PMI-001 Q&A – Section 5: Cost Management (81-90)

Section 5: Cost Management

All the following are relevant for analyzing a cost overrun EXCEPT:
A. Labor rates.
B. Resources used.
C. Communications management plan.
D. Lag.
Answer: D

Labor rates (choice A), resources used (choice B), and poor communications (choice C) could all have contributed to the cost overrun. Lag relates to waiting time.
Source: PMP® Exam Prep Page: 238

Although the stakeholders thought there was enough money in the budget, halfway through the project the cost performance index (CPI) is 0.7. To determine the root cause, several stakeholders audit the project and discover the project cost budget was estimated analogously. Although the activity estimates add up to the project estimate, the stakeholders think something was missing in how the estimate was completed. Which of the following describes what was missing?
A. Estimated costs should be used to measure CPI.
B. SPI should be used, not CPI.
C. Bottom-up estimating should have been used.
D. Past history was not taken into account.
Answer: C
Actual costs are used to measure CPI, and there is no reason to use SPI in this situation, so choices A and B are not correct. Using past history (choice D) is another way of saying “analogous.” The best way to estimate is bottom-up (choice C). Such estimating would have improved the overall quality of the estimate.
Source: PMP® Exam Prep Page: 236

A project manager needs to analyze the project costs to find ways to decrease costs. It would be BEST if the project manager looks at:
A. Variable costs and fixed costs.
B. Fixed costs and indirect costs.
C. Direct costs and variable costs.
D. Indirect costs and direct costs.
Answer: C
Choice C describes costs that are directly attributable to the project or that vary with the amount of work accomplished.
Source: PMP® Exam Prep Page: 233

If earned value (EV) = 350, actual cost (AC) = 400, and planned value (PV) = 325, what is the cost variance (CV)?
A. 350
B. -75
C. 400
D. -50
Answer: D
CV = EV – AC
Source: PMP® Exam Prep Page: 241

A parking lot fencing project was bid at US $11 per foot, and one company is doing all the work. The parking lot has four equal sides of 125 feet and requires the installation of a six-foot diameter culvert on one side.
Fencing should be installed at a rate of 100 feet per day. The culvert installation will cost US $500 and take one day to complete. The culvert must be installed before work can begin on that side of the fence. After three days of work, one side is complete, another has 75 feet installed, and the culvert is completely installed.
What is the current status of the project?
A. The budget is neutral with a cost variance of $0.
B. It is over budget, with a cost variance of -$1,100.
C. It is under budget, with a cost variance of +$500 due to the completion of the culvert installation.
D. It is over budget with a cost variance of +$125.
Answer: A
EV is the value of the work completed. In this case, one side is done ($11 x 125 = $1,375), 75 feet of the second side is done ($11 x 75 = $825) and the culvert is complete ($500) for a total of $2,700. Since the AC is $2,700, CV = $0. You are budget neutral.
Source: PMP® Exam Prep Page: 241

You are a project manager for a small construction project. Your project was budgeted for US $72,000 over a six week period. As of today, you’ve spent US $22,000 of your budget to complete work that you originally expected would cost US $24,000. According to your schedule, you should have spent US $30,000 by this point. Based on these circumstances, your project could be BEST described as:
A. Under budget.
B. Over budget.
C. On budget.
D. Not having enough information provided.
Answer: A
CPI = EV/AC. In this case CPI = 24,000/22,000 or 1.09. A CPI of 1.09 indicates that you are under budget.
Source: PMP® Exam Prep Page: 241

Which of the following information about the project would NEVER be available during project planning?
A. Cost performance index
B. Benefit cost ratio
C. Internal rate of return
D. Budget at completion
Answer: A
This question does not say if the information is estimated or actual, but it does use the word NEVER. The cost performance index is determined based on performance. Therefore, it would never be determined during project planning. The other choices could be determined as estimates.
Source: PMP Exam Prep Page: 241

Which of the following represents the value of work we have actually completed?
A. Earned value
B. Planned value
C. Actual cost
D. Estimate to complete
Answer: A
EV is earned value or the budgeted cost of the work performed. In other words, the value of the work completed in terms of what you budgeted (your baseline).
Source: PMP® Exam Prep Page: 241

Earned value measurement is an example of:
A. Performance reporting.
B. Planning control.
C. Ishikawa diagrams.
D. Integrating the project components into a whole.
Answer: A
Earned value measurement is a great reporting tool. With it, you can show where you stand on budget and schedule, as well as provide forecasts for the rest of the project.
Source: PMP® Exam Prep Page: 240

A new project manager asks you what the 50/50 rule is used for. You would reply:
A. Crashing.
B. Quality.
C. Performance reporting.
D. Cost estimating.
Answer: C
A work package is considered 50 percent complete when it begins and gets credit for the last 50 percent only when it is completed. Remember that there is also an 80/20 rule used in quality.
Source: PMP® Exam Prep Page: 240

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