Practice Test Geeks(CSM) Certified Software Manager Practice Test
← All CSM Flashcard Decks

Financial Management & Budgeting Flashcards

7 cards from real CSM practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.

Read the first 7 Financial Management & Budgeting flashcards as text

  1. A software product manager calculates a Benefit-Cost Ratio (BCR) of 1.4 for a proposed feature. What does this indicate?

    Answer: For every $1.00 invested, the feature returns $1.40 in benefit

    A BCR greater than 1.0 means benefits exceed costs; a BCR of 1.4 means each dollar invested yields $1.40 in return, making the feature financially justified.

  2. During software budget reviews, 'life-cycle costing' differs from single-period budgeting because it:

    Answer: Considers all costs from inception through retirement including maintenance and decommissioning

    Life-cycle costing captures total ownership costs across all phases—development, deployment, operation, maintenance, and retirement—enabling more accurate long-term financial decisions.

  3. A software manager is evaluating two projects: Project A has an NPV of $150,000 with an investment of $500,000; Project B has an NPV of $90,000 with an investment of $200,000. Which metric BEST compares their relative efficiency?

    Answer: Profitability Index (NPV ÷ Investment)

    The Profitability Index (PI = NPV ÷ Investment) normalizes returns by investment size: Project A PI = 0.30, Project B PI = 0.45, making Project B relatively more efficient despite a lower absolute NPV.

  4. Which of the following is a characteristic of a FIXED cost in a software organization?

    Answer: It remains constant regardless of the volume of output or activity level

    Fixed costs (e.g., office rent, base salaries) do not change with production volume or activity level within a relevant range, unlike variable costs.

  5. A software manager is asked to perform a 'should-cost' analysis for a vendor proposal. The PRIMARY purpose of this analysis is to:

    Answer: Estimate what the work SHOULD cost to establish a negotiation benchmark

    A should-cost analysis independently estimates what a product or service should reasonably cost, giving the buyer a baseline for evaluating vendor proposals and negotiating fair pricing.

  6. In software financial management, 'cost avoidance' differs from 'cost savings' in that cost avoidance:

    Answer: Prevents a future cost from being incurred in the first place

    Cost avoidance prevents a future spend from occurring (e.g., automating a process before hiring additional staff), whereas cost savings reduce an existing committed expense.

  7. A software manager reviews the Estimate to Complete (ETC) for a project. The ETC is BEST defined as:

    Answer: The expected cost to finish all remaining project work from the current date

    ETC is the forecasted cost required to complete all work not yet performed, used with Actual Cost (AC) to calculate the Estimate at Completion (EAC = AC + ETC).