CVS CVS Cost Analysis and Life Cycle Costing Questions and Answers

Question 1

Life Cycle Cost (LCC) analysis in Value Methodology includes which major cost categories?

Accepted Answer

Acquisition, operation, maintenance, and disposal costs over the item's useful life

Answer

Initial capital cost only

Answer

Labor costs and material costs during construction

Answer

Only recurring annual operating expenses

Question 2

Why is Life Cycle Cost analysis important in a VM study?

Accepted Answer

It ensures that low initial cost alternatives are not selected if they have high operating or maintenance costs

Answer

It allows teams to ignore upfront costs

Answer

It simplifies the approval process for project managers

Answer

It replaces the need for function analysis

Question 3

In the context of VM cost analysis, 'function cost' refers to:

Accepted Answer

The portion of total project cost attributable to performing a specific function

Answer

The salary of the team member responsible for a function

Answer

The cost to maintain a function after project completion

Answer

The cost of the physical component that houses multiple functions

Question 4

Which mathematical technique is commonly used in LCC analysis to compare costs occurring at different points in time?

Accepted Answer

Net Present Value (NPV) or Present Worth analysis

Answer

Linear interpolation

Answer

Return on Equity (ROE) calculation

Answer

Monte Carlo simulation only

Question 5

A 'should-cost' model in VM is used to:

Accepted Answer

Estimate what a function or product should cost based on competitive benchmarks and first principles

Answer

Calculate the actual cost incurred during construction

Answer

Determine team compensation rates for a VM workshop

Answer

Set the maximum allowable project budget

Question 6

In VM cost analysis, 'cost avoidance' differs from 'cost savings' in that:

Accepted Answer

Cost avoidance prevents future costs from occurring, while cost savings reduce existing costs

Answer

Cost avoidance is always larger than cost savings

Answer

Cost savings apply only to labor costs

Answer

They are interchangeable terms in modern VM practice