Project Management Project Cost Management 3 — Questions and Answers
Question 1: What is the primary purpose of a cost baseline in project management?
- To set the maximum spending limit for the project
- To serve as the approved version of the time-phased project budget (Correct answer)
- To track actual costs against planned costs
- To identify cost variances for change control
Correct answer: To serve as the approved version of the time-phased project budget
The cost baseline is the approved, time-phased budget used as a basis for measuring and monitoring cost performance.
Question 2: A project has EV of $50,000, PV of $60,000, and AC of $55,000. What is the Schedule Variance (SV)?
- -$5,000
- -$10,000 (Correct answer)
- $5,000
- $10,000
Correct answer: -$10,000
SV = EV - PV = $50,000 - $60,000 = -$10,000, indicating the project is behind schedule.
Question 3: Which cost estimation method involves estimating individual work packages and rolling them up to a total project cost?
- Analogous estimating
- Parametric estimating
- Bottom-up estimating (Correct answer)
- Reserve analysis
Correct answer: Bottom-up estimating
Bottom-up estimating disaggregates work into smaller components, estimates each, then aggregates for the total cost.
Question 4: During project execution, the project manager notices CPI = 0.85 and SPI = 0.90. What is the most appropriate response?
- Increase the contingency reserve immediately
- Analyze root causes and implement corrective actions (Correct answer)
- Submit a change request to increase the budget
- Fast-track remaining activities to recover schedule
Correct answer: Analyze root causes and implement corrective actions
Both indices below 1.0 indicate cost and schedule problems; the project manager should analyze root causes before taking corrective action.
Question 5: The To-Complete Performance Index (TCPI) based on BAC is calculated as:
- (BAC - EV) / (BAC - AC) (Correct answer)
- (EV - AC) / (BAC - AC)
- (BAC - AC) / (BAC - EV)
- (BAC - EV) / CPI
Correct answer: (BAC - EV) / (BAC - AC)
TCPI (BAC) = (BAC - EV) / (BAC - AC), representing the required cost efficiency to complete the project within the original budget.
Question 6: Which of the following best describes 'sunk costs' in project cost management?
- Costs that are planned but not yet incurred
- Costs already incurred that should not influence future decisions (Correct answer)
- Indirect costs allocated to the project
- Costs reserved for risk responses
Correct answer: Costs already incurred that should not influence future decisions
Sunk costs are past expenditures that are irrelevant to future decision-making because they cannot be recovered.
Question 7: A project manager is using three-point estimating. The optimistic estimate is $40K, the pessimistic estimate is $100K, and the most likely estimate is $60K. What is the PERT estimate?
- $63,333 (Correct answer)
- $60,000
- $66,667
- $70,000
Correct answer: $63,333
PERT estimate = (O + 4M + P) / 6 = ($40K + 4×$60K + $100K) / 6 = $380K / 6 = $63,333.
Project Management Project Cost Management 3
What is the primary purpose of a cost baseline in project management?