Project Management Project Cost Management 4 — Questions and Answers
Question 1: A project's EAC using the formula EAC = AC + (BAC - EV) / CPI assumes:
- Future work will be performed at the budgeted rate
- Future work will continue at the current CPI (Correct answer)
- The remaining budget is fixed at BAC - AC
- The project will use the SPI to recover schedule
Correct answer: Future work will continue at the current CPI
EAC = AC + (BAC - EV) / CPI assumes the current cost efficiency (CPI) will persist for all remaining work.
Question 2: What is the difference between contingency reserves and management reserves?
- Contingency reserves are for unknown unknowns; management reserves are for known unknowns
- Contingency reserves are for known unknowns; management reserves are for unknown unknowns (Correct answer)
- Contingency reserves are controlled by senior management; management reserves by the PM
- There is no difference; they are used interchangeably
Correct answer: Contingency reserves are for known unknowns; management reserves are for unknown unknowns
Contingency reserves address identified risks (known unknowns), while management reserves cover unforeseen situations (unknown unknowns).
Question 3: Which document authorizes spending on a project and links the project to the organization's ongoing work?
- Project management plan
- Cost baseline
- Project charter (Correct answer)
- Funding requirements
Correct answer: Project charter
The project charter formally authorizes the project and gives the project manager authority to apply resources, including budget.
Question 4: Life cycle costing considers:
- Only the costs incurred during project execution
- Total cost of ownership including operation and maintenance (Correct answer)
- The cost of all project phases from initiating to closing
- The NPV of all project deliverables
Correct answer: Total cost of ownership including operation and maintenance
Life cycle costing evaluates the total cost of ownership over the product's entire life, including acquisition, operations, and disposal.
Question 5: A project manager applies earned value analysis and finds Cost Variance (CV) = +$15,000. This means:
- The project is $15,000 over budget
- The project is $15,000 under budget (Correct answer)
- The project has earned $15,000 more than planned
- The project schedule is ahead by $15,000 worth of work
Correct answer: The project is $15,000 under budget
CV = EV - AC; a positive CV means earned value exceeds actual cost, so the project is under budget.
Question 6: Which output of the Control Costs process directly updates the cost baseline?
- Work performance information
- Cost forecasts
- Approved change requests (Correct answer)
- Project management plan updates
Correct answer: Approved change requests
Only formally approved change requests can authorize changes to the cost baseline through integrated change control.
Question 7: A project manager is presenting funding requirements to stakeholders. These are typically derived from which document?
- Risk register
- Cost management plan
- Cost baseline (Correct answer)
- Resource calendar
Correct answer: Cost baseline
Funding requirements, including total and periodic funding needs, are derived from the cost baseline developed in the Determine Budget process.
Project Management Project Cost Management 4
A project's EAC using the formula EAC = AC + (BAC - EV) / CPI assumes: