PMP Managing Budget and Costs 5 — Questions and Answers
Question 1: A project has spent $400,000 to date with a CPI of 0.80. What was the Earned Value (EV)?
- $320,000 (Correct answer)
- $500,000
- $480,000
- $360,000
Correct answer: $320,000
CPI = EV / AC → 0.80 = EV / $400,000 → EV = $320,000.
Question 2: What is the key difference between contingency reserves and management reserves from a budget control perspective?
- Contingency reserves require sponsor approval to use; management reserves do not
- Contingency reserves are in the cost baseline; management reserves are not (Correct answer)
- Management reserves are for known risks; contingency reserves are for unknown risks
- Both types are included within the cost baseline
Correct answer: Contingency reserves are in the cost baseline; management reserves are not
Contingency reserves are part of the cost baseline for known risks, while management reserves sit outside the baseline for unknown unknowns.
Question 3: A project manager is conducting a cost-benefit analysis. The project costs $200,000 and delivers $350,000 in benefits. What is the benefit-cost ratio (BCR)?
- 0.57
- 1.75 (Correct answer)
- 1.50
- 2.00
Correct answer: 1.75
BCR = Benefits / Costs = $350,000 / $200,000 = 1.75, indicating the project delivers $1.75 in benefits for every $1 spent.
Question 4: Which funding limit reconciliation technique adjusts the schedule to accommodate periods when project funding will be constrained?
- Reserve analysis
- Cost aggregation
- Funding limit reconciliation (Correct answer)
- Parametric modeling
Correct answer: Funding limit reconciliation
Funding limit reconciliation aligns the planned spending profile with funding constraints, often requiring schedule adjustments.
Question 5: A project was originally budgeted at $1,000,000. After several approved scope changes, the budget increased to $1,200,000. The current approved budget is known as the:
- Original cost baseline
- Management reserve
- Budget at Completion (BAC) (Correct answer)
- Estimate at Completion (EAC)
Correct answer: Budget at Completion (BAC)
The BAC is the total authorized budget for the project, which is updated when approved scope changes alter the cost baseline.
Question 6: When should the project manager escalate a budget variance to senior management?
- After every status report cycle
- Only when the project is about to close
- When the variance exceeds the threshold defined in the cost management plan (Correct answer)
- When a team member requests it
Correct answer: When the variance exceeds the threshold defined in the cost management plan
The cost management plan defines escalation thresholds; variances beyond those levels require senior management notification and action.
Question 7: A risk that was not identified during planning occurs and consumes part of the project budget. Which budget component should be used to fund this unplanned event?
- Contingency reserves from the cost baseline
- Management reserves held above the cost baseline (Correct answer)
- The project's profit margin
- The sponsor's discretionary fund
Correct answer: Management reserves held above the cost baseline
Unknown unknowns (unidentified risks) are funded by management reserves, which exist outside the cost baseline specifically for this purpose.
PMP Managing Budget and Costs 5
A project has spent $400,000 to date with a CPI of 0.80.
What was the Earned Value (EV)?