Project Planning and Monitoring Project Planning and Monitoring Budget & Financial Management 1 — Questions and Answers
Question 1: What is the purpose of a project budget baseline?
- To provide an approved time-phased spending plan used to measure and control cost performance (Correct answer)
- To list all approved vendors and their contract amounts
- To set the maximum salary for project team members
- To document historical costs from previous similar projects
Correct answer: To provide an approved time-phased spending plan used to measure and control cost performance
The cost baseline is the approved, time-phased budget against which actual costs are measured to determine cost variances and performance.
Question 2: What does Earned Value (EV) represent in project financial monitoring?
- The budgeted value of work actually completed to date (Correct answer)
- The actual money spent on the project to date
- The planned budget for work scheduled by a specific date
- The estimated cost to complete the remaining project work
Correct answer: The budgeted value of work actually completed to date
Earned Value (EV) is the budgeted cost of work performed, representing the value of completed work expressed in monetary terms.
Question 3: If a project's Cost Performance Index (CPI) is 0.85, what does this indicate?
- The project is over budget, getting only $0.85 of value for every $1.00 spent (Correct answer)
- The project is under budget and ahead of schedule
- The project has spent 85% of its total budget
- The project will complete 15% faster than planned
Correct answer: The project is over budget, getting only $0.85 of value for every $1.00 spent
A CPI below 1.0 means the project is over budget — it is receiving less value than the money being spent.
Question 4: What is the difference between a project estimate and a project budget?
- An estimate predicts costs; a budget is the approved, authorized spending plan (Correct answer)
- A budget predicts costs; an estimate is the final approved amount
- Estimates are used only for internal projects; budgets apply to external contracts
- They are the same document with different names depending on the project phase
Correct answer: An estimate predicts costs; a budget is the approved, authorized spending plan
An estimate is a calculated approximation of costs, while a budget is the formally approved allocation of funds for the project.
Question 5: What is the purpose of management reserve in a project budget?
- To cover unknown-unknown risks and unforeseen work that is outside the current project scope (Correct answer)
- To pay for approved scope changes that have been formally authorized
- To reimburse team members for overtime hours worked
- To fund quality audits performed by external reviewers
Correct answer: To cover unknown-unknown risks and unforeseen work that is outside the current project scope
Management reserve is a budget set aside for unknown risks; it is not part of the cost baseline and requires management authorization to use.
Question 6: Which cost estimating technique provides the least accurate estimate but requires the least information?
- Analogous estimating (Correct answer)
- Parametric estimating
- Bottom-up estimating
- Three-point estimating
Correct answer: Analogous estimating
Analogous estimating uses historical data from similar projects to generate quick, high-level estimates with limited project-specific information.
Project Planning and Monitoring Project Planning and Monitoring Budget & Financial Management 1
What is the purpose of a project budget baseline?