CPE Cost Estimation & Budget Control 5 — Questions and Answers
Question 1: An S-curve in project cost management is used to represent:
- The relationship between risk and contingency reserves
- Cumulative planned and actual costs over time (Correct answer)
- The cost breakdown structure hierarchy
- Unit cost trends across project phases
Correct answer: Cumulative planned and actual costs over time
An S-curve plots cumulative planned value, earned value, and actual cost over time, showing typical slow-start, rapid-mid, and tapering-end cost patterns.
Question 2: Which technique involves identifying and quantifying the uncertainties in cost estimates using probability distributions?
- Sensitivity analysis
- Monte Carlo simulation (Correct answer)
- Decision tree analysis
- Pareto analysis
Correct answer: Monte Carlo simulation
Monte Carlo simulation runs thousands of iterations using probability distributions for each cost element to produce a range of possible total costs.
Question 3: A contractor is awarded a Cost-Plus-Incentive-Fee (CPIF) contract. The fee increases when:
- The project is completed early
- Actual costs are lower than the target cost (Correct answer)
- The scope is reduced
- The client adds more work to the contract
Correct answer: Actual costs are lower than the target cost
In CPIF contracts, the contractor earns a higher fee when actual costs come in below the target cost, incentivizing cost efficiency.
Question 4: Variance at Completion (VAC) is calculated as:
- EV - AC
- BAC - EAC (Correct answer)
- PV - EV
- BAC - AC
Correct answer: BAC - EAC
VAC = BAC - EAC, representing the expected final cost variance (positive = under budget, negative = over budget) at project completion.
Question 5: Which element of the Work Breakdown Structure (WBS) is typically the lowest level used for cost estimation?
- Control account
- Work package (Correct answer)
- Planning package
- Deliverable
Correct answer: Work package
Work packages are the lowest WBS level where costs can be reliably estimated, scheduled, and tracked.
Question 6: A project cost estimate that accounts for price escalation over a multi-year project is called:
- A real-cost estimate
- An escalated or inflated estimate (Correct answer)
- A nominal-dollar estimate
- A baseline-adjusted estimate
Correct answer: An escalated or inflated estimate
An escalated estimate adjusts future-year costs for expected inflation or price increases over the project duration.
Question 7: When should a project manager formally request a change to the cost baseline?
- When any cost variance exceeds 5%
- When a cost overrun is forecast but no scope change has occurred
- When an approved scope change impacts the project budget (Correct answer)
- At every monthly status reporting cycle
Correct answer: When an approved scope change impacts the project budget
Cost baseline changes require an approved scope change through the integrated change control process; cost overruns alone do not justify re-baselining.
CPE Cost Estimation & Budget Control 5
An S-curve in project cost management is used to represent: