PCC Cost Estimation & Budgeting 3 — Questions and Answers
Question 1: Which AACE International estimate class is associated with a screening or feasibility study and typically has an accuracy range of -20% to +30%?
- Class 1
- Class 2
- Class 4
- Class 5 (Correct answer)
Correct answer: Class 5
AACE Class 5 estimates are used for concept screening with the lowest scope definition (0–2%) and widest accuracy range.
Question 2: A project controls engineer calculates the Estimate to Complete (ETC) by assuming future work will be performed at the budgeted rate. Which formula does this approach use?
- ETC = BAC – EV (Correct answer)
- ETC = (BAC – EV) / CPI
- ETC = (BAC – EV) / (CPI × SPI)
- ETC = AC + BAC – EV
Correct answer: ETC = BAC – EV
When future work is assumed to proceed at the planned rate, ETC = BAC – EV (remaining budget).
Question 3: In a lump-sum contract, who primarily bears the risk of cost overruns due to scope growth initiated by the contractor?
- The owner
- The contractor (Correct answer)
- Both equally under a sharing ratio
- A third-party insurer
Correct answer: The contractor
In a lump-sum (fixed-price) contract, the contractor bears the risk of most cost overruns not caused by owner-directed scope changes.
Question 4: What is the primary purpose of an independent project cost review (ICR) or independent cost estimate (ICE)?
- To finalize the project schedule baseline
- To validate the contractor's claimed earned value
- To provide an unbiased check of the project estimate for decision-making (Correct answer)
- To approve change orders above a threshold
Correct answer: To provide an unbiased check of the project estimate for decision-making
An ICE/ICR provides an independent validation of cost estimates to support project approval decisions and reduce bias.
Question 5: When escalation is applied to a cost estimate, what factor is primarily being accounted for?
- Exchange rate fluctuations for foreign procurement
- Inflation and price changes over the project duration (Correct answer)
- Contractor profit margin increases
- Scope uncertainty and design risk
Correct answer: Inflation and price changes over the project duration
Escalation adjusts estimates for anticipated inflation and price level changes expected over the life of the project.
Question 6: A project uses a cost-plus-incentive-fee (CPIF) contract. What motivates the contractor to control costs in this arrangement?
- The contractor is paid a fixed fee regardless of performance
- The contractor shares in cost savings relative to the target cost (Correct answer)
- The owner pays all costs, so the contractor has no incentive
- The fee is determined solely by the schedule milestone achieved
Correct answer: The contractor shares in cost savings relative to the target cost
CPIF contracts include a sharing formula whereby the contractor earns a higher fee if actual costs are below the target cost.
Question 7: Which cost estimate component is specifically set aside to cover authorized but unplanned scope changes and is NOT included in the cost baseline?
- Contingency reserve
- Management reserve (Correct answer)
- Undistributed budget
- Cost variance allowance
Correct answer: Management reserve
Management reserve addresses unknown-unknown risks and unforeseen scope changes; it sits above the cost baseline.
PCC Cost Estimation & Budgeting 3
Which AACE International estimate class is associated with a screening or feasibility study and typically has an accuracy range of -20% to +30%?