PSI Project and Financial Management 5 — Questions and Answers
Question 1: Which financial concept discounts future cash flows to reflect the time value of money?
- Future Value Analysis
- Net Present Value (NPV) (Correct answer)
- Payback Period
- Benefit-Cost Ratio
Correct answer: Net Present Value (NPV)
NPV discounts all future cash flows back to the present using a required rate of return, reflecting that money today is worth more than money in the future.
Question 2: A project sponsor requests acceleration of the project schedule. The project manager proposes adding more resources to critical path tasks. This is an example of:
- Schedule crashing (Correct answer)
- Fast tracking
- Resource leveling
- Schedule compression through scope reduction
Correct answer: Schedule crashing
Crashing adds resources (people, overtime, equipment) to critical path activities to shorten the schedule, typically at an increased cost.
Question 3: What is the difference between a project constraint and a project assumption?
- Constraints are external; assumptions are internal to the team
- Constraints are known limiting factors; assumptions are considered true without proof (Correct answer)
- Assumptions require approval; constraints do not
- They are functionally identical in project planning
Correct answer: Constraints are known limiting factors; assumptions are considered true without proof
Constraints are known restrictions (budget, time, resources), while assumptions are factors believed to be true but not yet confirmed.
Question 4: Which stakeholder analysis technique maps stakeholders based on their power and interest in the project?
- Risk register
- SWOT analysis
- Power/Interest grid (Correct answer)
- Responsibility assignment matrix
Correct answer: Power/Interest grid
The Power/Interest grid categorizes stakeholders by their level of authority and concern for project outcomes to guide engagement strategies.
Question 5: What is the Internal Rate of Return (IRR)?
- The interest rate charged by the project's lenders
- The discount rate at which a project's NPV equals zero (Correct answer)
- The rate of return required by senior management
- The percentage of budget used at project completion
Correct answer: The discount rate at which a project's NPV equals zero
IRR is the discount rate that makes the net present value of all cash flows from a project equal to zero, used to compare project profitability.
Question 6: A project manager wants to execute two tasks simultaneously to shorten the schedule without adding resources. This technique is called:
- Schedule crashing
- Fast tracking (Correct answer)
- Resource smoothing
- Lead and lag adjustment
Correct answer: Fast tracking
Fast tracking overlaps activities that would normally be done sequentially, compressing the schedule without additional cost but increasing risk.
Question 7: Which document formally records all identified project risks, their probability, impact, and planned responses?
- Risk breakdown structure
- Issue log
- Risk register (Correct answer)
- Assumption log
Correct answer: Risk register
The risk register is the central document capturing identified risks, their analysis results, and assigned risk response strategies.
PSI Project and Financial Management 5
Which financial concept discounts future cash flows to reflect the time value of money?