Free Cost Management Questions and Answers — Questions and Answers

Question 1: A project manager is directing her team in the development of the s-curve, cost baseline, and requirements for project funding. Which process is being led by the project manager's team?

Plan cost management
Control costs
Determine budget (Correct answer)
Estimate costs

Correct answer: Determine budget

The project manager's team is engaged in the 'Determine Budget' process. This process involves aggregating the estimated costs of individual activities and work packages to establish an authorized cost baseline for the project. Developing the S-curve (cumulative cost baseline) and defining funding requirements are key outputs and activities within this specific project cost management process.

Question 2: If a project has an earned value (EV) of $1,000, an actual cost (AC) of $950, and a planned value (PV) of $1,000, what is the cost variance (CV)?

50 (Correct answer)
0
-50
1.05

Correct answer: 50

Cost Variance (CV) is calculated by subtracting the Actual Cost (AC) from the Earned Value (EV). In this scenario, EV is $1,000 and AC is $950. Therefore, CV = $1,000 - $950 = $50. A positive cost variance indicates that the project is currently under budget.

Question 3: A minor scope change was requested by a customer, who expects it to be finished quickly and cheaply. The project manager thinks they have enough authority to decide for themselves, but they are unsure. The project manager should now decide what to do.

Use the perform Integrated Change Control process and submit this to the change control board (CCB) for approval. (Correct answer)
Exploit this change opportunity and calculate the cost ,risk and time then add a reasonable margin and submit to the customer.
Keep the change pending and decide to take this up as part of final settlement at the end of the project
Use the project contingency and implement the change without charging the customer, since the customers satisfaction is top priority.

Correct answer: Use the perform Integrated Change Control process and submit this to the change control board (CCB) for approval.

Any change to a project's scope, even a minor one, must be formally processed through the 'Perform Integrated Change Control' process. This ensures that the change is properly evaluated for its impact on cost, schedule, quality, and risk, and is formally approved or rejected by the Change Control Board (CCB). Following this process maintains project integrity and prevents uncontrolled scope creep.

Question 4: A project uses staff hours as the unit of measure for resources, rounds activity estimate data to the nearest $100, and has a variance threshold of 10% deviation from the initial plan. Usually, these would be recorded in the

Cost management plan (Correct answer)
Project charter
WBS
Scope Statement

Correct answer: Cost management plan

The cost management plan is a crucial document that outlines how project costs will be planned, structured, and controlled throughout the project lifecycle. It specifies the units of measure (e.g., staff hours), levels of precision and accuracy for estimates, and control thresholds (e.g., 10% variance deviation). These details are essential for effective cost monitoring and control.

Question 5: The cost performance index (CPI) is 1.1 and the schedule performance index (SPI) is 0.95, according to a project manager who is preparing a project status update. What is the progress of the project?

Over budget and ahead of schedule
under budget and ahead of schedule
under budget and behind schedule (Correct answer)
Over budget and behind schedule

Correct answer: under budget and behind schedule

A Cost Performance Index (CPI) of 1.1, being greater than 1, indicates that the project is under budget, meaning it is getting $1.10 of value for every $1 spent. A Schedule Performance Index (SPI) of 0.95, being less than 1, indicates that the project is behind schedule, meaning it has completed only 95% of the work planned for the elapsed time. Therefore, the project is under budget and behind schedule.

Question 6: The project manager made the choice to include indirect costs in his cost estimate while overseeing a big project. Which of the following statements is accurate if indirect costs are factored into estimates?

Indirect costs should only be included in earned value measurements and not in cost estimates.
Indirect costs should be included at the activity level and/or higher levels (Correct answer)
Indirect costs must be included at the activity level only
Indirect costs should not be included in cost estimates

Correct answer: Indirect costs should be included at the activity level and/or higher levels

Indirect costs, such as administrative expenses or the cost of a project management office, are necessary for the overall project but cannot be directly traced to a specific activity. When factored into estimates, they should be included either by allocating them to individual activities or by incorporating them at higher levels of the Work Breakdown Structure (WBS) or as part of the overall project budget. This ensures a comprehensive cost estimate.

Question 7: For Motor Cars, Corp., you oversee projects. For the Human Resources division, you are working on a project that will take a year to complete. The EV and PV are calculated at $35,000 and $45,000, respectively, three months into the project. Which of the options below best encapsulates the SV value?

1.29
$10,000
0.78
-$10,000 (Correct answer)

Correct answer: -$10,000

Schedule Variance (SV) is calculated by subtracting the Planned Value (PV) from the Earned Value (EV). Given EV = $35,000 and PV = $45,000, SV = $35,000 - $45,000 = -$10,000. A negative schedule variance indicates that the project is behind schedule in terms of the value of work completed versus what was planned.

Question 8: What kind of expense is an example of a cost for the particular project the cost of operating a project management office?

Direct
Reimbursable
Indirect (Correct answer)
Fixed

Correct answer: Indirect

The cost of operating a project management office (PMO) is an example of an indirect cost. Indirect costs are those that are necessary for the overall functioning and support of multiple projects or the organization as a whole, but they cannot be directly attributed to a specific project activity or deliverable. They are typically allocated across projects.

Question 9: Project manager Peter is providing an update on the state of his endeavor. He anticipates that the project will be completed a month earlier than expected based on the performance indices. He does anticipate that the project will cost more than anticipated. What can you tell us about the project's schedule performance index (SPI)?

The SPI is greater than 1. 0 (Correct answer)
The SPI equals the CPI
The SPI is less than 1. 0
The SPI is equal to 1. 0

Correct answer: The SPI is greater than 1. 0

The Schedule Performance Index (SPI) measures project schedule efficiency. If Peter anticipates the project will be completed a month earlier than expected, it means the project is ahead of schedule. An SPI greater than 1.0 indicates that more work has been completed than planned for the current point in time, signifying ahead-of-schedule performance.

Question 10: What will your schedule variance be at the conclusion of a project?

Equal to the total PV
Equal to the total EV
Zero (Correct answer)
One

Correct answer: Zero

At the conclusion of a project, assuming all planned work has been completed, the Earned Value (EV) will equal the Planned Value (PV) for the entire project. Since Schedule Variance (SV) is calculated as EV - PV, if EV = PV at completion, then SV will be zero. This indicates that all planned work has been accomplished according to the schedule baseline.

Question 11: A project that ought to have been 70% finished by this point is only 55% finished. The project's total budget is US$210,000, but only US$162,000 has actually been spent as of this writing.<br> What are the project's cost performance index (CPI) and scheduled performance index (SPI)?

The SPI is 0.82 and the CPI is 1.05
The SPI is 0.79 and the CPI is 0.71 (Correct answer)
The SPI is 0.99 and the CPI is 0.96
The SPI is 1.27 and the CPI is 0.98

Correct answer: The SPI is 0.79 and the CPI is 0.71

First, calculate Planned Value (PV) as 70% of $210,000 = $147,000. Next, calculate Earned Value (EV) as 55% of $210,000 = $115,500. The Actual Cost (AC) is $162,000. The Schedule Performance Index (SPI) is EV/PV = $115,500 / $147,000 ≈ 0.79. The Cost Performance Index (CPI) is EV/AC = $115,500 / $162,000 ≈ 0.71.

Question 12: Which of the following about the project's current state is true?

The project is behind schedule and over the budget (Correct answer)
The project is behind schedule and under budget
The project is ahead of schedule and over budget
the project is ahead of schedule and under budget

Correct answer: The project is behind schedule and over the budget

Based on the calculated SPI of 0.79 (less than 1), the project is behind schedule. Based on the calculated CPI of 0.71 (less than 1), the project is over budget, meaning it is getting only 71 cents of value for every dollar spent. Therefore, the project is currently behind schedule and over budget.

Question 13: An index of cost performance (CPI) of 0.89 indicates:

When the project is completed, we will have spent 89 percent more than planned
The project is getting 89 cents out of every dollar invested (Correct answer)
At this time ,we expect the total project to cost 89 percent more than planned
The project is progressing at 89 percent of the rate planned

Correct answer: The project is getting 89 cents out of every dollar invested

A Cost Performance Index (CPI) of 0.89 means that for every dollar actually spent on the project, only 89 cents worth of value (earned value) has been achieved. This indicates that the project is currently over budget and performing inefficiently in terms of cost. It is not getting a full dollar's worth of work for each dollar invested.

Question 14: Cost estimates are being used by the project manager to create a baseline for gauging project performance during the monitoring phase. What process is the project manager currently working on?

Determine Budget (Correct answer)
Control Costs
Cost Management
Estimate Costs

Correct answer: Determine Budget

The project manager is currently in the 'Determine Budget' process. This process involves aggregating the estimated costs of individual activities or work packages to establish an authorized cost baseline. Creating a baseline for gauging project performance during the monitoring phase is a key output and purpose of the Determine Budget process.

Question 15: It has been 7 months since a project began. The cost performance index (CPI), according to the project manager, is 0.80. Trend analysis indicates that the CPI is on the decline. The project manager should now decide what to do.

Issue a change request to redo the cost baseline (Correct answer)
Ask for additional resources
Crash thew project schedule
Utilize the management reserve

Correct answer: Issue a change request to redo the cost baseline

A Cost Performance Index (CPI) of 0.80 indicates that the project is over budget, spending $1.00 for every $0.80 worth of work completed. With the CPI on the decline, the project's financial performance is worsening. The most appropriate action is to issue a change request to redo the cost baseline, as this formally acknowledges the significant deviation and allows for a revised, more realistic plan or corrective actions to be implemented.

Question 16: The project manager observes that the cost performance index (CPI) is 12.5 and the schedule performance index (SPI) is 0.75 when analyzing a project for monthly status reporting. The project manager wants to stress that the project is in control before presenting the first project status review. How should the project manager update the project's stakeholders on its status?

Report that the project is not tracking as expected, but is still under control since the next project milestone is over a month away
Report that the project is behind schedule but that an additional experienced resource can be added to stay within schedule and maintain the budget (Correct answer)
Prepare a detailed presentation for stakeholders on earned value including how it is calculated and the project's current earned value results
Perform a detailed root cause analysis utilizing a pareto chart and fishbone diagrams to demonstrate that project is under control

Correct answer: Report that the project is behind schedule but that an additional experienced resource can be added to stay within schedule and maintain the budget

An SPI of 0.75 clearly indicates the project is behind schedule. While the CPI of 12.5 is unusually high (likely a typo for 1.25, suggesting under budget), the project manager needs to address the schedule delay proactively. Reporting that the project is behind schedule but proposing a concrete solution, like adding an experienced resource to get back on track while maintaining the budget, demonstrates control and a plan to stakeholders.

Free Cost Management Questions and Answers

A project manager is directing her team in the development of the s-curve, cost baseline, and requirements for project funding.
Which process is being led by the project manager's team?