PMP - Project Management Professional Managing Budget and Costs Questions and Answers — Questions and Answers
Question 1: A project has a Cost Performance Index (CPI) of 0.85 and a Schedule Performance Index (SPI) of 1.05. Based on these metrics, what is the current status of the project?
- The project is over budget and ahead of schedule. (Correct answer)
- The project is under budget and behind schedule.
- The project is over budget and behind schedule.
- The project is under budget and ahead of schedule.
Correct answer: The project is over budget and ahead of schedule.
A CPI less than 1.0 indicates that the project is over budget (costing more than planned for the work accomplished). [3, 9] An SPI greater than 1.0 indicates the project is ahead of schedule (accomplishing more work than planned for the time period). [4, 6] Therefore, a CPI of 0.85 and an SPI of 1.05 means the project is over budget and ahead of schedule.
Question 2: A project manager is establishing the project budget. The sum of the cost estimates for the individual work packages is $500,000. Through risk analysis, the team identifies known risks and allocates an additional $50,000 to address them if they occur. This $550,000 total is then approved as the performance measurement baseline. What does the $50,000 represent?
- Management Reserve
- Sinking Fund
- Contingency Reserve (Correct answer)
- Cost Baseline
Correct answer: Contingency Reserve
Contingency reserves are funds allocated for identified risks, or 'known-unknowns,' and are included within the cost baseline that the project manager controls. [8, 22, 27] Management reserves are for 'unknown-unknowns' (unidentified risks) and are not part of the cost baseline. The cost baseline itself is the total of work package estimates plus the contingency reserve.
Question 3: A project has a Budget at Completion (BAC) of $300,000. At the current status check, the Earned Value (EV) is $120,000, and the Actual Cost (AC) is $150,000. The project manager believes the cost variances experienced so far are typical and will continue for the remainder of the project. What is the Estimate at Completion (EAC)?
- $330,000
- $375,000 (Correct answer)
- $300,000
- $270,000
Correct answer: $375,000
When current cost variances are expected to continue, the appropriate formula for Estimate at Completion (EAC) is BAC / CPI. [1, 17] First, calculate the Cost Performance Index (CPI): CPI = EV / AC = $120,000 / $150,000 = 0.8. [3, 5] Then, calculate the EAC: EAC = BAC / CPI = $300,000 / 0.8 = $375,000.
Question 4: Which of the following is a key output of the Determine Budget process?
- Cost Estimates
- Change Requests
- Basis of Estimates
- Cost Baseline (Correct answer)
Correct answer: Cost Baseline
The primary output of the Determine Budget process is the Cost Baseline. [19, 32] This is the authorized, time-phased budget that will be used to measure, monitor, and control the project's cost performance. Cost Estimates and Basis of Estimates are inputs to this process, and Change Requests are typically an output of the Control Costs process.
Question 5: A project is significantly over budget. The project sponsor wants to know the cost performance required for the remaining work to finish the project exactly on its original budget (BAC). Which metric should the project manager provide?
- Cost Performance Index (CPI)
- Estimate at Completion (EAC)
- To-Complete Performance Index (TCPI) (Correct answer)
- Variance at Completion (VAC)
Correct answer: To-Complete Performance Index (TCPI)
The To-Complete Performance Index (TCPI) calculates the cost performance that must be achieved on the remaining work to meet a specific management goal, such as the original Budget at Completion (BAC). [2, 23, 31] It essentially answers the question, 'How efficiently must we use our remaining resources to meet the budget?'
Question 6: A project manager is preparing a cost estimate for a new software development project. Due to the high level of uncertainty in the initial stages, the project manager uses the costs from a similar, completed project as a basis for the estimate. Which estimating technique is being used?
- Parametric Estimating
- Bottom-up Estimating
- Analogous Estimating (Correct answer)
- Three-Point Estimating
Correct answer: Analogous Estimating
Analogous estimating uses historical data and expert judgment from a similar past project to estimate costs for a current project. It is a form of expert judgment, is generally less costly and time-consuming than other techniques, but is also less accurate. It is most useful when there is limited detailed information about the current project.
PMP - Project Management Professional Managing Budget and Costs Questions and Answers
A project has a Cost Performance Index (CPI) of 0.85 and a Schedule Performance Index (SPI) of 1.05.
Based on these metrics, what is the current status of the project?