Product Management Product Management: Cost Estimation 3

Question 1

A startup PM must choose between two features. Feature A costs $50K with a 60% chance of $200K return. Feature B costs $30K with an 80% chance of $100K return. Which has a higher Expected Monetary Value (EMV)?

Accepted Answer

Feature A ($70K EMV)

Answer

EMV = (probability × return) − cost; Feature A: (0.6 × $200K) − $50K = $70K; Feature B: (0.8 × $100K) − $30K = $50K.

Question 2

In software product development, which factor most commonly causes cost estimates to grow over time?

Accepted Answer

Scope creep adding unplanned features and requirements

Answer

Scope creep — the gradual addition of unplanned features — is the most common driver of cost growth in software product development.

Question 3

What is the primary purpose of a Work Breakdown Structure (WBS) in cost estimation?

Accepted Answer

To decompose project deliverables into manageable components for more accurate costing

Answer

A WBS decomposes deliverables into smaller, more manageable work packages, enabling more accurate and detailed cost estimates for each component.

Question 4

A PM is using Agile and wants to estimate the cost of a sprint. The team's velocity is 40 story points per sprint, and each story point costs $500. What is the estimated sprint cost?

Accepted Answer

$20,000

Answer

Sprint cost = velocity × cost per point = 40 × $500 = $20,000.

Question 5

Which statement best describes the difference between direct costs and indirect costs in product development?

Accepted Answer

Direct costs are traced specifically to a product; indirect costs are shared overhead allocated across products

Answer

Direct costs (e.g., developer salaries for a specific feature) are directly attributable to a product, while indirect costs (e.g., office rent) are shared overhead.

Product Management Practice Test

Product Management Practice Test

Product Management Product Management: Cost Estimation 3