Section 5: Cost Management

QUESTION 31
Your boss has asked you for a cost baseline for the project, but it is early in the project management process and there is very little project information. In this circumstance, what is the BEST way to estimate this project?
A. Extrapolate from historical data.
B. Ask the team for estimates of each activity.
C. Provide a rough order of magnitude estimate.
D. Calculate an estimate using the schedule model.
Answer: C

Explanation:
Choice A could be done, but historical information is not enough. Choices B and D are not correct because you are still in project initiating. You have not yet identified activities, nor do you have a schedule model. It is best to provide estimates based on an understanding of this project, so the best answer is choice C.
Source: PMP® Exam Prep Page: 237

QUESTION 32
During the conceptual phase of a pipeline project, the project engineer estimates the following. The cost of the materials is most likely US $100,000, optimistically US $90,000, and pessimistically US $120,000. The cost for labor is most likely US $80,000, optimistically US $70,000, and pessimistically US $100,000. The cost for equipment is most likely US $60,000, optimistically US $50,000, and pessimistically US $70,000. The cost for construction management fees is most likely US $30,000, optimistically US $20,000, and pessimistically US $40,000. What is the probability of the project coming in under US $270,000?
A. Zero
B. Less than 50 percent
C. Exactly 50 percent
D. Over 50 percent
Answer: B
Explanation:
You use the PERT calculation (P + 4M + O)/6 to compute a weighted average of the totals, which in this case equals $273,333. This number represents the mean (or 50 percent point). Therefore the probability of the project coming in at $273,333 is 50 percent. The probability of $270,000 (since it is less than the mean) is less than 50 percent.
Source: PMP® Exam Prep Page: 191

QUESTION 33
The cost contingency reserve should be:
A. Hidden to prevent management from disallowing the reserve.
B. Added to each activity to provide the customer with a shorter critical path.
C. Maintained by management to cover cost overruns.
D. Added to the base costs of the project to account for risks.
Answer: D
Explanation:
Choice A is an inappropriate action. Choice B is an incorrect statement. Choice C describes management reserves. During the risk management process, you determine appropriate cost contingency reserves for risk events. The sum of these reserves should be added to the total project estimate to cover the cost of risk events happening.
Source: PMP® Exam Prep Page: 237

QUESTION 34
A cost management plan contains a description of:
A. The project costs.
B. How resources are allocated.
C. The budgets and how they were calculated.
D. The WBS level at which earned value will be calculated.
Answer: D
Explanation:
The exam will ask you what the tools of project management contain in order to test whether you really understand them. This question would be difficult to simply guess correctly.
Source: PMP® Exam Prep Page: 231

QUESTION 35
All of the following are outputs of the Estimate Costs process EXCEPT:
A. An understanding of the cost risk in the work that has been estimated.
B. The prevention of inappropriate changes being included in the cost baseline.
C. An indication of the range of possible costs for the project.
D. Documentation of any assumptions made during the Estimate Costs process.
Answer: B
Explanation:
This question is asking, “When you finish estimating costs, what do you have?” Many people who do not realize that estimates should be in a range pick choice C. Choice B is more correctly part of the cost management plan and the change control system. Choice D is referring to the basis of estimates, which are an output of Estimate Costs.
Source: PMBOK® Guide Page: 167

QUESTION 36
Early in the life of your project, you are having a discussion with the sponsor about what estimating techniques should be used. You want a form of expert judgment, but the sponsor argues for analogous estimating. It would be BEST to:
A. Agree to analogous estimating as it is a form of expert judgment.
B. Suggest life cycle costing as a compromise.
C. Determine why the sponsor wants such an accurate estimate.
D. Try to convince the sponsor to allow expert judgment because it is typically more accurate.
Answer: A
Explanation:
This is a tricky question. In order to pick the best answer, you need to realize that analogous estimating is a form of expert judgment. Notice choice C, “determine why” sounds like a good idea, but look at the rest of the sentence. Analogous estimates are not accurate. Reading every word of this choice helps eliminate it.
Source: PMP® Exam Prep Page: 190

QUESTION 37
All of the following are inputs to the Determine Budget process EXCEPT:
A. Activity cost estimates.
B. Work breakdown structure.
C. Project scope statement.
D. Project performance reviews.
Answer: D
Explanation:
Project performance reviews occur in the Control Costs process, and are not an input to the Determine Budget process.
Source: PMBOK® Guide Page: 167

QUESTION 38
The sponsor wants the project to begin, but needs to be sure the appropriate amount of funding is available.
The project manager wants to create the project estimate herself. Which of the following is the BEST rationale the project manager can use to convince the sponsor to allow her to prepare the project estimate?
A. Such estimating provides a basis for monitoring and controlling.
B. Such estimating gives the project manager an understanding of the sponsor’s expectations.
C. Such estimating will include hidden costs.
D. A project estimate does not require the identification of work packages.
Answer: A
Explanation:
Choice B generally comes from the sponsor’s work. Choice C is a rationale for the project manager NOT to prepare the estimate. Choice D is an incorrect statement.
Source: PMP® Exam Prep Page: 237

QUESTION 39
Which of the following is a KEY way to improve activity cost estimates?
A. Use historical data.
B. Let management create the management reserve and the activity cost estimate.
C. Base activity estimates on the upper and lower control limits.
D. Let the project manager create the activity cost estimate.
Answer: A
Explanation:
Since team members should create the activity cost estimates whenever possible, choices B and D cannot be correct. Choice C makes no sense.
Source: PMP® Exam Prep Page: 233

QUESTION 40
The customer starts to have cash flow problems, because other projects are being completed early. The customer notifies the project manager that there will be limits on when funds will be available for the project.
The project CPI is currently 1.02, and the estimate to complete is US $927,000. If the project manager performs funding limit reconciliation, there will also MOST likely be a change to the:
A. Resources assigned.
B. Number of change requests.
C. Cost baseline.
D. Project schedule.
Answer: D
Explanation:
Funding limit reconciliation most likely will affect the project schedule, since work will need to be moved to when funds will be available.
Source: PMP® Exam Prep Page: 238