Section 5: Cost Management

QUESTION 91
A project manager discovers that a work package has been completed for substantially less cost than planned. Which of the following is NOT among the first things to consider doing?
A. Make sure all project processes were followed.
B. Make sure the right resources were used.
C. Make sure all the work was done.
D. Identify ways to increase the result.
Answer: D

Explanation:
Doing choices A, B, and C could point out root causes of decreased cost. Choice D would not be done until A, B, and/or C are done.
Source: PMP® Exam Prep Page: 240

QUESTION 92
You are a project manager working on a project that requires 100 items to be tested, spaced evenly over five
weeks. You have just begun week three, with an overall budget of US $10,000. To date, you have spent US
$2,000 with 40 items tested successfully. What does the cost variance (CV) tell you in this circumstance?
A. The project is proceeding at 100 percent of the expected rate.
B. The project is $2,000 under budget.
C. The project is on budget.
D. The project is getting $2 of work for every dollar spent.
Answer: B
Explanation:
EV is determined from a total budget of $10,000 and a five week duration. Each week would be $2,000.
Therefore, for two weeks of completed work, we have an EV of $4,000. CV = EV – AC, CV = $4000 – $2000 = $2,000. Positive means you are under budget.
Source: PMP® Exam Prep Page: 241

QUESTION 93
You provide a project cost estimate for the project to the project sponsor. He is unhappy with the estimate, because he thinks the price should be lower. He asks you to cut 15 percent off the project estimate. What should you do?
A. Start the project and constantly look for cost savings.
B. Tell the team members to cut 15 percent from their estimates.
C. Inform the sponsor of the activities to be cut.
D. Add additional resources with low hourly rates.
Answer: C
Explanation:
This question is full of choices that are not correct project management actions. If you picked the wrong answer, look again at the choices and try to determine what you are missing. Whatever it is, it will show up more than once on the real exam!
To answer the question, you must first realize that it is never appropriate for a project manager to just cut estimates across the board (choice B). The project manager should have created an estimate with realistic work package estimates that do not include padding. Then, if costs must be decreased, the project manager can look to cut quality, decrease risk, cut scope, or use cheaper resources (and at the same time closely monitoring the impact of changes on the project schedule).
One of the worst things a project manager can do is to start a project knowing that the time or cost for the project is unrealistic. Therefore, choice A cannot be best. Notice that choice D suggests adding additional resources. That would cost more. Choice C involves evaluating, looking for alternatives, and then going to the sponsor to tell him the impact of the cost cutting.
Source: PMP® Exam Prep Page: 237

QUESTION 94
Estimate at completion (EAC) is a periodic evaluation of:
A. The cost of work completed.
B. The value of work performed.
C. The anticipated total cost at project completion.
D. What it will cost to finish the job.
Answer: C
Explanation:
When you look at earned value, many of the terms have similar definitions. This could get you into trouble.
Since EAC means the estimate at completion, choice C is the best answer. Choice D is the definition of ETC, estimate to complete.
Source: PMP® Exam Prep Page: 241

QUESTION 95
Cost performance measurement is BEST done through which of the following?
A. Asking for a percent complete from each team member and reporting that in the monthly progress report
B. Calculating earned value and using the indexes and other calculations to report past performance and forecast future performance
C. Using the 50/50 rule and making sure the life cycle cost is less than the project cost
D. Focusing on the amount expended last month and what will be expended the following month
Answer: B
Explanation:
Asking percent complete is not a best practice since it is usually a guess. Often the easiest work is done first on a project, throwing off any percentage calculations of work remaining. It may be a good thing to use the 50/50 rule, as in choice C. However, the 50/50 rule is not necessarily included in the progress report, and the second part of the sentence is incorrect. The life cycle cost cannot be lower than the project cost, as the life cycle cost includes the project cost. Choice D is often done by inexperienced project managers who know of nothing else. Not only does it provide little information, but also it cannot be used to predict the future. Choice B is the best answer since it looks at the past uses this information to estimate future costs.
Source: PMP® Exam Prep Page: 240

QUESTION 96
The seller tells you that your activities have resulted in an increase in their costs. You should:
A. Recommend a change to the project costs.
B. Have a meeting with management to find out what to do.
C. Ask the seller for supporting information.
D. Deny any wrongdoing.
Answer: C
Explanation:
This is a professional and social responsibility/procurement/cost question. The situation described involves a claim. The best thing to do would be to get supporting information to find out what happened and take corrective action for the future. After choice C and negotiation, choice A would most likely occur. Choice D is unethical. Choice B is a meeting with YOUR management and should not occur until you have all the information.
Source: PMP® Exam Prep Page: 461

QUESTION 97
You are about to take over a project from another project manager and find out the following information about the project. Activity Z has an early start (ES) of day 15 and a late start (LS) of day 20. Activity Z is a difficult activity. Cost performance index (CPI) is 1.1, schedule performance index (SPI) is 0.8. There are 11 stakeholders on the project. Based on this information, which of the following would you be the MOST concerned about?
A. Schedule
B. Float
C. Cost
D. The number of available resources
Answer: A
Explanation:
This is one of those questions that combines topics from various knowledge areas. Did you fall into the trap of calculating the float for Z? The amount of float for one activity and the number of stakeholders does not tell you anything in this case, so choices B and D cannot be the best answers. The CPI is greater than one and the SPI is less than one. Therefore, the thing to be most worried about would be schedule.
Source: PMP® Exam Prep Page: 241

QUESTION 98
Your project will go through many phases to produce a high-priced product that will be sold to the public. You are currently starting the design phase. The price will include the product and scheduled maintenance. The team includes representatives from the engineering department, who will help determine the design of the project, the marketing department, who will determine the shape of the container for the product of the project and the accounting department who will help make sure the cost of the project allows ample profit margin.
The project charter has been completed and signed by sponsors from all these departments. The product scope was completed in an earlier project that was two months delayed due to arguing over the scope. The team is now functioning well and past team building efforts have produced an effective team for this new project.
Which of the following is the BEST thing to include that has not been included in planning?
A. The team working on the project does not include anyone from senior management and will thus not have enough support to be completed quickly and effectively.
B. There needs to be a representative from the quality department to ensure that the project will satisfy the needs for which it is undertaken.
C. The project is not taking into account how the project work will affect future phases and thus future phases may cost more.
D. Team building efforts should still be done in the future to ensure an effective team.
Answer: C
Explanation:
This question has many “right” answers. Choice A cannot be best because the team does not need to include anyone from senior management. Having a quality representative (choice B) could be a good idea, but you do not know if there is a quality department in this company. It is possible that the project manager or some other team member could have responsibility for quality, depending on the needs of the project. It is always a good idea to do team building (choice D) but of all the choices is this one best? No. Without doing choice C, the project could be severely impacted, where it would probably be only slightly impacted because of a lack of team building (remember that they have already done some and the team is working well together). Choice C is something a lot of people forget. The project must take into account what will happen after the project is completed. This means that the cost of maintaining the product must be considered as part of the project.
The impact of not doing this is the greatest, and is thus the best choice.
Source: PMP® Exam Prep Page: 231

QUESTION 99
Which of the following represents the estimated value of the work actually accomplished?
A. Earned value (EV)
B. Planned value (PV)
C. Actual cost (AC)
D. Cost variance (CV)
Answer: A
Explanation:
It can be confusing to differentiate earned value terms from each other. The definition presented here is for EV, or earned value, so choice A is the best choice.
Source: PMP® Exam Prep Page: 241

QUESTION 100
The project manager is working on a high-profile project where completing the project within budget is critical.
The project manager is new, but well trained and is excited to see that the project is spending less than budgeted. As a result, the project manager was planning to take a holiday when a more senior project manager warned him that he has some important work to do on the project. Why would the senior project manager give such a warning on this project?
A. Under budget could mean that work that was scheduled to be done has not been completed. The project manager should look at how the cost performance compares to the schedule performance.
B. The project manager needs to create a project control system to make sure there are no problems in the future.
C. A project that is under budget may also have contracts that need to be managed.
D. Team meetings should be scheduled every week and a holiday would mean that one team meeting would have to be cancelled.
Answer: A
Explanation:
Since a project control system is created during planning, choice B cannot be best. Though choice C may be a correct statement, there is nothing in the situation described or in standard project management practice that would say taking a holiday would be a problem with contracts. Team meetings (choice D) are scheduled as needed by the project and frequency is determined during project planning. Why is choice A correct? The project manager should understand reasons that a project can be under budget so he can determine when to take action and what action to take.
Source: PMP® Exam Prep Page: 241