CPE Cost Analysis and Budgeting 2 — Questions and Answers
Question 1: A project budget shows a Cost Performance Index (CPI) of 0.85. What does this indicate?
- The project is 15% under budget
- The project is getting $0.85 of value for every $1 spent (Correct answer)
- The project will finish 15% ahead of schedule
- The project has a 15% cost contingency
Correct answer: The project is getting $0.85 of value for every $1 spent
A CPI of 0.85 means the project is over budget, receiving only $0.85 in earned value for every dollar actually spent.
Question 2: Which budgeting technique allocates costs based on the percentage of total project work each activity represents?
- Zero-based budgeting
- Parametric estimating
- Proportional allocation (Correct answer)
- Activity-based costing
Correct answer: Proportional allocation
Proportional allocation distributes budget across activities based on their share of total project scope or work units.
Question 3: When performing a cost-benefit analysis, the payback period is defined as:
- The time required to recover the initial investment from net cash flows (Correct answer)
- The discount rate that makes NPV equal to zero
- The ratio of total benefits to total costs over the project life
- The minimum acceptable rate of return on a project
Correct answer: The time required to recover the initial investment from net cash flows
The payback period measures how long it takes for cumulative net cash inflows to equal the initial capital investment.
Question 4: A cost estimator is reviewing a budget with a Management Reserve. What is the primary purpose of a Management Reserve?
- To cover identified risks with known probability
- To handle unknown unknowns and unforeseen scope changes (Correct answer)
- To fund overtime labor during peak periods
- To offset material price escalation
Correct answer: To handle unknown unknowns and unforeseen scope changes
Management Reserve is held for unknown-unknown risks and unexpected events outside the project baseline, not for planned contingencies.
Question 5: Which of the following best describes a 'should-cost' analysis in project estimating?
- An estimate based solely on historical bid data
- An independent government or owner estimate of what work should reasonably cost (Correct answer)
- A contractor's internal cost accounting report
- A final reconciliation of actual versus budgeted costs
Correct answer: An independent government or owner estimate of what work should reasonably cost
A should-cost analysis is an independent estimate developed by the owner or client to assess what a product or service should reasonably cost, used to evaluate contractor proposals.
Question 6: In budget development, 'cost loading' of a schedule refers to:
- Adding overhead percentages to direct costs
- Assigning budgeted costs to specific schedule activities to enable cash flow analysis (Correct answer)
- Loading unit costs into an estimating database
- Applying escalation factors to future-period costs
Correct answer: Assigning budgeted costs to specific schedule activities to enable cash flow analysis
Cost loading assigns dollar values to schedule activities, enabling time-phased budget and cash flow forecasting.
Question 7: An estimator calculating the cost of a concrete pour uses a productivity rate of 15 CY/hour with a crew cost of $120/hour. What is the unit cost per cubic yard?
- $4.00/CY
- $6.00/CY
- $8.00/CY (Correct answer)
- $10.00/CY
Correct answer: $8.00/CY
Unit cost = crew cost ÷ productivity rate = $120/hr ÷ 15 CY/hr = $8.00 per cubic yard.
CPE Cost Analysis and Budgeting 2
A project budget shows a Cost Performance Index (CPI) of 0.85.
What does this indicate?