CSM Financial Management & Budgeting 2 — Questions and Answers
Question 1: A software manager uses bottom-up estimating to build a project budget. What is the PRIMARY advantage of this approach over top-down estimating?
- It is faster to produce
- It provides greater accuracy by aggregating detailed work package costs (Correct answer)
- It requires less input from team members
- It aligns better with executive expectations
Correct answer: It provides greater accuracy by aggregating detailed work package costs
Bottom-up estimating aggregates costs from individual work packages, producing more accurate budgets than top-down approaches that rely on analogies or executive targets.
Question 2: Which financial metric measures how much revenue a software product must generate before the project investment is recovered?
- Net Present Value (NPV)
- Internal Rate of Return (IRR)
- Break-even point (Correct answer)
- Return on Investment (ROI)
Correct answer: Break-even point
The break-even point is the revenue level at which total income equals total costs, meaning the initial investment has been fully recovered.
Question 3: A CSM candidate is analyzing a software project with a Cost Performance Index (CPI) of 0.82. What does this indicate?
- The project is 18% under budget
- The project is receiving $0.82 in value for every $1.00 spent (Correct answer)
- The project is 18% ahead of schedule
- The project will finish 18% early
Correct answer: The project is receiving $0.82 in value for every $1.00 spent
A CPI below 1.0 means the project is over budget; a CPI of 0.82 means only $0.82 of planned value is being earned per dollar spent.
Question 4: When a software organization allocates shared infrastructure costs across multiple projects based on each project's usage percentage, this is called:
- Direct costing
- Cost pooling and allocation (Correct answer)
- Activity-based costing
- Fixed-overhead assignment
Correct answer: Cost pooling and allocation
Cost pooling collects indirect costs into a pool, then allocates them to cost objects (projects) based on a rational allocation base such as usage percentage.
Question 5: A software manager must choose between leasing servers at $5,000/month or purchasing them for $120,000 upfront. At what month does the purchase option break even with leasing?
- 12 months
- 18 months
- 24 months (Correct answer)
- 30 months
Correct answer: 24 months
$120,000 ÷ $5,000/month = 24 months, so the purchase investment is recovered after two years of equivalent lease payments.
Question 6: In earned value management, the Budget at Completion (BAC) represents:
- The total actual cost incurred to date
- The total authorized budget for the entire project (Correct answer)
- The estimated cost to complete remaining work
- The variance between planned and actual cost
Correct answer: The total authorized budget for the entire project
BAC is the total approved budget assigned to the project scope and serves as the baseline against which performance is measured.
Question 7: A software budget shows a favorable variance of $30,000 in the current period. How should the manager BEST interpret this?
- The project is guaranteed to finish under budget
- Actual costs were $30,000 less than planned costs for the period (Correct answer)
- Planned value exceeded earned value by $30,000
- The team delivered $30,000 more work than scheduled
Correct answer: Actual costs were $30,000 less than planned costs for the period
A favorable cost variance means actual spending came in below the budgeted amount for that period, though it does not guarantee the entire project will finish under budget.
CSM Financial Management & Budgeting 2
A software manager uses bottom-up estimating to build a project budget.
What is the PRIMARY advantage of this approach over top-down estimating?