Financial Management for Project Managers Financial Planning and Forecasting 3

Question 1

What does 'Variance at Completion' (VAC) measure in project financial forecasting?

Accepted Answer

The difference between the original budget and the forecasted total cost at project end

Answer

VAC = BAC - EAC; a negative VAC indicates the project is forecasted to finish over budget, while a positive VAC indicates it will finish under budget.

Question 2

What is 'Management Reserve' in project financial planning?

Accepted Answer

Budget set aside by senior management for unforeseen scope changes or unknown risks beyond the project manager's control

Answer

Management reserve is held outside the project cost baseline and is used for unknown, unplanned events; it requires authorization from senior management to access.

Question 3

When should a project manager revise the financial forecast?

Accepted Answer

Whenever significant variances occur, milestones are completed, or new information changes cost assumptions

Answer

Forecasts should be updated regularly and whenever material changes occur—such as cost variances, scope changes, or new risk events—to keep the financial picture accurate.

Question 4

Which qualitative forecasting technique uses structured expert input and iterative surveys to build financial consensus?

Accepted Answer

Delphi technique

Answer

The Delphi technique gathers input anonymously from a panel of experts across multiple rounds, converging toward a consensus estimate without the bias of face-to-face group dynamics.

Question 5

A project financial forecast shows a projected overrun of 25% at completion. What is the project manager's FIRST recommended action?

Accepted Answer

Analyze the root causes of the overrun and present corrective action options to stakeholders

Answer

Before taking corrective action, the project manager must identify why the overrun is occurring and evaluate realistic options so stakeholders can make informed decisions.

Financial Management for Project Managers Practice Test

Financial Management for Project Managers Practice Test

Financial Management for Project Managers Financial Planning and Forecasting 3