PMI-001 Q&A – Section 5: Cost Management (21-30)

Section 5: Cost Management

A customer has given you a procurement statement of work for a complex, eight-month project that has a few unknowns. The customer has asked you to just “get it done” and only wants to see you at the end of eight months when you deliver the finished project. Under these circumstances, which of the following is the BEST thing to do?
A. Complete the project as requested, but verify its scope with the customer occasionally throughout.
B. Complete the project within eight months without contacting the customer during this time.
C. Ask management to check in with the customer occasionally.
D. Complete the project, but document that the customer did not want contact.
Answer: A

Notice the use of the term “procurement statement of work.” This is used to refer to the part of the project work that will be done by a seller. It is unethical to ignore the Verify Scope process, as doing so will add risk that the project will not meet the customer’s needs. Therefore, choice A is the best answer. In a real-world situation, one would probably work with the customer to efficiently handle verification so as to cause as little disruption as possible.
Source: PMP® Exam Prep Page: 166

During the executing process group, a functional manager asks you to use a model C generator instead of model B on your project. The functional manager says that model C will solve the needs of the project and provide some benefits to the manufacturing department. You look at the cost associated with model C and discover that it is substantially higher than model B. If you are not sure you can justify the more expensive model, what is the BEST thing to do?
A. Review the specifications of each to validate the manager’s claims.
B. Analyze the differences in using each model and present them to the sponsor.
C. Use model C and cut other activities to make up for the added cost.
D. Do a life cycle analysis and present the results to your boss.
Answer: B
Choices B and D are close, but B is the better choice. Because this is an issue that affects multiple stakeholder groups across the organization, it is up to the sponsor to make the decision and up to the project manager to provide the information for the decision to be made. This is an example of evaluating before making a decision.
Source: PMP® Exam Prep Page: 233

While reviewing project performance, the project manager determines that the schedule variance is -500.
What is the BEST thing to do?
A. Let the sponsor know.
B. Determine the cost variance.
C. Look for activities that can be done in parallel.
D. Move resources from the project to one that is not failing.
Answer: B
The problem must be evaluated first. We know the schedule variance, but not the cost variance. Therefore, choice B is first, possibly followed by choice C.
Source: PMP® Exam Prep Page: 241

A project manager is working with management to create the project estimate. During the initiating process group, what level of accuracy should the estimate have?
A. +/- 50 percent
B. -10 percent to +25 percent
C. -35 percent to +75 percent
D. -10 percent to +10 percent
Answer: A
The only estimate that is usually made in the initiating process group is the rough order of magnitude estimate. This estimate is accurate to +/- 50 percent.
Source: PMP® Exam Prep Page: 237

A new store development project requires the purchase of various equipment, machinery, and furniture. The department responsible for the development recently centralized its external purchasing process and standardized its new order system. In which document can these new procedures be found?
A. Project scope statement
C. Staffing management plan
D. Organizational policies
Answer: D
Procedures for the rental and purchase of supplies and equipment are found in the organizational policies, part of organizational process assets.
Source: PMP® Exam Prep Page: 234

A project manager has completed a detailed WBS and cost estimates for each work package. To create a cost baseline from this data, the project manager would:
A. Use the highest level of the WBS to estimate analogously.
B. Sum up the work package and risk contingency reserve estimates.
C. Roll up work package estimates into a project total and add management reserves.
D. Gain expert opinions of the project total costs.
Answer: B
A cost baseline must include a contingency reserve for risks. It does not include a management reserve (choice C). Choices A and D should have been completed earlier.
Source: PMP® Exam Prep Page: 237

Analogous estimating:
A. Uses bottom-up estimating techniques.
B. Is used most frequently during the executing processes of the project.
C. Uses top-down estimating techniques.
D. Uses actual detailed historical costs.
Answer: C
Analogous estimating is used most frequently during the planning processes, not the executing processes (choice B). You do not need to use historical costs (choice D) for an analogous estimate. Therefore, choice C is the correct answer.
Source: PMP® Exam Prep Page: 190

Which of the following is an example of a parametric estimate?
A. Dollars per module
B. Learning bend
C. Bottom-up
Answer: A
Parametric estimates use a mathematical model to predict project cost or time.
Source: PMP® Exam Prep Page: 190

You have just completed the initiating processes of a small project and are moving into the planning processes when a project stakeholder asks you for the project’s budget and cost baseline. What should you tell her?
A. The project budget can be found in the project’s charter, which has just been completed.
B. The project budget and baseline will not be finalized and accepted until the planning processes are completed.
C. The project management plan will not contain the project’s budget and baseline; this is a small project.
D. It is impossible to complete an estimate before the project management plan is created.
Answer: B
The overall project budget (choice A) may be included in the project charter but not the detailed costs. Even small projects (choice C) should have a budget and schedule. It is not impossible to create a project budget before the project management plan is created (choice D). It is just not wise, as the budget will not be accurate.
Source: PMP® Exam Prep Page: 237

Your project has a medium amount of risk and is not very well defined. The sponsor hands you a project charter and asks you to confirm that the project can be completed within the project cost budget. What is the BEST method to handle this?
A. Build an estimate in the form of a range of possible results.
B. Ask the team members to help estimate the cost based on the project charter.
C. Based on the information you have, calculate a parametric estimate.
D. Provide an analogous estimate based on past history.
Answer: A
Accuracy is always important, but since the project charter has just been received, the project has not yet been planned. Therefore, although some of the choices are not blatantly wrong, it is best to estimate in a range.
Source: PMP® Exam Prep Page: 237