Project Cost Management

Project Cost Management
Study Hints
You do not need to be a certified public accountant to suc
cessfully answer the Project Cost Management questions on
the PMP certification exam. PMI addresses cost management
from a project managers perspective, which is much more
general than that of an accountant. However, these questions
are not easy. Far from it! Exam takers find the Project Cost
Management questions more difficult than most of the o thers
because they address such a broad range of cost issues
(forexample, cost estimating, earned value, and creating and
interpreting Scurves) and require a significant amount of
study time.
You may find questions relating to contract cost manage
ment. Because cost considerations are heavily affected by
contract type, and Project Procurement Management is one
of the ten PMBOK Guide areas on which you will be tested,
time spent studying that area will help to prepare you for the
cost questions on the exam and vice versa.
The exam may include several questions that require you
to know and solve specific, albeit simple, formulas. You must
have a thorough knowledge of earned valuewhat it is and
how it is computed. Study Table7-1 as it provides information
103
104 PMP Exam Practice Test and Study Guide
on the formulas, how to calculate them, and how to interpret

the results.
For additional information on project estimating, you may
wish to review PMIs Practice Standard for Project Estimating,
2011. For additional information on earned value analysis
from a PMI perspective, you may also wish to consult PMIs
Practice Standard for Earned Value ManagementSecond
Edition, 2011.
PMI views Project Cost Management as a four-step process
Downloaded by [Universidad ESAN] at 20:24 03 November 2016
comprising plan cost management, estimate costs, determine

budgets, and control costs. See PMBOK Guide Figure7-1 for
an overview of this structure. Know this chart thoroughly.
Important: PMI allows the use of standard six-function
(+, , , , ,%) business calculators. These calculators must
be silent and have a self-contained power source. They are
NOT to include a printing mechanism or a full alphabetic
character set. Programmable calculators, which are instru
ments that can store mathematical formulas, are prohibited.
The testing center will provide calculators for your use during
the exam.
Following is a list of the major Project Cost Management
topics. Use it to help focus your study efforts on the areas
most likely to appear on the exam.
Project Cost Management 105
Major Topics
Project cost management
Life-cycle cost (LCC)
Cost management plan
Estimate costs
Scope baseline
Human resource plan
Project schedule
Risk register
Cost estimating methods
Analogous estimating
Parametric modeling
Bottom-up estimating
Three-point estimates
Vendor bid analysis
Reserve analysis
Cost of quality
Accuracy of estimates
Order of magnitude
Budget
Definitive
Direct versus indirect costs
Contingency/management reserve
Activity cost estimates
Basis of estimates
Cost risk and contract type

Determine budgets
Cost aggregation
Reserve analysis
Funding limit reconciliation
Cost baseline
Control costs
Performance reviews
Variance analysis
Forecasting
Earned value management (EVM)

The most rudimentary building blocks
Cost variance (CV)

Schedule variance (SV)
Cost performance index (CPI)
Forecasting
Schedule performance index (SPI)
Budget at completion (BAC)
Variance at completion (VAC)
Estimate to complete (ETC)
Estimate at completion (EAC)
To-complete performance index (TCPI)
Earned value measurement techniques
Weighted milestones
Fixed formula
Percent complete
Work performance measurements

Practice Questions
INSTRUCTIONS: Note the most suitable answer for
each multiple-choice question in the appropriate
space on the answer sheet.
You are using earned value progress reporting for

your current project in an effort to teach your software
developers the benefits of earned value. You plan to
display project results on the cafeteria bulletin board

so that the team knows how the project is p rogressing.
Use the current status, listed below, to answer
questions 1 through 4:
PV = $2,200
EV = $2,000
AC = $2,500
BAC = $10,000
1. According to earned value analysis, the SV and status of

the project described above is
a. $300; the project is ahead of schedule
b. +$8,000; the project is on schedule
c. +$200; the project is ahead of schedule
d. $200; the project is behind schedule
2. What is the CPI for this project, and what does it tell us
about cost performance thus far?
a. 0.20; actual costs are exactly as planned
b. 0.80; actual costs have exceeded planned costs
c. 0.80; actual costs are less than planned costs
d. 1.25; actual costs have exceeded planned costs
3. The CV for this project is

a. 300
b. $300
c. 500
d. $500
4. What is the EAC for this project, and what does it represent?
a. $12,500; the revised estimate for total project cost
(based on performance thus far)

b. $10,000; the revised estimate for total project cost
c. $12,500; the original project budget
d. $10,000; the original project budget
5. You have now prepared your cost management plan

so now you are preparing your projects cost estimate.
You decided to use analogous estimating. Which of the
following is NOT characteristic of analogous estimating?
a. Supports top-down estimating
b. Is a form of expert judgment
c. Has an accuracy rate of 10% of actual costs
d. Involves using the cost of a previous, similar project as
the basis for estimating current project cost
6. All the following are outputs of the estimate cost process

EXCEPT
a. Activity cost estimates
b. Basis of estimates
c. Documented constraints
d. Cost baseline
7. You must consider direct costs, indirect costs, overhead

costs, and general and administrative costs during cost
estimating. Which of the following is NOT an example of
a direct cost?
a. Salary of the project manager
b. Subcontractor expenses
c. Materials used by the project
d. Electricity
8. If the cost variance is the same as the schedule variance

and both numbers are greater than zero, then
a. The cost variance is due to the schedule variance
b. The variance is favorable to the project
c. The schedule variance can be easily corrected
d. Labor rates have escalated since the project began
9. You are responsible for preparing a cost estimate for

a large World Bank project. You decide to prepare a
bottom-up estimate because your estimate needs to be
asaccurate as possible. Your first step is to
a. Locate a computerized tool to assist in the process
b. Use the cost estimate from a previous project to help
you prepare this estimate
c. Identify and estimate the cost for each work package
or activity
d. Consult with subject matter experts and use their
suggestions as the basis for your estimate
10. Management has grown weary of the many surprises,

mostly negative, that occur on your projects. In an effort
to provide stakeholders with an effective performance
metric, you will use the to-complete performance index
(TCPI). Its purpose is to
a. Determine the schedule and cost performance needed
to complete the remaining work within managements
financial goal for the project
b. Determine the cost performance needed to complete

the remaining work within managements financial
goal for the project
c. Predict final project costs
d. Predict final project schedule and costs
11. If operations on a work package were estimated to cost

$1,500 and finish today but, instead, have cost $1,350 and
are only two-thirds complete, the cost variance is
a. $150
b. $150
c. $350
d. $500
12. When you review cost performance data on your p roject,

different responses will be required depending on
the degree of variance or control thresholds from the
baseline. For example, a variance of 10 percent might
not require immediate action, whereas a variance of
100percentwill require investigation. A description
of how you plan to manage cost variances should be
included in the
a. Cost management plan
b. Change management plan
c. Performance measurement plan
d. Variance management plan
13. As of the fourth month on the Acme project, cumulative

planned expenditures were $100,000. Actual expenditures
totaled $120,000. How is the Acme project doing?
a. It is ahead of schedule.
b. It is in trouble because of a cost overrun.
c. It will finish within the original budget.
d. The information is insufficient to make an assessment.
14. On your project, you need to assign costs to the time

period in which they are incurred. To do this, you should
a. Identify the project components so that costs can be
allocated
b. Use the project schedule as an input to determine budget
c. Prepare a detailed and accurate cost estimate
d. Prepare a cost performance plan
15. You have a number of costs to track and manage because

your project is technically very complex. They include
direct costs and indirect (overhead) costs. You have found
that managing overhead costs is particularly difficult
because they
a. Are handled on a project-by-project basis
b. Represent only direct labor costs
c. Represent only equipment and materials needed for
the project
d. Are usually beyond the project managers control
16. If you want to calculate the ETC based on your expecta

tions that similar variances to those noted to date will not
occur, you should use which of the following formulas?
a. ETC = BAC EV
b. ETC = (BAC EV)/CPI
c. ETC = AC + EAC
d. ETC = AC + BAC EV
17. You receive a frantic phone call from your vice president
who says she is going to meet with a prospective c lient
in 15 minutes to discuss a large and complex project. She
asks you how much the project will cost. You quickly
think of some similar past projects, factor in a few
unknowns, and give her a number. What type of estimate
did you just provide?
a. Definitive
b. Budget
c. Order-of-magnitude
d. Detailed
18. Your approved cost baseline has changed because of

a major scope change on your project. Your next step
should be to
a. Estimate the magnitude of the scope change
b. Issue a change request
c. Document lessons learned
d. Execute the approved scope change
19. Which of the following is a tool for analyzing a design,

determining its functions, and assessing how to provide
those functions cost effectively?
a. Pareto diagram
b. Value analysis
c. Configuration management
d. Value engineering
20. The cumulative CPI has been shown to be relatively

stable after what percentage of project completion?
a. 5% to 10%
b. 15% to 20%
c. 25% to 35%
d. 50% to 75%
21. The undistributed budget is part of the

a. Management reserve
b. Performance measurement baseline
c. Level-of-effort cost accounts
d. General and administrative accounts
22. It is expensive to lease office space in cities around

the world. Office space can cost approximately USD
$80 per square foot in Tampa, Florida. And it can cost

approximately 50,000 per square meter in Tokyo.
Theseaverages can help a person to determine how
much it will cost to lease office space in these cities
based on the amount of space leased. These estimates
areexamples of
a. Variance analysis
b. Parametric estimating
c. Bottom-up estimating
d. Reserve analysis
23. Your project manager has requested that you provide him
with a forecast of project costs for the next 12 months.
He needs this information to determine if the budget
should be increased or decreased on this major construc
tion project. In addition to the usual information sources,
which of the following should you also consider?
a. Cost estimates from similar projects
b. WBS
c. Project schedule
d. Costs that have been authorized and incurred
24. There are a number of different earned value manage

ment rules of performance measurement that can be
established as part of the cost management plan. Which
one of the following is NOT an example of such a rule?
a. Code of accounts allocation provision
b. Formulas to determine the ETC
c. Earned value credit criteria
d. Definition of the WBS level
25. Which of the following calculations CANNOT be used to

determine EAC?
a. EV to date plus the remaining project budget
b. Accepts actual costs and predicts future ETC work
willbe done at the budgeted rate
c. Assumes what the program has experienced can be
expected to continue
d. ETC will be performed at an efficiency rate consider
ing both the CPI and SPI
26. Typically, the statement no one likes to estimate, because

they know their estimate will be proven incorrect is true.
However, you have been given the challenge of estimating
the costs for your nuclear reactor project. A basic assump
tion that you need to make early in this process is
a. How direct and indirect costs will be handled
b. Whether or not experts will be available to assist you
in this process
c. If there will be a multiyear project budget
d. Whether the project has required delivery dates
27. By reviewing cumulative cost curves, the project manager

can monitor
a. EV
b. PV
c. CVs
d. CPI
28. Control accounts

a. Are charge accounts for personnel time management

b. Summarize project costs at level 2 of the WBS
c. Identify and track management reserves
d. Represent the basic level at which project performance
is measured and reported
29. Performance review meetings are held to assess s chedule

activity and work packages over-running or under-running
the budget and to determine any estimated funds needed
to complete work in progress. Typically, if EV is being
used, all but which of the following information is
determined?
a. Variance analysis
b. Trend analysis
c. Time reporting systems
d. Earned value performance
30. Overall cost estimates must be allocated to individual

activities to establish the cost performance baseline.
Inanideal situation, a project manager would prefer to
prepare estimates
a. Before the budget is complete
b. After the budget is approved by management
c. Using a parametric estimating technique and model
specific for that project type
d. Using a bottom-up estimating technique
31. According to learning curve theory, when many items are

produced repetitively
a. Unit costs decrease geometrically as production rates
increase linearly
b. Unit costs decrease as production rates increase
c. Unit costs decrease in a regular pattern as more units
are produced
d. Costs of training increase as the level of automation
increases
32. The method of calculating the EAC by assuming the

ETC work will be performed at the same cumulative CPI
incurred by the project to date is used most often when
a. Current variances are viewed as atypical ones
b. Original estimating assumptions are no longer reliable
because conditions have changed
c. Current variances are viewed as typical of future
variances
d. Original estimating assumptions are considered to be
fundamentally flawed
33. Increased attention to return on investment (ROI)

now requires you to complete a financial analysis of
the p ayback period on your project. Such an analysis
identifies the
a. Ratio of discounted revenues over discounted costs
b. Future value of money invested today
c. Amount of time before net cash flow becomes positive
d. Point in time where costs exceed profit
34. A revised cost baseline may be required in cost control

when
a. CVs are severe, and a realistic measure of performance
is needed
b. Updated cost estimates are prepared and distributed
to stakeholders
c. Corrective action must be taken to bring expected
future performance in line with the project plan
d. EAC shows that additional funds are needed to com

plete the project even if a scope change is not needed
35. As project manager, you identified a number of accept

able tolerances as part of your earned value management
system. During execution, some unacceptable variances
occurred. After each unacceptable variance occurred,
you did which one of the following first?
a. Updated the budget
b. Prepared a revised cost estimate
c. Adjusted the project plan
d. Documented lessons learned
36. Assume that the project cost estimates have been pre
pared for each activity and the basis of these estimates
has been determined. Now, as the project manager for
your nutrition awareness program in your hospital, you
are preparing your budget. Because you have estimates
for more than 1,200 separate activities, you have decided
to first
a. Aggregate these estimates by work packages
b. Aggregate these estimates by control accounts to
facilitate the use of earned value management
c. Use the results of previous projects to predict total costs
d. Set your cost performance baseline
37. The cumulative cost curve for planned and actual

expenditures
a. Helps to monitor project performance at a glance
b. Is used for calculating the CPI
c. Is also known as a histogram
d. Forecasts total project expenditures
38. The reason that the cost performance index (CPI) is

shown as a ratio is to
a. Enable a detailed analysis of the schedule regardless of
the value of the schedule variance
b. Distinguish between critical path and noncritical path
work packages
c. Provide the ability to show performance for a specified
time period for trend analysis
d. Measure the actual time to complete the project
39. Assume that your actual costs are $800; your planned
value is $1,200; and your earned value is $1,000. Based
on these data, what can be determined regarding your
schedule variance?
a. At +$200, the situation is favorable as physical progress
is being accomplished ahead of your plan.
b. At $200, the physical progress is being accomplished
at a slower rate than is planned, indicating an unfavor
able situation.
c. At +$400, the situation is favorable as physical progress is
being accomplished at a lower cost than was forecasted.
d. At $200, you have a behind-schedule condition, and
your critical path has slipped.
40. The CPI on your project is 0.84. This means that you
should
a. Place emphasis on improving the timeliness of the
physical progress
b. Reassess the life-cycle costs of your product, including
the length of the life-cycle phase
c. Recognize that your original estimates were fundamen
tally flawed, and your project is in an atypical situation
d. Place emphasis on improving the productivity by

which work was being performed
Answer Sheet
1. a b c d 21. a b c d
2. a b c d 22. a b c d
3. a b c d 23. a b c d
4. a b c d 24. a b c d
5. a b c d 25. a b c d
6. a b c d 26. a b c d
7. a b c d 27. a b c d
8. a b c d 28. a b c d
9. a b c d 29. a b c d
10. a b c d 30. a b c d
11. a b c d 31. a b c d
12. a b c d 32. a b c d
13. a b c d 33. a b c d
14. a b c d 34. a b c d
15. a b c d 35. a b c d
16. a b c d 36. a b c d
17. a b c d 37. a b c d
18. a b c d 38. a b c d
19. a b c d 39. a b c d
20. a b c d 40. a b c d
Answer Key
1. d. $200; the project is behind schedule
SV is calculated as EV PV (in this case, $2,000
$2,200). A negative variance means that the work
completed is less than what was planned for at that
point in the project. [Monitoring and Controlling]
PMI, PMBOK Guide, 2013, 224
2. b. 0.80; actual costs have exceeded planned costs

CPI is calculated as EV/AC (in this case,
$2,000/$2,500). EV measures the budgeted dollar
value of the work that has actually been accom
plished, whereas AC measures the actual cost of
getting that work done. If the two numbers are the
same, work on the project is being accomplished for
exactly the budgeted amount of money (and the ratio
will be equal to 1.0). If actual costs exceed budgeted
costs (as in this example), AC will be larger than
EV, and the ratio will be less than 1.0. CPI is also an
index of efficiency. In this example, an index of 0.80
(or 80 percent) means that for every dollar spent on
the project only 80 cents worth of work is actually
accomplished. [Monitoring and Controlling]
3. d. $500
CV is calculated as EV AC (in this case, $2,000
$2,500). A negative CV means that a ccomplishing
work on the project is costing more than was
budgeted. [Monitoring and Controlling]
4. a. $12,500; the revised estimate for total project cost

EAC is calculated as BAC/CPI (in this case,
$10,000/0.80). It is now known that the project will
cost more than the original estimate of $10,000. The
project has been getting only 80 cents worth of work
done for every dollar spent (CPI), and this informa
tion has been used to forecast total project costs.
This approach assumes that performance for the

remainder of the project will also be based on a CPI
of 0.80. [Monitoring and Controlling]
5. c. Has an accuracy rate of 10% of actual costs

A frequently used method of estimate costs, the
analogous technique relies on experience and knowl
edge gained to predict future events. This technique
provides planners with some idea of the m agnitude
of project costs but generally not within 10%.
[Planning]
6. d. Cost baseline
Cost baseline is an output from the determine budget
process. [Monitoring and Controlling]
7. d. Electricity
Direct costs are incurred for the exclusive benefit of
a project (for example, salary of the project manager,
materials used by the project, and subcontractor
expenses). Indirect costs, also called overhead costs,
are allocated to a project by its performing organiza
tion as a cost of doing business. These costs cannot
be traced to a specific project and are a ccumulated
and allocated equitably over multiple projects

(forexample, security guards, fringe benefits, and
electricity). [Planning]
8. b. The variance is favorable to the project

A positive schedule variance indicates that the
project is ahead of schedule. A positive cost variance
indicates that the project has incurred less cost than
estimated for the work accomplished; therefore, the
project is under budget. [Monitoring and Controlling]
9. c. Identify and estimate the cost for each work package

or activity
Bottom-up estimating is derived by first estimating
the cost of the projects elemental tasks at the lower
levels of the WBS or for an activity and then aggre
gating those estimates at successively higher levels
of the WBS for subsequent reporting and tracking
purposes. [Planning]
10. b. Determine the cost performance needed to complete

the remaining work within managements financial
goal for the project
The TCPI takes the value of work remaining and
divides it by the value of funds remaining to obtain
the cost performance factor needed to complete all
remaining work according to a financial goal set by
management. [Monitoring and Controlling]
11. c. $350
CV is calculated by EV AC, or $1,500(2/3) $1,350 =
$350. [Monitoring and Controlling]
12. a. Cost management plan

The management and control of costs focuses on
variance thresholds. Certain variances are accept
able, and others, usually those falling outside a
particular range, are unacceptable. They are typically
expressed as percentage deviations from the baseline
plan. The actions taken by the project manager for
variances are described in the cost management
plan. [Planning]
13. d. The information is insufficient to make an

assessment.
The information provided tells us that, as of the
fourth month, more money has been spent than was
planned. However, we need to know how much
work has been completed to determine how the
project is performing. In earned value terms, we are
missing the EV. [Monitoring and Controlling]
14. b. Use the project schedule as an input to determine

budget
Accurate project performance measurement depends
on accurate cost and schedule information. The
project schedule includes planned start and fi nish
dates for all activities tied to work packages and
control accounts. This information is used to
aggregate costs to the calendar period for which the
costs are planned to be incurred. [Planning]
15. d. Are usually beyond the project managers control

Overhead includes costs such as rent, insurance,
orheating, that pertain to the project as a whole
and cannot be attributed to a particular work item.
Theamount of overhead to be added to the project
is frequently decided by the performing organization
and is beyond the control of the project manager.
[Monitoring and Controlling]
Meredith and Mantel 2012, 301
16. a. ETC = BAC EV

This formula assumes that the estimate to complete is
based on the same cost efficiency level. [Monitoring
and Controlling]
Meredith and Mantel, 454
17. c. Order-of-magnitude
An order-of-magnitude estimate, which is referred
to also as a ballpark estimate, has an accuracy range

of 25% to 75% and is made without detailed data.
[Planning]
PMI, PMBOK Guide, 2013, 201; Ward 2008, 295
18. b. Issue a change request

Before a revised cost baseline leading to a budget
update can be prepared, it is necessary to issue
a change request, which may include preventive
or corrective action. These change requests then
are reviewed and processed through the Perform
Integrated Change Control process. [Monitoring
andControlling]
19. d. Value engineering

Value engineering considers possible cost trade-offs
as a design evolves. The technique entails identifying
the functions that are needed and analyzing the cost
effectiveness of the alternatives available for providing
them. It helps optimize project life cycle costs, save
time, increase profits, improve quality, increase market
share, solve problems, and contribute toward more
effective resource use [Monitoring and Controlling]
20. b. 15% to 20%

The CPI has been proven to be an accurate and
reliable forecasting tool. Researchers have found that
the cumulative CPI does not change by more than
10% once a project is approximately 20% complete.
The CPI provides a quick statistical forecast of final
projectcosts. [Monitoring and Controlling]
Fleming and Koppelman 2000, 134
21. b. Performance measurement baseline

The undistributed budget is applied to project work
that has not yet been linked to WBS elements at or
below the lowest level of reporting. It is, therefore,
part of the performance measurement baseline and
is expected to be used in the performance of project
work. [Monitoring and Controlling]
Fleming and Koppelman 2000, 169, 206
PMI, PMBOK Guide, 2013, 205, 549
22. b. Parametric estimating

Parametric estimating involves using statistical rela
tionships between historical data and other variables
to calculate or estimate for activity parameters, such
as cost, budget, or duration. The example is repre
sentative of a simple parametric model. [Planning]
23. d. Costs that have been authorized and incurred

These costs are part of work performance data about
project progress. In addition data include information
about project progress such as which activities have
started, their progress, and which deliverables have
finished Updating the budget requires knowledge
about the actual costs spent to date, and any budget
changes are approved according to the Perform
Integrated Change Control process. [Monitoring and

Controlling]
24. a. Code of accounts allocation provision

Rules of earned value performance measurement
arepart of the cost management plan and may
(1)define the points in the WBS where measurement
of control accounts will be performed; (2) establish
the EV measurement techniques such as weighted
milestones, fixed-formula, percent complete, etc., to
be used; and (3) specific tracking methods and EV
equations for calculating the EAC forecasts to provide
a validity check on the bottom-up EAC. [Planning]
25. a. EV to date plus the remaining project budget

EAC is a forecast of the most likely total value based
on project performance and risk quantification.
Tocalculate EAC, the AC of a project must be
known and used in the calculation. Any calculation
that relies solely on the EV will not yield an accurate
measure of cost performance. [Monitoring and
Controlling]
26. a. How direct and indirect costs will be handled

The scope statement, as part of the scope baseline,
is a key input in the estimate costs process and
should be reviewed. It provides the project descrip
tion, acceptance criteria, key deliverables, boundaries,
assumptions, and constraints about the project. It also
notes one basic assumption that must be made as
costs are estimated is whether the estimates will be
limited only to direct project costs or whether they

also will include indirect project costs. [Planning]
27. c. CVs
Cumulative cost curves, or S-curves, enable
the p
roject manager to monitor cost variances
at a glance. The difference in height between
the planned-expenditure curve and the
actual-expenditure curve represents the monetary
value of variances at any given time. [Monitoring
andControlling]
28. d. Represent the basic level at which project performance

is measured and reported
Control accounts represent a management control
point where scope, budget (resource plans), actual
costs, and schedule are integrated and compared
to earned value for performance measurement.
[Planning]
PMI, PMBOK Guide, 2013, 132, 199, and 533
29. c. Time reporting systems

Variance analysis focuses on cost and schedule to
help explain the cause, issue, and corrective action.
Trend analysis examines project performance over
time to determine performance status. Earned
value performance compares the performance
measurement baseline to actual schedule and cost
performance. [Monitoring and Controlling]
30. a. Before the budget is complete

Often project cost estimates are prepared after
budgetary approval is provided. However, activity
cost estimates should be prepared before the budget
is complete. [Planning]
31. c. Unit costs decrease in a regular pattern as more units

are produced
Learning curve theory indicates that human perfor
mance usually improves when a task is repeated.
Specifically, each time output doubles, worker
hours per unit decrease by a fixed percentage.
Thispercentageis called the learning rate. [Planning]
Meredith and Mantel 2012, 301303
32. c. Current variances are viewed as typical of future

variances
Past performance is indicative of future perfor
mance; therefore, EAC = BAC/CPI. [Monitoring
andControlling]
33. c. Amount of time before net cash flow becomes

positive
Payback period analysis determines the time required
for a project to recover the investment in it and
become profitable. A weakness of this approach is a
lack of emphasis on the magnitude of the profitability.
[Planning]
Kerzner 2009, 614615; PMI PMBOK Guide, 2013, 195;
Ward 2008, 305
34. a. CVs are severe, and a realistic measure of performance

is needed
After the CVs exceed certain ranges, the original
project budget may be questioned and changed
as a result of new information. [Monitoring and
Controlling]
35. d. Documented lessons learned

Lessons learned but not documented are lessons
lost. The lessons learned knowledge database will
help current project members, as well as people on
future projects, make better decisions. Accordingly,
the reasons for the variance, the rationale
supporting the corrective action, and other related
informationmust be documented. They require
updates as part of updates to organizational process

assets as an output of control costs in terms of
correctiveactions taken and why they wre selected.
[MonitoringandControlling]
36. a. Aggregate these estimates by work packages

The WBS provides the relationship among all the
project deliverables and their components and should
be reviewed before the budget is developed. As
the budget is determined, the cost estimates for the
activities should be aggregated by the work packages
in the WBS. Then, later, they are aggregated for the
control accounts and finally for the entire project.
[Planning]
37. a. Helps to monitor project performance at a glance

Cost curves for planned and actual expenditures are
created by adding each months costs to the p
revious
reporting periods expenditures. By doing so, one
can quickly see how the project is performing.
[Monitoring and Controlling]
38. c. Provide the ability to show performance for a speci

fied time period for trend analysis
Because schedule performance index (SPI) and cost
performance index (CPI) are expressed as ratios,
they can be used to show performance for a s pecific
time period or trends over a long-time horizon.
Additionally, there is no need to disclose c onfidential
financial data to convey the projects status to ones
customers; they should not have a need to know
such information, unless there is a contractual

requirement to do so. [Monitoring and Controlling]
Kerzner 2009, 665666
39. b. At $200, the physical progress is being a ccomplished

at a slower rate than is planned, indicating an
unfavorable situation.
Schedule variance is calculated: EV PV or $1,000
$1,200 = $200. Because the SV is negative, physical
progress is being accomplished at a slower rate than
planned. [Monitoring and Controlling]
Kerzner 2009, 648649
40. d. Place emphasis on improving the productivity by

which work was being performed
CPI = EV/AC and measures the efficiency of the physi
cal progress accomplished compared to the baseline.
A CPI of 0.84 means that for every dollar spent, youre
only receiving 84 cents of progress. Therefore, you
should focus on improving the productivity by which
work is being performed. [Monitoring and Controlling]
Kerzner 2009, 650652

Project Cost Management

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Project Cost Management

on the formulas, how to calculate them, and how to interpret

comprising plan cost management, estimate costs, determine

Cost risk and contract type

Earned value management (EVM)

Cost variance (CV)

Earned value measurement techniques

Work performance measurements

You are using earned value progress reporting for

display project results on the cafeteria bulletin board

1. According to earned value analysis, the SV and status of

3. The CV for this project is

(based on performance thus far)

5. You have now prepared your cost management plan

6. All the following are outputs of the estimate cost process

7. You must consider direct costs, indirect costs, overhead

8. If the cost variance is the same as the schedule variance

9. You are responsible for preparing a cost estimate for

10. Management has grown weary of the many surprises,

b. Determine the cost performance needed to complete

11. If operations on a work package were estimated to cost

12. When you review cost performance data on your p roject,

13. As of the fourth month on the Acme project, cumulative

14. On your project, you need to assign costs to the time

15. You have a number of costs to track and manage because

16. If you want to calculate the ETC based on your expecta

18. Your approved cost baseline has changed because of

19. Which of the following is a tool for analyzing a design,

20. The cumulative CPI has been shown to be relatively

21. The undistributed budget is part of the

22. It is expensive to lease office space in cities around

$80 per square foot in Tampa, Florida. And it can cost

24. There are a number of different earned value manage

25. Which of the following calculations CANNOT be used to

26. Typically, the statement no one likes to estimate, because

27. By reviewing cumulative cost curves, the project manager

28. Control accounts

a. Are charge accounts for personnel time management

29. Performance review meetings are held to assess s chedule

30. Overall cost estimates must be allocated to individual

31. According to learning curve theory, when many items are

32. The method of calculating the EAC by assuming the

33. Increased attention to return on investment (ROI)

34. A revised cost baseline may be required in cost control

d. EAC shows that additional funds are needed to com

35. As project manager, you identified a number of accept

37. The cumulative cost curve for planned and actual

38. The reason that the cost performance index (CPI) is

d. Place emphasis on improving the productivity by

2. b. 0.80; actual costs have exceeded planned costs

4. a. $12,500; the revised estimate for total project cost

This approach assumes that performance for the

5. c. Has an accuracy rate of 10% of actual costs

and allocated equitably over multiple projects

8. b. The variance is favorable to the project

9. c. Identify and estimate the cost for each work package

10. b. Determine the cost performance needed to complete

PMI, PMBOK Guide, 2013, 224

12. a. Cost management plan

13. d. The information is insufficient to make an