PMP Managing Budget and Costs 3 — Questions and Answers
Question 1: What is the primary purpose of a cost baseline in project management?
- To identify project risks related to budget
- To serve as a reference point for measuring project cost performance (Correct answer)
- To allocate contingency reserves for known risks
- To forecast future project expenditures
Correct answer: To serve as a reference point for measuring project cost performance
The cost baseline is an approved version of the time-phased project budget used as a basis for comparison to actual results.
Question 2: Management reserves differ from contingency reserves in that management reserves are used for:
- Known risks identified in the risk register
- Unknown unknowns or unplanned changes to scope (Correct answer)
- Planned risk responses already budgeted
- Schedule compression activities
Correct answer: Unknown unknowns or unplanned changes to scope
Management reserves are set aside for unknown unknowns and are not included in the cost baseline, unlike contingency reserves.
Question 3: During project execution, a team member proposes a change that will reduce long-term operational costs but increase the project budget by 15%. What should the project manager do first?
- Approve the change immediately since it reduces operational costs
- Reject the change to protect the project budget
- Submit the change through the integrated change control process (Correct answer)
- Negotiate with the sponsor to increase the budget
Correct answer: Submit the change through the integrated change control process
All budget changes must be processed through the integrated change control process to evaluate impacts and obtain proper approvals.
Question 4: A project's To-Complete Performance Index (TCPI) based on BAC is 1.20. What does this mean?
- The project needs to perform 20% more efficiently going forward to meet the original budget (Correct answer)
- The project is 20% under budget
- The project needs to spend 20% less than planned
- The project is 20% ahead of schedule
Correct answer: The project needs to perform 20% more efficiently going forward to meet the original budget
TCPI > 1.0 means the team must achieve higher efficiency going forward than they have to date to meet the BAC.
Question 5: Which document authorizes the project manager to apply organizational resources to project activities and typically contains the project budget?
- Project Management Plan
- Project Charter (Correct answer)
- Scope Statement
- Resource Management Plan
Correct answer: Project Charter
The Project Charter formally authorizes the project and may include a pre-approved financial budget at a summary level.
Question 6: A project manager is using bottom-up estimating. What is the main advantage of this approach?
- It is the fastest cost estimation method
- It requires the least historical data
- It provides the most accurate estimates due to detailed analysis (Correct answer)
- It is the cheapest method to perform
Correct answer: It provides the most accurate estimates due to detailed analysis
Bottom-up estimating aggregates estimates for individual work packages, providing higher accuracy at the cost of more time and effort.
Question 7: Which type of cost is directly attributable to a specific project and would not exist if the project did not exist?
- Indirect cost
- Overhead cost
- Direct cost (Correct answer)
- Fixed cost
Correct answer: Direct cost
Direct costs are directly attributable to a specific project, such as salaries of dedicated team members or project-specific materials.
PMP Managing Budget and Costs 3
What is the primary purpose of a cost baseline in project management?