CCM Cost Management 2 — Questions and Answers
Question 1: A project has a Budget at Completion (BAC) of $500,000, an Earned Value (EV) of $200,000, and Actual Cost (AC) of $250,000. What is the Cost Performance Index (CPI)?
- 0.80 (Correct answer)
- 1.25
- 0.75
- 1.00
Correct answer: 0.80
CPI = EV / AC = $200,000 / $250,000 = 0.80, indicating the project is over budget.
Question 2: Which cost estimating technique uses historical data from similar past projects to develop a high-level estimate for a new project?
- Bottom-up estimating
- Analogous estimating (Correct answer)
- Parametric estimating
- Three-point estimating
Correct answer: Analogous estimating
Analogous estimating leverages historical data from comparable projects to produce a quick, high-level cost estimate.
Question 3: What does the term 'contingency reserve' refer to in construction cost management?
- Funds set aside for scope changes requested by the owner
- Funds allocated to cover identified risks with known probabilities (Correct answer)
- Funds held by management for unknown unknowns
- Profit margin built into the contract price
Correct answer: Funds allocated to cover identified risks with known probabilities
Contingency reserves address identified risks (known unknowns) and are included within the project cost baseline.
Question 4: In a Guaranteed Maximum Price (GMP) contract, who bears the risk if actual construction costs exceed the GMP?
- The owner
- The contractor (Correct answer)
- Both owner and contractor equally
- The subcontractors
Correct answer: The contractor
Under a GMP contract, the contractor absorbs costs above the guaranteed maximum price, protecting the owner from cost overruns.
Question 5: A construction manager uses a cost-loaded schedule to track project finances. What is the primary benefit of this approach?
- It eliminates the need for a separate budget document
- It allows earned value analysis by linking costs directly to schedule activities (Correct answer)
- It replaces the project's work breakdown structure
- It provides exact final cost figures at project completion
Correct answer: It allows earned value analysis by linking costs directly to schedule activities
A cost-loaded schedule integrates cost and schedule data, enabling earned value management (EVM) to measure performance.
Question 6: Which of the following best describes 'life cycle costing' in construction project management?
- Tracking costs only during the construction phase
- Evaluating total costs of ownership from design through demolition (Correct answer)
- Calculating the cost per square foot of a facility
- Amortizing construction costs over a loan period
Correct answer: Evaluating total costs of ownership from design through demolition
Life cycle costing considers all costs — design, construction, operations, maintenance, and disposal — over a facility's entire lifespan.
Question 7: On a construction project, what is the purpose of a Schedule of Values (SOV)?
- To list all equipment values for insurance purposes
- To allocate the contract sum among work items for progress billing (Correct answer)
- To rank subcontractors by bid price
- To document the value of approved change orders only
Correct answer: To allocate the contract sum among work items for progress billing
The Schedule of Values breaks the contract sum into work items or cost categories, forming the basis for monthly pay applications.
CCM Cost Management 2
A project has a Budget at Completion (BAC) of $500,000, an Earned Value (EV) of $200,000, and Actual Cost (AC) of $250,000.
What is the Cost Performance Index (CPI)?