Product Management Product Management: Cost Estimation 4

Question 1

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?

Accepted Answer

Year 12

Answer

Break-even: $120K + $5K×Y = $20K×Y → $120K = $15K×Y → Y = 8 years, so break-even is in Year 8.

Question 2

What does 'gold plating' mean in product cost management, and why is it a problem?

Accepted Answer

Adding features beyond the agreed scope, wasting budget without adding approved value

Answer

Gold plating means adding unapproved features or extras, which consumes budget and schedule without delivering the value stakeholders actually approved.

Question 3

In Agile product management, how is cost estimation typically handled compared to traditional waterfall?

Accepted Answer

Agile uses relative sizing (story points) and revisits estimates each sprint with adaptive planning

Answer

Agile uses relative estimation techniques like story points and continuously refines cost expectations through iterative sprint planning and velocity tracking.

Question 4

What is Estimate at Completion (EAC) when using the formula EAC = BAC / CPI?

Accepted Answer

The forecasted total project cost based on current cost performance

Answer

EAC = BAC / CPI forecasts the total cost to complete the project assuming current cost efficiency continues throughout the remaining work.

Question 5

A PM is presenting costs to non-technical stakeholders. Which visualization is most effective for showing how total product cost breaks down by category?

Accepted Answer

Pie chart or stacked bar chart showing cost breakdown structure

Answer

A pie chart or stacked bar chart clearly communicates proportional cost distribution across categories to non-technical audiences.

Product Management Practice Test

Product Management Practice Test

Product Management Product Management: Cost Estimation 4