Chapter 7: Project Cost Management
True / False
1. Overrun is the additional percentage amount by which estimates exceed actual costs.
a.
True
b.
False
False
exceed estimates.
1
Difficulty: Easy
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The Importance of Project Cost Management
Bloom’s: Knowledge
2. The primary output of the planning cost management process is a change request.
a.
True
b.
False
False
1
Difficulty: Easy
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The Importance of Project Cost Management
Bloom’s: Knowledge
3. IT project managers must be able to present and discuss project information both in financial and technical terms.
a.
True
b.
False
True
1
Difficulty: Easy
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4. Project managers must conduct cash flow analysis to determine net present value.
a.
True
b.
False
True
flow analysis to determine net present value.
1
Difficulty: Easy
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The Importance of Project Cost Management
Bloom’s: Knowledge
5. Intangible costs can be easily measured in monetary terms.
a.
True
b.
False
False
1
Difficulty: Easy
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United States – BUSPROG: Analytic
Basic Principles of Cost Management
Bloom’s: Knowledge
6. When deciding what projects to invest in or continue, one should include sunk costs.
a.
True
b.
False
False
1
Difficulty: Moderate
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Bloom’s: Comprehension
Bloom’s: Knowledge
Chapter 7: Project Cost Management
7. It is important for project managers to focus on indirect costs because they can be easily controlled.
a.
True
b.
False
False
1
Difficulty: Moderate
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Basic Principles of Cost Management
Bloom’s: Comprehension
8. If an important supplier goes out of business, management reserves can be set aside to cover the resulting costs.
a.
True
b.
False
True
business, management reserves could be set aside to cover the resulting costs.
1
Difficulty: Moderate
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Basic Principles of Cost Management
Bloom’s: Comprehension
9. Contingency reserves are also known as unknown unknowns.
a.
True
b.
False
False
1
Difficulty: Easy
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Basic Principles of Cost Management
Bloom’s: Knowledge
10. A cost management plan can include organizational procedures links, control thresholds, and process descriptions.
a.
True
Chapter 7: Project Cost Management
b.
False
True
measurement, among others.
1
Difficulty: Easy
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Planning Cost Management
Bloom’s: Knowledge
11. A budgetary estimate is the most accurate of the three types of estimates.
a.
True
b.
False
False
1
Difficulty: Easy
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Estimating Costs
Bloom’s: Knowledge
12. Budgetary estimates are made even before a project is officially started.
a.
True
b.
False
False
Feedback: Budgetary estimates are made one to two years prior to project completion.
1
Difficulty: Easy
INFO.SCHW.14.51 – LO: 7-4
United States – BUSPROG: Technology
Estimating Costs
Bloom’s: Knowledge
13. Definitive estimates are made one year or less prior to project completion.
a.
True
b.
False
True
14. Estimates should become more accurate as time progresses.
a.
True
b.
False
True
accurate as time progresses.
1
Difficulty: Easy
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Estimating Costs
Bloom’s: Knowledge
15. Supporting details for an estimate include the ground rules and assumptions used in creating the estimate.
a.
True
b.
False
True
1
Difficulty: Easy
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Estimating Costs
Bloom’s: Knowledge
16. Analogous estimates are called activity-based costing.
a.
True
b.
False
1
Difficulty: Easy
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Estimating Costs
Bloom’s: Knowledge
17. Analogous estimates are the most accurate technique to estimate costs.
a.
True
b.
False
False
1
Difficulty: Easy
p.273
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Estimating Costs
18. In a bottom-up estimate, the size of the individual work items is one of the factors that drives the accuracy of the
estimates.
a.
True
b.
False
True
1
Difficulty: Easy
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Estimating Costs
Bloom’s: Knowledge
19. Parametric models are reliable when the models are flexible in terms of the project’s size.
a.
True
b.
False
1
Difficulty: Easy
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Estimating Costs
Bloom’s: Knowledge
Chapter 7: Project Cost Management
True
1
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Estimating Costs
20. One of the reasons why project cost estimates are inaccurate is because human beings are biased toward
underestimation.
a.
True
b.
False
True
1
Difficulty: Moderate
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Bloom’s: Comprehension
21. It is important for project managers to understand that every cost estimate is unique.
a.
True
b.
False
22. Determining the budget involves allocating the project cost estimate to individual work items over time.
a.
True
b.
False
Chapter 7: Project Cost Management
True
1
Difficulty: Moderate
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Determining the Budget
Bloom’s: Knowledge
23. The project management plan and project funding requirements are inputs of the process of controlling costs.
a.
True
b.
False
True
1
Difficulty: Easy
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Bloom’s: Knowledge
24. The formulas for variances and indexes start with EV, the earned value.
a.
True
b.
False
True
1
Difficulty: Moderate
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Controlling Costs
Bloom’s: Comprehension
25. If cost variance is a positive number, it means that performing the work costs more than planned.
a.
True
b.
False
26. A negative schedule variance means that it took lesser than planned to perform the work.
a.
True
b.
False
False
1
Difficulty: Moderate
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Controlling Costs
Bloom’s: Comprehension
27. If the cost performance index (CPI) is less than 100 percent, the project is under budget.
a.
True
b.
False
False
1
Difficulty: Moderate
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Controlling Costs
Bloom’s: Comprehension
28. A schedule performance index of one means that the project is on schedule.
a.
True
b.
False
1
Difficulty: Moderate
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Controlling Costs
Bloom’s: Comprehension
29. In an earned value chart, when the actual cost line is right on or above the earned value line, it indicates that costs are
less than planned.
a.
True
b.
False
False
1
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Controlling Costs
30. Spreadsheets are a common tool for cost estimating, cost budgeting, and cost control.
a.
True
b.
False
True
1
Difficulty: Easy
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Using Project Management Software to assist In Project Cost Management
Bloom’s: Knowledge
Multiple Choice
31. _____ includes the processes required to ensure that a project team completes a project within an approved budget.
a.
Project scope management
b.
Project quality management
1
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Controlling Costs
Chapter 7: Project Cost Management
c.
Project time management
d.
Project cost management
Difficulty: Easy
INFO.SCHW.14.48 – LO: 7-1
United States – BUSPROG: Analytic
The Importance of Project Cost Management
32. Which of the following involves developing an approximation of the costs of resources needed to complete a project?
a.
Determining the budget
b.
Finalising the cost baseline
c.
Controlling costs
d.
Estimating costs
are activity cost estimates, basis of estimates, and project documents updates.
Difficulty: Moderate
INFO.SCHW.14.48 – LO: 7-1
United States – BUSPROG: Technology
The Importance of Project Cost Management
Bloom’s: Comprehension
33. _____ involves allocating the overall cost estimate to individual work items to establish a baseline for measuring
performance.
a.
Determining the budget
b.
Finalising policies for project costs
c.
Controlling costs
d.
Estimating costs
Difficulty: Moderate
INFO.SCHW.14.48 – LO: 7-1
United States – BUSPROG: Technology
The Importance of Project Cost Management
Bloom’s: Comprehension
34. One of the main outputs of the _____ process is a cost baseline.
Chapter 7: Project Cost Management
a.
cost controlling
b.
cost estimating
c.
cost budgeting
d.
cost planning
Difficulty: Easy
INFO.SCHW.14.48 – LO: 7-1
United States – BUSPROG: Technology
Bloom’s: Knowledge
35. The process of controlling costs primarily involves:
a.
determining the policies for project costs.
b.
managing changes to the project budget.
c.
finalising the procedures for project costs.
d.
determining a basis for estimates.
Difficulty: Moderate
INFO.SCHW.14.48 – LO: 7-1
United States – BUSPROG: Technology
The Importance of Project Cost Management
Bloom’s: Comprehension
36. Work performance information and cost forecasts are main outputs of the _____ process.
a.
cost budgeting
b.
cost estimating
c.
cost control
d.
cost pricing
Difficulty: Moderate
The Importance of Project Cost Management
37. Profits may be defined as:
a.
expenses plus net income.
b.
costs plus revenues.
c.
revenues plus expenses.
d.
revenues minus expenditures.
increase revenues, decrease expenses, or try to do both.
Difficulty: Moderate
INFO.SCHW.14.49 – LO: 7-2
Basic Principles of Cost Management
Bloom’s: Comprehension
38. _____ helps develop an accurate projection of a project’s financial expenses and benefits.
a.
Critical path analysis
b.
Fast tracking
c.
Life cycle costing
d.
Crashing
Difficulty: Easy
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Basic Principles of Cost Management
Bloom’s: Knowledge
39. _____ is a method for determining the estimated annual costs and benefits for a project.
a.
Critical path analysis
b.
Cash flow analysis
c.
Present value analysis
d.
Requirements analysis
flow analysis to determine net present value.
1
Difficulty: Easy
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Bloom’s: Comprehension
Chapter 7: Project Cost Management
40. Which of the following is true of tangible costs?
a.
They cannot be calculated in monetary terms.
b.
They can be easily measured.
c.
They are difficult to quantify.
d.
Their examples include goodwill and prestige.
b
1
Difficulty: Easy
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Basic Principles of Cost Management
Bloom’s: Knowledge
41. _____ are those costs that are difficult to measure in monetary terms.
a.
Intangible costs
b.
Direct costs
c.
Tangible costs
d.
Fixed costs
Feedback: Intangible costs or benefits are difficult to measure in monetary terms.
1
Difficulty: Easy
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Basic Principles of Cost Management
Bloom’s: Knowledge
42. Newtech Inc. hires John for the position of a software programmer to work on their new project. Salary paid to John
by Newtech Inc. would be an example of _____ costs.
a.
direct
b.
indirect
c.
sunk
d.
intangible
1
Difficulty: Challenging
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Chapter 7: Project Cost Management
43. Indirect costs are:
a.
directly related to performing the project.
b.
those that cannot be allocated to projects.
c.
those that can be easily controlled by managers.
d.
not directly related to the products or services of a project.
d
Difficulty: Easy
INFO.SCHW.14.49 – LO: 7-2
United States – BUSPROG: Analytic
Basic Principles of Cost Management
Bloom’s: Knowledge
44. Soles is a footwear company which has recently set up its store in Ambrosia. To manufacture its products, Soles incurs
a range of different costs. Which of the following would be an example of an indirect cost?
a.
Cost of machines to produce shoes
b.
Salary paid to factory workers
c.
Electricity used to run its factories
d.
Cost of leather used to manufacture shoes
1
Difficulty: Challenging
INFO.SCHW.14.49 – LO: 7-2
United States – BUSPROG: Reflective Thinking
Basic Principles of Cost Management
Bloom’s: Application
45. Good Earth, a company manufacturing packaged food products, sets up its stores in Baltonia. However, a year later,
the company closes the store down due to high operating costs. In such a scenario, the money spent in paying for the rent
of the store in Baltonia would be an example of _____ costs.
a.
recurring
b.
direct
c.
sunk
d.
intangible
Bloom’s: Application
46. Which of the following is true of contingency reserves?
a.
They allow for future situations that can be partially planned for.
b.
They are also known as unknown unknowns.
c.
They are not included in a cost baseline.
d.
They allow for dollar amounts to be used to cover existing, fixed costs.
(sometimes called known unknowns) and are included in the project cost baseline.
Difficulty: Moderate
INFO.SCHW.14.49 – LO: 7-2
United States – BUSPROG: Analytic
Basic Principles of Cost Management
Bloom’s: Comprehension
47. Which of the following reserves allows for future situations that are unpredictable?
a.
Contingency reserves
b.
Management reserves
c.
Known unknowns
d.
Cost baseline reserves
Difficulty: Easy
INFO.SCHW.14.49 – LO: 7-2
United States – BUSPROG: Analytic
Basic Principles of Cost Management
Bloom’s: Knowledge
48. The first step in project cost management is:
a.
to allocate project cost estimates to individual material resources.
b.
to plan how costs will be managed.
c.
to control project costs and monitor cost performance.
d.
to develop several estimates of costs for different types of resources.
Difficulty: Challenging
INFO.SCHW.14.49 – LO: 7-2
United States – BUSPROG: Reflective Thinking
Basic Principles of Cost Management
Bloom’s: Application
49. Which of the following is true of a rough order of magnitude estimate?
a.
It is used to allocate money into an organization’s budget.
b.
It provides an estimate of what a project will cost.
c.
Its timeframe is always less than a year prior to project completion.
d.
It is a type of estimate that is done in the final stages of a project.
b
Difficulty: Moderate
INFO.SCHW.14.51 – LO: 7-4
United States – BUSPROG: Technology
Estimating Costs
Bloom’s: Comprehension
50. A rough order of magnitude estimate can be referred to as a _____ estimate.
a.
definitive
b.
budgetary
c.
final
d.
ballpark
1
Difficulty: Easy
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Estimating Costs
Bloom’s: Knowledge
51. A cost estimation tool which is used to allocate money into an organization’s budget is known as a _____ estimate.
a.
budgetary
b.
definitive
1
Difficulty: Easy
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Planning Cost Management
Bloom’s: Knowledge