PMI Project Budgeting & Financial Control 2 — Questions and Answers
Question 1: A project manager notices that the Cost Performance Index (CPI) is 0.85. What does this indicate?
- The project is 15% under budget
- The project is getting $0.85 in value for every $1 spent (Correct answer)
- The project will finish 15% ahead of schedule
- The project has spent 85% of its budget
Correct answer: The project is getting $0.85 in value for every $1 spent
A CPI of 0.85 means the project is over budget, receiving only $0.85 of earned value for every dollar spent.
Question 2: Which reserve type is set aside for unknown-unknown risks and is controlled by senior management, not the project manager?
- Contingency reserve
- Management reserve (Correct answer)
- Budget reserve
- Risk reserve
Correct answer: Management reserve
Management reserve covers unknown-unknown risks and requires senior management approval to access.
Question 3: A project has a BAC of $500,000, EV of $200,000, and AC of $250,000. What is the Estimate to Complete (ETC) using the typical EAC formula?
- $300,000
- $375,000 (Correct answer)
- $312,500
- $350,000
Correct answer: $375,000
EAC = BAC/CPI = $500,000/0.80 = $625,000; ETC = EAC − AC = $625,000 − $250,000 = $375,000.
Question 4: During project execution, the sponsor asks for additional features not in scope. The PM must update the cost baseline. Which process governs this?
- Control Costs
- Estimate Costs
- Perform Integrated Change Control (Correct answer)
- Plan Cost Management
Correct answer: Perform Integrated Change Control
Perform Integrated Change Control evaluates all change requests and authorizes updates to baselines including the cost baseline.
Question 5: What is the primary purpose of a funding limit reconciliation in project cost management?
- To ensure EV equals PV at every milestone
- To align project expenditures with funding availability constraints (Correct answer)
- To calculate the project's NPV
- To reconcile invoices from vendors
Correct answer: To align project expenditures with funding availability constraints
Funding limit reconciliation adjusts the schedule of work to match when funds are actually available, preventing cash flow problems.
Question 6: A project manager wants to understand the total amount of money the organization expects to spend on a project including contingency. Which term best describes this?
- Cost baseline
- Project budget (Correct answer)
- Estimate at completion
- Control account
Correct answer: Project budget
The project budget equals the cost baseline plus management reserve, representing the total authorized funds.
Question 7: Which cost estimating technique produces the LEAST accurate estimate but requires the least amount of project detail?
- Bottom-up estimating
- Parametric estimating
- Analogous estimating (Correct answer)
- Three-point estimating
Correct answer: Analogous estimating
Analogous estimating uses historical data from similar projects and is the quickest but least accurate technique.
PMI Project Budgeting & Financial Control 2
A project manager notices that the Cost Performance Index (CPI) is 0.85.
What does this indicate?