CPE Cost Analysis and Budgeting 3 — Questions and Answers
Question 1: Which type of cost escalation factor accounts for changes in the purchasing power of money over time on a multi-year project?
- Scope creep adjustment
- Inflation escalation (Correct answer)
- Crew efficiency factor
- Overhead absorption rate
Correct answer: Inflation escalation
Inflation escalation factors adjust future-year costs to account for the expected decrease in purchasing power over the project duration.
Question 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)?
- +$90,000
- -$90,000 (Correct answer)
- +$18%
- -$18%
Correct answer: -$90,000
VAC = BAC − EAC = $500,000 − $590,000 = −$90,000, indicating a projected cost overrun of $90,000.
Question 3: In life-cycle costing, which phase typically represents the largest cumulative cost for a facility?
- Design and engineering
- Initial construction
- Operations and maintenance over the facility's life (Correct answer)
- Demolition and disposal
Correct 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.
Question 4: When using the 'Estimate to Complete' (ETC) formula ETC = (BAC − EV) / CPI, what assumption is being made?
- Future work will be performed at the planned rate
- Future work will continue at the same efficiency as work completed to date (Correct answer)
- The schedule variance will not impact future costs
- Remaining work will be completed at the original budget rate
Correct 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.
Question 5: A cost estimator applies a 'square foot cost' method to a new office building. This is an example of which estimating approach?
- Detailed unit price estimating
- Parametric estimating (Correct answer)
- Assembly-based estimating
- Bid comparison estimating
Correct answer: Parametric estimating
Parametric estimating uses statistical relationships between historical costs and project parameters (like square footage) to produce rapid cost estimates.
Question 6: Which document formally authorizes a project team to spend funds up to a specified limit for a defined scope of work?
- Cost baseline
- Work authorization document (Correct answer)
- Schedule of values
- Change order log
Correct 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.
Question 7: An estimator is reconciling indirect costs. Which of the following is correctly classified as an indirect project cost?
- Concrete formwork labor
- Structural steel material
- Project manager's salary allocated across multiple projects (Correct answer)
- Subcontractor invoices for mechanical work
Correct 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.
CPE Cost Analysis and Budgeting 3
Which type of cost escalation factor accounts for changes in the purchasing power of money over time on a multi-year project?