CHAPTER 7: DETERMINING COSTS, BUDGET, AND EARNED VALUE
1. It is good practice to have the person who will be responsible for the costs associated with the work make the
cost estimates.
a. True
b. False
2. Historical data can be used as a guide on the current project.
a. True
b. False
3. Cost estimates should be unreasonable and excessive.
a. True
b. False
4. In many projects, large dollar amounts are expended for materials or services (subcontractors, consultants) that
are used over a period of time longer than one cost reporting period.
a. True
b. False
Chapter 7: Determining Costs, Budget, and Earned Value
5. Committed costs are also known as discharged or postponed costs.
a. True
b. False
6. Cumulative actual cost (CAC) should be calculated to compare to the cumulative budgeted cost (CBC).
a. True
b. False
7. The percent complete estimate for a work package is subjective and requires an underestimated guess compared
to the scope of the work package.
a. True
b. False
8. When the CPI goes below 1.0 or gradually gets smaller, corrective action should not be taken, the project
is performing well.
a. True
b. False
Chapter 7: Determining Costs, Budget, and Earned Value
9. Based on analysis of actual cost it is possible to forecast what the total costs will be at the completion of the
project or work package.
a. True
b. False
10. The key to effective cost control is to analyze cost performance on a regular and timely basis.
a. True
b. False
11. If you put off corrective actions until some point in the distant future, the negative cost variance may
deteriorate in the project.
a. True
b. False
12. In many cases, there will be a tradeoff, reducing cost variances will involve a reduction in project scope or a
delay in the project schedule.
a. True
b. False
Chapter 7: Determining Costs, Budget, and Earned Value
13. The key to effective cost control is waiting to address negative cost variances and cost inefficiencies after they
are identified.
a. True
b. False
14. It is important to manage the cash flow on a project.
a. True
b. False
15. The key to managing cash flow is to ensure that cash comes in faster than it goes out.
a. True
b. False
16. The worst scenario from the contractor’s point of view is to have the customer make only one payment at the end
of the project.
a. True
b. False
Chapter 7: Determining Costs, Budget, and Earned Value
17. The total project cost is often estimated during the phase of the project or when the project charter
or a proposal is prepared
a. initiating
b. planning
c. performing
d. closing
18. Labor costs in the project costs estimate are the estimated costs for the various types or classifications of
and are based on the estimated work time (not necessarily the same as the activity estimated duration) and the
dollar labor rate for each.
a. people who are expected to work on the project
b. people, even if they are not directly assigned to the project
c. overhead and direct expenses
d. subcontractors
Chapter 7: Determining Costs, Budget, and Earned Value
19. Materials costs in the project costs estimate are the estimated costs of materials that the project team or contractor
a. want to have in supply in the office.
b. needs even if not for this particular project.
c. needs to purchase for the project.
d. might want to use on the project.
20. Equipment costs in the project costs estimate are for equipment
a. that the organization wants to have.
b. that is the latest upgrade, even if not needed for the project.
c. that must be purchased as part of the project.
d. needed by others in the organization that may not be assigned to the project.
Chapter 7: Determining Costs, Budget, and Earned Value
21. Facilities costs in the project costs estimate are for
a. general facilities for the project organization.
b. special facilities or additional space for the project team.
c. special facilities or additional space for the organization where other projects will be in progress.
d. storage of materials even if not for the project.
22. Costs related to are for outsourced work when the project teams or contractors do not have the expertise
or resources to do certain project tasks.
a. benefactors and suppliers
b. stakeholders
c. reserve and withholding
d. subcontractors and consultants
Chapter 7: Determining Costs, Budget, and Earned Value
23. Travel costs in the project costs estimate are for
a. travel (other than local travel) required during the project.
b. all travel by the organization.
c. travel costs for local meetings.
d. travel for conferences that may not be related to the project.
24. Contingency costs in the project costs estimate, also referred to as , are to cover unexpected situations
that may come up during the project, such as items that may have been overlooked when the initial project
scope was defined, activities that may have to be redone because they may not work the first time (redesigns),
or a high probability or high impact risk that may occur.
a. auxiliary funds
b. withholding
c. reserves
d. capital funds
Chapter 7: Determining Costs, Budget, and Earned Value
25. At the beginning of the project, it may not be possible to estimate the costs for all activities with a level of
confidence regarding their accuracy. This is especially true for
a. projects with a short term.
b. longer-term projects.
c. projects that are similar to ones completed by the organization before.
d. projects with activities that are serially related.
26. It may be easier to estimate the costs for , but as the project progresses, the project team can progressively
elaborate the estimated costs as more information is known or becomes clear to allow for more accurate
estimated costs.
a. near-term activities
b. activities near the end of the project
c. new activities with new procedures
d. activities with long durations
Chapter 7: Determining Costs, Budget, and Earned Value
27. The project cost estimate is allocated to
a. the various work packages in the project work breakdown structure.
b. the resources in the project.
c. the committed costs in the project.
d. the stakeholders.
28. The budget for each work package is
a. charged completely on the first day of the work package.
b. charged at the end of the project.
c. distributed over the duration of the work package.
d. charged completely on the last day of the work package.
29. Allocating total project costs for the various elements to the appropriate work packages will establish
a. the committed costs for the work package.
b. the anticipated expense for the work package.
c. how to apply resources to the work package.
d. a total budgeted cost (TBC) for each work package.
Chapter 7: Determining Costs, Budget, and Earned Value
30. There are two approaches to establishing the total budgeted cost for each work package:
a. top-down and bottom-up.
b. horizontal and vertical.
c. committed and actual.
d. aggregated and disaggregated.
31. Often, the sum of the initial estimated costs is greater than the amount of funds budgeted by the sponsor. What
should be done to arrive at an acceptable budget amount?
a. Cut the cost of the highest priced activity in half until the budget is reached.
b. Trade experienced and efficient resources for less experienced and less efficient resources.
c. Revise the budget expecting that several iterations may need to be made to reduce the costs.
d. Extend the scope of the project.
Chapter 7: Determining Costs, Budget, and Earned Value
32. When the budgets for all the work packages are summed,
a. they should exceed the amount of funds available.
b. they cannot exceed the total project budgeted cost.
c. if the total is too high then the amounts should be force-fitted into the customer’s budget.
d. if the total is too low then extra non-project expenses should be added.
33. Once a total budgeted cost has been established for each work package, the second step in the project
budgeting process is to
a. assign each TBC at the start of its work package.
b. assign each TBC at the end of its work package.
c. distribute each TBC over the project by dividing the total by the number of work packages and assigning
that amount to each.
d. distribute each TBC over the duration of its work package.
Chapter 7: Determining Costs, Budget, and Earned Value
34. A cost is determined for each period, based on when the activities that make up the work package are scheduled
to be performed, to create
a. the time–phased budget.
b. the actual costs of the project.
c. an example budget.
d. an adjusted budget.
35. The is the amount that was budgeted to accomplish the work that was scheduled to be performed up to that
point in time.
a. total budgeted cost (TBC)
b. cumulative actual cost (CAC)
c. cumulative budgeted cost (CBC)
d. cumulative earned value (CEV)
Chapter 7: Determining Costs, Budget, and Earned Value
36. The for the entire project or each work package provides a baseline against which actual cost and work
performance can be compared at any time during the project.
a. total budgeted cost (TBC)
b. cumulative budgeted cost (CBC)
c. cumulative earned value (CEV)
d. cumulative actual cost (CAC)
37. It is important to use the as the standard against which actual cost is compared.
a. cumulative budget
b. total budget
c. budget at completion
d. phased budget
Chapter 7: Determining Costs, Budget, and Earned Value
38. To keep track of , it’s necessary to set up a system to collect, on a regular and timely basis, data on funds
actually expended.
a. budgeted cost of work scheduled
b. planned cost of the project
c. actual cost on a project
d. budgeted cost of work performed
39. Large projects would have charge codes for the work package numbers to
a. have a place for other projects to charge expenses.
b. determine how the actual costs compare to the planned costs.
c. have resources be able to determine what tasks they should complete.
d. allow for cutting of the budget for the activities if need to cut the budget.
Chapter 7: Determining Costs, Budget, and Earned Value
40. Committed costs need to be treated in a special way so that the system
a. audits the amounts assigned.
b. periodically assigns a portion of their total cost to actual cost.
c. enters the amount of the cost one time at the end of the project.
d. enters the amount of the cost one time at the beginning of the project.
41. Costs are when an item is ordered even though actual payment may take place at some later time.
a. discharged
b. committed
c. postponed
d. restrained