Financial Management for Project Managers Cost Estimation and Budgeting 2

Question 1

Management reserves in a project budget are intended for:

Accepted Answer

Unknown unknowns or unforeseen scope changes

Answer

Management reserves cover unknown unknowns — unanticipated events not identified during planning — and are controlled by senior management, not the project manager.

Question 2

A project has a total budget of $500,000, a cost baseline of $450,000, and contingency reserves of $30,000. What is the management reserve?

Accepted Answer

$20,000

Answer

The management reserve equals total budget minus cost baseline minus contingency: $500,000 - $450,000 - $30,000 = $20,000.

Question 3

Analogous cost estimating is most appropriate when:

Accepted Answer

Historical data from similar past projects is available and time is limited

Answer

Analogous estimating leverages historical data from similar projects and is fast, making it ideal early in the project when detailed information is not yet available.

Question 4

Which document formally authorizes the project manager to apply organizational resources and establishes the cost budget?

Accepted Answer

Project charter

Answer

The project charter is the formal authorization document that gives the project manager authority to use resources, including budget allocations.

Question 5

Life cycle costing in project financial management considers:

Accepted Answer

Total costs including acquisition, operation, maintenance, and disposal

Answer

Life cycle costing evaluates the total cost of ownership across all phases — acquisition, operation, maintenance, and decommissioning — to support complete financial decisions.

Financial Management for Project Managers Practice Test

Financial Management for Project Managers Practice Test

Financial Management for Project Managers Cost Estimation and Budgeting 2