Product Management: Cost Estimation Flashcards
7 cards from real Product Management practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
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A product team is evaluating whether to build or buy a component. The build option costs $120K upfront with $5K/year maintenance. The buy option costs $20K/year. At what year does the build option break even?
Answer: Year 12
Break-even: $120K + $5K×Y = $20K×Y → $120K = $15K×Y → Y = 8 years, so break-even is in Year 8.
What does 'gold plating' mean in product cost management, and why is it a problem?
Answer: Adding features beyond the agreed scope, wasting budget without adding approved value
Gold plating means adding unapproved features or extras, which consumes budget and schedule without delivering the value stakeholders actually approved.
In Agile product management, how is cost estimation typically handled compared to traditional waterfall?
Answer: Agile uses relative sizing (story points) and revisits estimates each sprint with adaptive planning
Agile uses relative estimation techniques like story points and continuously refines cost expectations through iterative sprint planning and velocity tracking.
What is Estimate at Completion (EAC) when using the formula EAC = BAC / CPI?
Answer: The forecasted total project cost based on current cost performance
EAC = BAC / CPI forecasts the total cost to complete the project assuming current cost efficiency continues throughout the remaining work.
A PM is presenting costs to non-technical stakeholders. Which visualization is most effective for showing how total product cost breaks down by category?
Answer: Pie chart or stacked bar chart showing cost breakdown structure
A pie chart or stacked bar chart clearly communicates proportional cost distribution across categories to non-technical audiences.
Which risk response strategy directly increases a project's cost estimate by adding contingency?
Answer: Risk acceptance with active contingency planning
Active risk acceptance acknowledges the risk and sets aside contingency reserves, which directly increases the cost estimate to buffer against potential overruns.
A product manager receives vendor quotes for a new integration. One quote is $45K fixed-price and another is $30K time-and-materials. Which contract type exposes the buyer to more cost risk?
Answer: Time-and-materials contract
Time-and-materials contracts expose the buyer to higher cost risk because the final price depends on actual hours and materials used, with no ceiling unless specified.