CPM CPM Budget & Cost Management 1 — Questions and Answers
Question 1: In Earned Value Management, what does the Cost Performance Index (CPI) measure?
- The rate of schedule progress against the plan
- The cost efficiency of budgeted resources (Correct answer)
- The total amount of budget spent to date
- The variance between planned and actual scope
Correct answer: The cost efficiency of budgeted resources
CPI is calculated as Earned Value divided by Actual Cost, indicating how efficiently the project is using its budget — a CPI above 1.0 means under budget.
Question 2: Which cost estimating technique uses actual costs from similar past projects as a basis for estimating the current project?
- Bottom-up estimating
- Parametric estimating
- Analogous estimating (Correct answer)
- Three-point estimating
Correct answer: Analogous estimating
Analogous estimating leverages historical data from comparable projects to estimate costs and is typically less accurate but faster than bottom-up estimating.
Question 3: What is the Budget at Completion (BAC) in Earned Value Management?
- The actual total cost spent on the project
- The total authorized budget for the project (Correct answer)
- The cost variance at project end
- The estimated cost needed to finish remaining work
Correct answer: The total authorized budget for the project
BAC is the total authorized budget assigned to the project and represents the sum of all the work packages in the cost baseline.
Question 4: A project has a CPI of 0.85. What does this indicate?
- The project is ahead of schedule
- The project is over budget (Correct answer)
- The project is under budget
- The project is on time and on budget
Correct answer: The project is over budget
A CPI below 1.0 means the project is spending more than planned for the work accomplished, indicating an over-budget condition.
Question 5: Which process involves aggregating the estimated costs of individual work packages to establish the cost baseline?
- Estimate Costs
- Determine Budget (Correct answer)
- Control Costs
- Plan Cost Management
Correct answer: Determine Budget
Determine Budget aggregates all cost estimates including contingency reserves to produce the cost performance baseline used to measure project performance.
Question 6: Management reserve in project budgeting differs from contingency reserve in that it is used for:
- Identified risks in the risk register
- Unknown unknowns or unforeseen work (Correct answer)
- Team overtime and bonuses
- Vendor contract overruns
Correct answer: Unknown unknowns or unforeseen work
Management reserve covers unknown unknowns — unpredictable events not in the risk register — and requires management authorization to access, unlike contingency reserve.
CPM CPM Budget & Cost Management 1
In Earned Value Management, what does the Cost Performance Index (CPI) measure?