Financial Management for Project Managers Cost Estimation and Budgeting

Question 1

Which type of cost estimate is typically prepared during the project initiation phase using analogous techniques and carries an accuracy range of -25% to +75%?

Accepted Answer

Rough Order of Magnitude (ROM) estimate

Answer

Definitive estimate

Answer

Parametric estimate

Answer

Bottom-up estimate

Question 2

Bottom-up cost estimating involves:

Accepted Answer

Estimating costs at the work package level and summing them up

Answer

Using historical data from similar projects

Answer

Applying a cost per unit formula to project scope

Answer

Using expert judgment from senior management

Question 3

Parametric cost estimating uses:

Accepted Answer

Statistical relationships between historical data and project variables

Answer

Detailed analysis of each work package

Answer

Only the judgment of the project sponsor

Answer

The average cost of the last three similar projects

Question 4

The project cost baseline is best described as:

Accepted Answer

The time-phased budget used to measure and monitor project cost performance

Answer

The maximum budget approved by the sponsor

Answer

The total budget including management reserves

Answer

The initial ROM estimate submitted for approval

Question 5

Which cost is directly traceable to a specific project deliverable or work package?

Accepted Answer

Direct cost

Answer

Indirect cost

Answer

Overhead cost

Answer

Sunk cost

Question 6

Contingency reserves in project budgeting are set aside to address:

Accepted Answer

Known unknowns — identified risks with uncertain impact

Answer

Unknown unknowns — completely unforeseeable events

Answer

Scope creep requested by the project sponsor

Answer

Overruns due to poor initial estimating