Project Planning and Monitoring Budget & Cost Control 1 — Questions and Answers
Question 1: What does Earned Value (EV) represent in project cost management?
- The budgeted cost of work actually performed (Correct answer)
- The actual cost of work performed
- The planned cost of work scheduled
- The remaining budget for the project
Correct answer: The budgeted cost of work actually performed
Earned Value (EV) is the budgeted cost of work that has actually been completed, used to measure project performance.
Question 2: A project has a Cost Performance Index (CPI) of 0.85. What does this indicate?
- The project is over budget (Correct answer)
- The project is under budget
- The project is on budget
- The project is ahead of schedule
Correct answer: The project is over budget
A CPI below 1.0 means the project is spending more than planned for the work completed, indicating it is over budget.
Question 3: Which budgeting technique requires each budget item to be justified from zero each period?
- Zero-based budgeting (Correct answer)
- Incremental budgeting
- Activity-based budgeting
- Rolling wave budgeting
Correct answer: Zero-based budgeting
Zero-based budgeting starts from scratch each cycle, requiring justification for every expense rather than using prior-period figures.
Question 4: What is a Budget at Completion (BAC) used for in project monitoring?
- It represents the total planned budget for the entire project (Correct answer)
- It tracks actual spending to date
- It calculates the cost variance
- It forecasts remaining task durations
Correct answer: It represents the total planned budget for the entire project
BAC is the total authorized budget for the project and serves as the baseline against which all cost performance is measured.
Question 5: Which formula correctly calculates Cost Variance (CV) in earned value management?
- CV = EV minus AC (Correct answer)
- CV = AC minus EV
- CV = PV minus EV
- CV = BAC minus EV
Correct answer: CV = EV minus AC
Cost Variance is EV minus AC; a positive value means under budget, while a negative value means over budget.
Question 6: What is a contingency reserve in project budgeting?
- Funds set aside to address identified risks within scope (Correct answer)
- Extra money added without any justification
- The sponsor's emergency fund outside project control
- Budget held for scope change orders only
Correct answer: Funds set aside to address identified risks within scope
A contingency reserve covers known-unknown risks that have been identified and quantified during risk planning.
Project Planning and Monitoring Budget & Cost Control 1
What does Earned Value (EV) represent in project cost management?