PGM Financial Management 2

Question 1

A program manager is evaluating two initiatives. Initiative A has an NPV of $500,000 and Initiative B has an NPV of $750,000. All else being equal, which should be prioritized and why?

Accepted Answer

Initiative B, because higher NPV indicates greater expected value creation

Answer

Net Present Value (NPV) measures the expected value creation after discounting future cash flows; a higher NPV indicates greater financial benefit to the organization.

Question 2

What does the term 'management reserve' refer to in program financial management?

Accepted Answer

An amount added to the cost baseline to handle unknown unknowns

Answer

Management reserve is budget allocated to cover unforeseen work within scope — unknown unknowns — and is typically controlled by senior management or the program sponsor.

Question 3

Which financial analysis technique calculates the time required for a program investment to generate enough returns to recover the initial investment cost?

Accepted Answer

Payback Period

Answer

Payback Period measures how long it takes for cumulative program benefits to equal the initial investment, helping stakeholders understand when financial break-even occurs.

Question 4

A program manager discovers a $200,000 cost variance at the end of Q2. What is the MOST appropriate first step?

Accepted Answer

Analyze the root cause of the variance before deciding on corrective action

Answer

Understanding the root cause of the variance is essential before taking corrective action, as the appropriate response depends on whether the variance is due to inefficiency, scope growth, or other factors.

Question 5

In program financial management, what is the key difference between a contingency reserve and a management reserve?

Accepted Answer

Contingency reserve is for known risks; management reserve is for unknown risks

Answer

Contingency reserve is planned for identified risks (known unknowns) and is included in the cost baseline, while management reserve addresses unplanned risks (unknown unknowns) and is held outside the baseline.

(PGM) Program Manager Practice Test

(PGM) Program Manager Practice Test

PGM Financial Management 2