforts.

Question 5

In cost estimating, what is a 'contingency allowance'?

Accepted Answer

A budget reserve for undefined scope or unforeseen conditions within the known project scope

Answer

Contingency is an allowance within the project budget to cover unknowns within the defined scope; it is not a slush fund for scope additions.

(CPE) Certified Plant Engineer Practice Test

(CPE) Certified Plant Engineer Practice Test

CPE CPE Project Management & Engineering Economics 2