PGM Financial Management 1 — Questions and Answers
Question 1: A program manager is preparing the program budget. Which budgeting approach starts from a zero base and requires justification for every expenditure, rather than adjusting the prior year's budget?
- Incremental budgeting
- Zero-based budgeting (Correct answer)
- Rolling wave budgeting
- Parametric budgeting
Correct answer: Zero-based budgeting
Zero-based budgeting requires each budget cycle to start from scratch, justifying every expense regardless of historical spending patterns.
Question 2: Which financial metric measures the value of work actually completed in a program relative to the planned value at a given point in time?
- Cost Performance Index (CPI)
- Schedule Performance Index (SPI)
- Earned Value (EV) (Correct answer)
- Actual Cost (AC)
Correct answer: Earned Value (EV)
Earned Value (EV) represents the authorized budget assigned to the work that has actually been accomplished, providing the basis for schedule and cost performance analysis.
Question 3: A program's Cost Performance Index (CPI) is 0.85. What does this indicate?
- The program is 15% under budget
- The program is getting $0.85 of value for every $1.00 spent (Correct answer)
- The program will finish 15% ahead of schedule
- The program has spent 85% of its total budget
Correct answer: The program is getting $0.85 of value for every $1.00 spent
A CPI of 0.85 means the program is over budget, receiving only $0.85 of planned value for each $1.00 of actual expenditure.
Question 4: What is the primary purpose of a Program Financial Plan?
- To track individual team member salaries
- To document funding sources, budget allocations, and financial controls for the program (Correct answer)
- To record vendor payment histories
- To calculate the return on investment for each project within the program
Correct answer: To document funding sources, budget allocations, and financial controls for the program
A Program Financial Plan defines how the program will be funded, how budgets are allocated across components, and the financial controls that will be used to manage expenditures.
Question 5: Which term describes the total approved budget for a program, including management reserves but excluding contingency reserves held at the project level?
- Budget at Completion (BAC)
- Performance Measurement Baseline (PMB)
- Program Management Budget
- Total Allocated Budget (TAB) (Correct answer)
Correct answer: Total Allocated Budget (TAB)
The Total Allocated Budget (TAB) represents the sum of all budgets allocated to a program, including management reserve but distinct from the performance measurement baseline.
Question 6: A program manager needs to request additional funding due to scope changes approved by the governance board. Which document formally initiates this process?
- Change request (Correct answer)
- Program charter amendment
- Budget variance report
- Cost baseline update
Correct answer: Change request
A formal change request triggers the integrated change control process, allowing the governance board to evaluate and approve additional funding for approved scope changes.
Question 7: When calculating the Estimate at Completion (EAC) using the CPI as the efficiency factor, which formula is correct?
- EAC = AC + ETC
- EAC = BAC / CPI (Correct answer)
- EAC = EV - AC
- EAC = BAC - EV
Correct answer: EAC = BAC / CPI
EAC = BAC / CPI assumes the current cost efficiency rate will continue for the remainder of the program, making it the most common performance-based EAC formula.
PGM Financial Management 1
A program manager is preparing the program budget.
Which budgeting approach starts from a zero base and requires justification for every expenditure, rather than adjusting the prior year's budget?