Project Budgeting & Financial Control Flashcards

A project manager calculates the Estimate at Completion (EAC) assuming future work will be performed at the budgeted rate. Which formula applies?

Answer: EAC = AC + (BAC − EV)

When future work is assumed to proceed at the planned rate, EAC = AC + (BAC − EV), using remaining budget as the ETC.

Which cost management output establishes how cost variances will be managed and what thresholds trigger corrective action?

Answer: Cost management plan

The cost management plan defines variance thresholds, reporting formats, and procedures for managing cost deviations.

A project has BAC = $800,000, PV = $400,000, EV = $360,000, and AC = $420,000. What is the Schedule Performance Index (SPI)?

Answer: 0.900

SPI = EV / PV = $360,000 / $400,000 = 0.90, indicating the project is progressing at 90% of the planned rate.

When should a project manager create a new EAC rather than using a formula-based forecast?

Answer: When the original estimate is fundamentally flawed and actual costs are known

A ground-up EAC is appropriate when the original estimate is no longer valid and actual performance data enables a more reliable re-estimate.

Which of the following BEST describes 'sunk costs' in project financial management?

Answer: Costs already incurred that should not influence future decisions

Sunk costs are past expenditures that cannot be recovered and should not factor into forward-looking project decisions.

A project manager is asked to use life-cycle costing. What does this approach consider?

Answer: All costs from project initiation through product retirement

Life-cycle costing evaluates total cost of ownership including acquisition, operations, maintenance, and disposal costs.

Which tool helps a project manager identify the statistical probability of completing a project within a given cost range?

Answer: Monte Carlo simulation

Monte Carlo simulation runs thousands of cost scenarios using probability distributions to produce a confidence-level cost range.