PSI Project and Financial Management 3 — Questions and Answers
Question 1: What is the purpose of a project charter?
- To detail every task in the project schedule
- To formally authorize the project and grant the project manager authority (Correct answer)
- To list all project risks and mitigation strategies
- To define the project budget in detail
Correct answer: To formally authorize the project and grant the project manager authority
A project charter formally authorizes a project and grants the project manager authority to apply resources to project activities.
Question 2: Which financial metric calculates the time required to recover the initial investment from a project?
- Return on Investment (ROI)
- Net Present Value (NPV)
- Payback Period (Correct answer)
- Internal Rate of Return (IRR)
Correct answer: Payback Period
The payback period measures how long it takes for a project's cumulative cash inflows to equal its initial investment.
Question 3: A project manager identifies that a key vendor may not deliver on time. Which risk response strategy involves negotiating a penalty clause with the vendor?
- Risk avoidance
- Risk transfer (Correct answer)
- Risk acceptance
- Risk mitigation
Correct answer: Risk transfer
Risk transfer shifts the financial consequence of a risk to a third party, such as through contracts with penalty clauses or insurance.
Question 4: What is float (or slack) in project scheduling?
- Extra budget reserved for unexpected costs
- The amount of time an activity can be delayed without delaying the project end date (Correct answer)
- The overlap between two concurrent tasks
- The buffer added to each task estimate
Correct answer: The amount of time an activity can be delayed without delaying the project end date
Float is the amount of time a task can be delayed without affecting the project's overall completion date.
Question 5: Which budgeting technique requires managers to justify every expense from scratch each budget cycle?
- Incremental budgeting
- Top-down budgeting
- Zero-based budgeting (Correct answer)
- Rolling wave budgeting
Correct answer: Zero-based budgeting
Zero-based budgeting starts from zero each period and requires justification for all expenses, rather than adjusting the prior budget.
Question 6: In project communications management, what is a RACI matrix used for?
- Tracking project risks and impacts
- Defining roles and responsibilities for project tasks (Correct answer)
- Mapping resource allocation across activities
- Scheduling project milestones
Correct answer: Defining roles and responsibilities for project tasks
A RACI matrix clarifies who is Responsible, Accountable, Consulted, and Informed for each project activity.
Question 7: What distinguishes a project from ongoing operations?
- Projects are always larger in scope than operations
- Projects are temporary and produce a unique result; operations are ongoing and repetitive (Correct answer)
- Projects always require external funding while operations use internal budgets
- Projects involve more people than operational activities
Correct answer: Projects are temporary and produce a unique result; operations are ongoing and repetitive
Projects are temporary endeavors with a defined start and end date, creating unique deliverables, while operations are continuous and repetitive.
PSI Project and Financial Management 3
What is the purpose of a project charter?