Section 5: Cost Management

QUESTION 51
A definitive estimate is:
A. A level of estimating that can be achieved without the team’s help.
B. Created during the initiating process group.
C. Within a range of -10 percent to +25 percent of actual.
D. The most expensive to create.
Answer: D

Explanation:
A great deal of work is needed to fine tune a project so that you can get a definitive estimate.
Source: PMP® Exam Prep Page: 237

QUESTION 52
Company ABC is evaluating three consulting companies to find a consultant to perform professional services.
They request information on how the three consulting companies allocate fringe benefits to their clients. What type of cost is Company ABC asking about?
A. Variable
B. Fixed
C. Direct
D. Indirect
Answer: D
Explanation:
Fringe benefits are included in overhead and are part of indirect costs.
Source: PMP® Exam Prep Page: 233

QUESTION 53
A rough order of magnitude estimate is made during which project management process group?
A. Planning
B. Closing
C. Executing
D. Initiating
Answer: D
Explanation:
This estimate has a wide range. It is done during project initiating, when very little is known about the project.
Source: PMP® Exam Prep Page: 237

QUESTION 54
How close to actual costs should a definitive budget estimate be?
A. -75 percent to +25 percent
B. +/- 10 percent
C. +10 percent to -25 percent
D. -5 percent to +10 percent
Answer: B
Explanation:
This question is designed to determine whether you understand that estimates should be in a range and what the standard ranges are.
Source: PMP® Exam Prep Page: 237

QUESTION 55
All of the following are tools of the Determine Budget process EXCEPT:
A. Aggregation.
B. Reserve analysis.
C. Funding limit reconciliation.
D. Bottom-up estimating.
Answer: D
Explanation:
The only incorrect choice is choice D, as it is part of the Estimate Costs process.
Source: PMBOK® Guide Page: 167

QUESTION 56
Who has the cost risk in a fixed price (FP) contract?
A. The team
B. The buyer
C. The seller
D. Management
Answer: C
Explanation:
If the costs are more than expected under a fixed price contract, the seller must pay those costs. "Cost risk" refers to the person who will have to pay for the added cost if costs escalate. Because the price is fixed, the seller will have to pay any increased costs out of their profit. Naturally, this does not include increased PRICE due to change orders. A fixed price contract and the PRICE could be changed with change orders.
Source: PMP® Exam Prep Page: 429

QUESTION 57
A cost baseline is an output of which cost management process?
A. Estimate Activity Resources
B. Estimate Costs
C. Determine Budget
D. Control Costs
Answer: C
Explanation:
A cost baseline is an output of the Determine Budget process.
Source: PMP® Exam Prep Page: 237

QUESTION 58
You just completed a cost estimate on the project, and you’re assuming there is a 15 percent chance you will exceed this estimate. You are:
A. Below the mean.
B. Above the mean.
C. Above the median.
D. Below the median.
Answer: B
Explanation:
With normal distribution, the mean indicates you have a 50 perent chance of being over or under your estimate. Since you have only a 15 percent chance of being over, you are above (or to the right of) the mean.
Source: PMP® Exam Prep Page: 237

QUESTION 59
Your cost forecast shows that you will have a cost overrun at the end of the project. Which of the following should you do?
A. Eliminate risks in estimates and reestimate.
B. Meet with the sponsor to find out what work can be done sooner.
C. Cut quality.
D. Decrease scope.
Answer: A
Explanation:
Look for the choice which would have the least negative impact in this situation. You would not need to meet with the sponsor to do choice B. Choices C and D always have negative effects. The choice with the least negative impact is choice A.
Source: PMP® Exam Prep Page: 206

QUESTION 60
A manufacturing project has a schedule performance index (SPI) of 0.89 and a cost performance index (CPI) of 0.91. Generally, what is the BEST explanation for why this occurred?
A. The scope was changed.
B. A supplier went out of business, and a new one needed to be found.
C. Additional equipment needed to be purchased.
D. A critical path activity took longer and needed more labor hours to complete.
Answer: D
Explanation:
To answer this question, you must look for a choice that would take longer and cost more. If you picked choice A, reread it. It says scope was changed, not necessarily added to. If the change was to reduce the scope, it might also have reduced cost. Though it would take time to handle the event described in choice B, the impacted activity might not be on the critical path and thus might not affect time. Choice C would definitely add cost but not necessarily time. Only choice D would negatively affect both time and cost.
Source: PMP® Exam Prep Page: 241