CVS CVS Cost Analysis and Life Cycle Costing Questions and Answers 2 — Questions and Answers
Question 1: Which of the following is an example of a 'disposal cost' in Life Cycle Cost analysis?
- Initial equipment purchase price
- Annual preventive maintenance labor
- Decommissioning and environmental remediation at end of service life (Correct answer)
- Training costs for operators during installation
Correct answer: Decommissioning and environmental remediation at end of service life
Disposal costs include end-of-life expenses such as decommissioning, demolition, waste disposal, and environmental cleanup.
Question 2: Sensitivity analysis in VM LCC studies is performed to:
- Rank team members by their analytical skills
- Test how changes in key assumptions affect the results and identify critical cost drivers (Correct answer)
- Determine the optimal workshop schedule
- Confirm that the basic function has been correctly identified
Correct answer: Test how changes in key assumptions affect the results and identify critical cost drivers
Sensitivity analysis tests the robustness of LCC conclusions by varying uncertain inputs (e.g., discount rate, maintenance frequency) to see which assumptions matter most.
Question 3: The discount rate used in Life Cycle Cost analysis primarily accounts for:
- Contractor markup percentages
- The time value of money and opportunity cost of capital (Correct answer)
- Material price inflation only
- Government-mandated interest rate caps
Correct answer: The time value of money and opportunity cost of capital
The discount rate reflects the fact that money available today is worth more than the same amount in the future, enabling fair comparison of costs across time.
Question 4: When performing function cost allocation, indirect costs are typically:
- Excluded from VM analysis entirely
- Distributed to functions based on a reasonable allocation method such as labor hours or space (Correct answer)
- Assigned equally to all functions
- Only considered in the Post-Study Phase
Correct answer: Distributed to functions based on a reasonable allocation method such as labor hours or space
Indirect costs are allocated to functions proportionally, ensuring a complete and accurate picture of each function's true cost.
Question 5: A VM team compares two HVAC design alternatives using LCC. Alternative A has a lower first cost but higher annual energy use. Alternative B costs more upfront but is energy-efficient. VM recommends:
- Always choose Alternative A to minimize initial project budget
- Evaluate the present worth of total life cycle costs before choosing (Correct answer)
- Choose Alternative B because energy efficiency is always better
- Defer the decision to the project owner without analysis
Correct answer: Evaluate the present worth of total life cycle costs before choosing
VM requires a complete LCC comparison, discounting all future costs to present value, before making a recommendation that optimizes true value.
Question 6: Which VM document formally presents the cost analysis and life cycle cost data supporting each developed alternative?
- The Function Analysis System Technique (FAST) diagram
- The VM Proposal or Value Change Proposal (Correct answer)
- The project schedule baseline
- The stakeholder engagement plan
Correct answer: The VM Proposal or Value Change Proposal
The VM Proposal (Value Change Proposal) includes the cost analysis, LCC comparison, and technical justification for each alternative recommendation.
CVS CVS Cost Analysis and Life Cycle Costing Questions and Answers 2
Which of the following is an example of a 'disposal cost' in Life Cycle Cost analysis?