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Assignment 4

The document discusses various topics related to project budgeting including: - Top-down and bottom-up budgeting approaches each have advantages and disadvantages such as top-down may overlook tasks while bottom-up allows for more accurate task estimates. - Tracking signals can identify bias in estimates and allow estimators to correct biases. - Learning curve theory states that performance improves by a fixed percentage each time production doubles, allowing more accurate labor cost estimates over time. - A project's budget acts as a control and considers all resource costs, not just the sum of individual costs.

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Nur Sazlin
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203 views

Assignment 4

The document discusses various topics related to project budgeting including: - Top-down and bottom-up budgeting approaches each have advantages and disadvantages such as top-down may overlook tasks while bottom-up allows for more accurate task estimates. - Tracking signals can identify bias in estimates and allow estimators to correct biases. - Learning curve theory states that performance improves by a fixed percentage each time production doubles, allowing more accurate labor cost estimates over time. - A project's budget acts as a control and considers all resource costs, not just the sum of individual costs.

Uploaded by

Nur Sazlin
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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1. What is the logic in charging administrative costs based on total time to project completion?

- administrative costs increase in proportion to the length of the project.


2. What is the general learning curve percentage?
- 70-95
3. The first unit required 6 hours. If the industry uses a 90 percent learning rate, how long should
the fourth unit take?
-If the industry uses a 90 percent learning rate, the second unit should take 6*0.9 = 5.4 hours
and the fourth unit should take 6*0.9*0.9 = 4.86 hours

4. Calculating the Tracking Signal can not only reveal if estimates are biased, it can also tell how severe
the bias is. (T)

5. Random errors will tend to cancel out. (T)

6. A key advantage of top-down budgeting is that the overall budget costs can be estimated quite
accurately.(T)

7. Which of the following is not true regarding top-down budgeting?

-The overall budget cost is generally not very accurate.

8. Organizations can use both top-down and bottom-up budgeting.(T)

9. The project manager recognizes an expense when an invoice is actually paid. (F)

10. Learning curve theory states that performance of labor per unit will improve by a percentage each
time production increases by the same percentage. (F)

11. Reason for cost uncertainty in projects include;

-Prices may escalate


-Different resources may be required
-The project may take a different amount of time than was expected

12. Contrast the disadvantages of top-down budgeting and bottom-up budgeting.

The main disadvantages of top-down budgeting are that:

-Significant errors may be made for low-level tasks,

-A lower level of budget acceptance is likely due to limited participation, and

-It provides little training opportunities in budgeting for junior managers.

The main disadvantage of bottom-up budgeting is the risk of overlooking important tasks
13. Which of the following is not true regarding bottom-up budgeting?

-The method tends to be inaccurate in the detailed tasks.

14. Traditional organizational budgets are task-oriented, rather than activity-oriented.(F)

15. A task is expected to take 20 hours of labor at $25 per hour. The required material cost is $500 and
the organization charges 30% of direct labor for overhead. The total task cost is:

$500 + [(20hr*$25/hr)*1.3 = $1150)

-$1,150

16. Top-down budgeting typically results in better acceptance of the budget. (F)

17. Overhead and indirect charges should not be assigned to a project. (F)

18. Individual elements of project budgets are generally more accurate in bottom-up budgeting. (T)

19. Tracking signals can be used to identify bias in your estimates. (T)

20. With top-down budgeting, overlooking a small but important task can often cause a serious
budgetary problem. (F)

21. Because project budgeting is for a special case and the organization’s budgeting process is for
routine work, the project manager need not be familiar with the organization’s accounting system.(F)

22. A requirement of top-down budgeting is:

a) involvement of the project team

b) estimating the detailed level of the project's tasks

c) applying the learning curve to labor time estimates

- none of the above

23. A problem with bottom-up budgeting is:

- individual team members overstate their budget needs

24. Which of the following statements is not true about a firm and its project accounting?

- the project manager must rely on the accounting department to make special allowances for his/her
project.

25. Project budget is nothing more than the project plan, based on the WBS, expressed in monetary
terms.(T)
26. How does a tracking signal improve budget estimates?

-be used in preparing future estimates, and

-Allows estimators to understand and correct their biases

27. The best approach to handling change in projects is to accept the negative change and take a loss on
the project.

28. Contingency planning is generally begun at that point in time when an organization finds itself in
serious financial trouble. (F)

29. Bottom-up budgets are usually more accurate in the detailed tasks.(T)

30. The name given to the budget process that aggregates income and expenditures across projects is:

- program-oriented

31. There is no way other than guessing to estimate the impact of learning on a project’s task.(F)

32. A disaster is an event that may have an extraordinarily high cost if it occurs, but has a very low
probability of occurring. (T)

33. Learning curve theory states that performance of labor per unit will improve by a fixed percentage
each time production doubles.(T)

34. Budgeting a project is often more difficult than budgeting routine activities.(T)

35. Why is it necessary to consider the learning curve of resources on a project?

- to estimate labor costs properly

36. The first unit requires 10 hours to complete. If the industry uses an 80 percent learning rate, how
long should the 8th unit take?

-7.02 hours

37. A budget is a plan for allocating resources to project activities. (T)

38. Learning curves can be used to help improve cost estimates. (T)

39. The project budget acts as a project control. (T)

40. The project’s budget is merely the sum of its resource costs.(F)

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