1. GDAS PM Professions:
PMP Study Group
Session #6: Cost Management
Monique Howard
November 13, 2008
© 2005 Hewlett-Packard Development Company, L.P.
The information contained herein is subject to change without notice

2. 1. As a project manager, you are aware that estimating schedule activity costs involves
developing an approximation of the costs of the resources needed to complete each schedule
activity.
In approximating costs, the estimator considers the possible causes of variation of the cost
estimates, including risks. Cost estimating includes identifying and considering various
costing alternatives. For example, in most application areas, additional work during a design
phase is widely held to have the potential for reducing the cost of the execution and product
operations.
The cost estimating process considers whether the expected savings can offset the cost of
additional design work. Cost estimates are generally expressed in units of currency to
facilitate comparisons both within and across projects. Cost estimates can also benefit from
refinement during the course of the project to reflect on the additional detail available.
For your project, which is in the initial phases, your team suggested a rough order of
magnitude estimate - this could be in the range of :
A. -75 to +125%
B. -50 to +100%
C. -25 to +50%
D. None of the above

3. 1. As a project manager, you are aware that estimating schedule activity costs involves
developing an approximation of the costs of the resources needed to complete each schedule
activity.
In approximating costs, the estimator considers the possible causes of variation of the cost
estimates, including risks. Cost estimating includes identifying and considering various
costing alternatives. For example, in most application areas, additional work during a design
phase is widely held to have the potential for reducing the cost of the execution and product
operations.
The cost estimating process considers whether the expected savings can offset the cost of
additional design work. Cost estimates are generally expressed in units of currency to
facilitate comparisons both within and across projects. Cost estimates can also benefit from
refinement during the course of the project to reflect on the additional detail available.
For your project, which is in the initial phases, your team suggested a rough order of
magnitude estimate - this could be in the range of :
A. -75 to +125%
B. -50 to +100%
C. -25 to +50%
D. None of the above
Correct Choice: B
Justification: A project in the initiation phase could have a rough order of magnitude (ROM) estimate in the
range of -50 to 100%
Reference: PMBOK Third Edition, Page Number: 161

4. 2. Your Director is proactive in trying to identify all the projects in his portfolio which are
going over budget. For this, he requests every project manager in his group to provide a:
A. Performance Report
B. Cost Management Plan
C. Cost Baseline
D. Performance Measure

5. 2. Your Director is proactive in trying to identify all the projects in his portfolio which are
going over budget. For this, he requests every project manager in his group to provide a:
A. Performance Report
B. Cost Management Plan
C. Cost Baseline
D. Performance Measure
Correct Choice: A
Justification: Performance reports provide information on the project scope and cost
performance, such as which budgets have been met and which have not - Performance Reports
also alert the project team to issues that may cause problems in the future.
Reference: PMBOK Third Edition, Page Number: 153

6. 3. All the following statements about Cost Baseline are correct EXCEPT:
A. It is a time phased budget
B. To measure disbursements, a spending plan can be used as a cost-baseline
C. It is used to measure and monitor project performance
D. All projects have one cost baseline

7. 3. All the following statements about Cost Baseline are correct EXCEPT:
A. It is a time phased budget
B. To measure disbursements, a spending plan can be used as a cost-baseline
C. It is used to measure and monitor project performance
D. All projects have one cost baseline
Correct Choice: D
Justification: Many projects, especially large ones may have multiple cost and resource baselines, and
consumables production baselines to measure different aspects of project performance.
Reference: PMBOK Third Edition, Page Number: 170

8. 4. If cost variance is negative, but schedule variance is positive, then this indicates:
A. Cost and schedule are not dependent on each other
B. The project is under budget and behind schedule
C. The project is over budget and ahead of schedule
D. Crashing may be recommended to make the cost variance positive

9. 4. If cost variance is negative, but schedule variance is positive, then this indicates:
A. Cost and schedule are not dependent on each other
B. The project is under budget and behind schedule
C. The project is over budget and ahead of schedule
D. Crashing may be recommended to make the cost variance positive
Correct Choice: C

10. 5. Physical Work Actually accomplished is also called
A.Planned Value
B.Earned Value
C.Actual Cost
D.Budgeted Cost for Work Scheduled (BCWS)

11. 5. Physical Work Actually accomplished is also called
A.Planned Value
B.Earned Value
C.Actual Cost
D.Budgeted Cost for Work Scheduled (BCWS)
Correct Choice: B
Justification:
Reference: pmstudy.com notes as mentioned above
pmstudy.com comments: Also, please refer to PMBOK page 173

12. 6. In your project, you are using Most Likely, Optimistic and Pessimistic activity duration
estimates (for activity duration estimating). The technique that you are using is:
A. PERT
B. CPM
C. Parametric Estimating
D. None of the above

13. 6. In your project, you are using Most Likely, Optimistic and Pessimistic activity duration
estimates (for activity duration estimating). The technique that you are using is:
A. PERT
B. CPM
C. Parametric Estimating
D. None of the above
Correct Choice: 4
Justification: Three point estimates: The accuracy of the activity duration estimate can be improved by
considering the amount of risk in the original estimate. Three point estimates are based on determining
three types of estimates i.e. Most Likely, Optimistic and Pessimistic
Reference: PMBOK Third Edition, Page Number: 142
pmstudy.com comments: Although PERT uses Mostly, Optimistic and Pessimistic values, it is used for
Schedule estimates and not for activity duration estimates.

14. 7. Resource calendars affect a specific resource or category of resources. They reflect how some
resources work only during normal business hours, while others work three full shifts, how a
project team member might be unavailable(on vacation or in a training program), or how a
labor contract can limit certain workers to certain days of the week. Resource calendars are
valuable inputs for:
A. Developing an approximation of the costs of the resources needed to complete each schedule
activity.
B. Aggregating the estimated costs of individual schedule activities or work packages to establish a
total cost baseline for project performance
C. Searching the cause of positive and negative variances as part of Integrated Change Control
process
D. Assuring that potential cost overruns do not exceed the authorized funding periodically and in
total for the project.

15. 7. Resource calendars affect a specific resource or category of resources. They reflect how some
resources work only during normal business hours, while others work three full shifts, how a
project team member might be unavailable(on vacation or in a training program), or how a
labor contract can limit certain workers to certain days of the week. Resource calendars are
valuable inputs for:
A. Developing an approximation of the costs of the resources needed to complete each schedule
activity.
B. Aggregating the estimated costs of individual schedule activities or work packages to establish a
total cost baseline for project performance
C. Searching the cause of positive and negative variances as part of Integrated Change Control
process
D. Assuring that potential cost overruns do not exceed the authorized funding periodically and in
total for the project.
Correct Choice: 2
Justification: Cost budgeting involves aggregating the estimated costs of individual
schedule activities or work packages to establish a total cost baseline for project
performance. (Resource calendars are an input to Cost budgeting - Figure 7-4)
Option 1 refers to Cost Estimating; Option 3 and Option 4 refer to Cost Control.
Reference: PMBOK Third Edition, Page Number: 167

16. 8. You have recently taken over a new project when the previous project manager resigned.
While studying the project information, you find out that cost variances are very severe.
To provide a realistic basis for performance measurement, you should recommend:
A. Issuing budget updates
B. Revising the cost baseline
C. Corrective action e.g. adjusting schedule activity budgets
D. Closing the project

17. 8. You have recently taken over a new project when the previous project manager resigned.
While studying the project information, you find out that cost variances are very severe.
To provide a realistic basis for performance measurement, you should recommend:
A. Issuing budget updates
B. Revising the cost baseline
C. Corrective action e.g. adjusting schedule activity budgets
D. Closing the project
Correct Choice: 2
Justification: In some cases, cost variances can be so severe that a revised cost baseline is
needed to provide a realistic basis for performance measurement.
Reference: PMBOK Third Edition, Page Number: 177

18. 9. To define variance thresholds at the designated time points over the duration of a
project, you will use:
A. Units of Measure
B. Precision Level
C. Organizational Procedure Links
D. Control Thresholds

19. 9. To define variance thresholds at the designated time points over the duration of a
project, you will use:
A. Units of Measure
B. Precision Level
C. Organizational Procedure Links
D. Control Thresholds
Correct Choice: 4
Justification: Control Thresholds: Variance thresholds for costs or other indicators (e.g. person-days, volume
or product) at designated time points over the duration of the project can be defined to indicate the agreed
amount of variation allowed.
Reference: PMBOK Third Edition, Page Number: 158

20. 10. Earned Value Technique(EVT) is a tool and technique to measure project performance. In EVT,
BCWP refers to:
A. Physical work actually accomplished, including the estimated value of this work
B. Physical work scheduled to be performed, including the estimated value of this work
C. Actual cost incurred to accomplish the earned value
D. Resource plan for the project

21. 10. Earned Value Technique(EVT) is a tool and technique to measure project performance. In EVT,
BCWP refers to:
A. Physical work actually accomplished, including the estimated value of this work
B. Physical work scheduled to be performed, including the estimated value of this work
C. Actual cost incurred to accomplish the earned value
D. Resource plan for the project
Correct Choice: 1
Justification: Earned Value (EV): The value of the completed work expressed in terms of the
approved budget assigned to that work for a schedule activity or work breakdown structure
component. Also referred to as Budgeted Cost of Work Performed (BCWP)
Reference: PMBOK Third Edition, Page Number: 359

22. 11. In your construction project, the CPI is 1.30 and SPI is 0.85. What could be the possible reason ?
A. A critical resource went on sick leave for a long period of time, which had not been anticipated
earlier.
B. The cost of raw materials required for construction increased by 10%
C. You had not taken into account the inflation rate.
D. There was four days waiting time in the curing of cement, and work could not be done during that
time

23. 11. In your construction project, the CPI is 1.30 and SPI is 0.85. What could be the possible reason ?
A. A critical resource went on sick leave for a long period of time, which had not been anticipated
earlier.
B. The cost of raw materials required for construction increased by 10%
C. You had not taken into account the inflation rate.
D. There was four days waiting time in the curing of cement, and work could not be done during that
time
Correct Choice: 1
Justification: Option 2 and Option 3 increase the costs - but since the project cost is not a problem (i.e CPI
is > 1), we can ignore these answers. Choice 4 was a known factor, and provision should have been made in
the project schedule for it. Choice 1 is the only alternative that could have increased the schedule time and
made SPI < 1.
Reference: pmstudy.com notes as mentioned above, pmstudy.com commments: Also, please refer to PMBOK
page 173, 174

24. 12. All the following statements relating to Cost Management Plan are accurate EXCEPT:
A. Specifies the precision level to which the schedule activity cost estimates will adhere to.
B. Establishes variance thresholds for costs or other indicators
C. Defines formats for various cost reports
D. Specifies preferred tools to be used for cost estimating

25. 12. All the following statements relating to Cost Management Plan are accurate EXCEPT:
A. Specifies the precision level to which the schedule activity cost estimates will adhere to.
B. Establishes variance thresholds for costs or other indicators
C. Defines formats for various cost reports
D. Specifies preferred tools to be used for cost estimating
Correct Choice: 4
Justification: Cost management plan does not specify preferred tools to be used for cost estimating
Reference: pmstudy.com notes as mentioned above
pmstudy.com commments: Also, please refer to PMBOK page 158, 159

26. 13. In your project, there have been several changes in the cost and schedule estimates and the
original estimating assumptions are no longer valid. What is the Estimate at Complete for your
project?
* BAC = $ 300,000
* AC = $ 100,000
* EV = $ 150,000
* CPI = $ 1.2
* ETC = $ 120,000
A. $ 250,000
B. $ 220,000
C. $ 280,000
D. $ 300,000

27. 13. In your project, there have been several changes in the cost and schedule estimates and the
original estimating assumptions are no longer valid. What is the Estimate at Complete for your
project?
* BAC = $ 300,000
* AC = $ 100,000
* EV = $ 150,000
* CPI = $ 1.2
* ETC = $ 120,000
A. $ 250,000
B. $ 220,000
C. $ 280,000
D. $ 300,000
Correct Choice: 2
Justification: Since Original Estimating Assumptions are no longer
valid, EAC = AC + ETC = $ 100,000 + $ 120,000 = $ 220,000
Reference: pmstudy.com notes as mentioned above

28. 14. When deciding which project to select,
A. Select the project with higher Life Cycle Cost
B. Select the project with lower Life Cycle Cost
C. Select the project with higher Sunk Cost
D. Select the project with lower Sunk Cost

29. 14. When deciding which project to select,
A. Select the project with higher Life Cycle Cost
B. Select the project with lower Life Cycle Cost
C. Select the project with higher Sunk Cost
D. Select the project with lower Sunk Cost
Correct Choice: 2
Justification: Sunk costs are already incurred, so they cannot be avoided and hence should not be taken
into account in project selection.
Reference: pmstudy.com notes as mentioned above

30. 15. A project has the following characteristics:
* Payback of $ 2,000
* Profit of $ 1,000
* Project Cost of $ 800
* Life Cycle Cost of $ 1200
What is the Benefit Cost Ratio of the project?
A. 2.50
B. 1.25
C. 1.67
D. 0.83

31. 15. A project has the following characteristics:
* Payback of $ 2,000
* Profit of $ 1,000
* Project Cost of $ 800
* Life Cycle Cost of $ 1200
What is the Benefit Cost Ratio of the project?
A. 2.50
B. 1.25
C. 1.67
D. 0.83
Correct Choice: 1
Justification: BCR = Payback/Project Cost =
2000/800 = 2.50
Reference: pmstudy.com notes as mentioned above

32. 16. In your project, you have reason to believe that the current variances occurred because of
extraneous factors, and you do not expect similar variances to happen in the future. What
should be the Estimate at Complete for your project?
* BAC = $ 300,000
* AC = $ 100,000
* EV = $ 150,000
* CPI = $ 1.5
$ 250,000
$ 220,000
$ 280,000
$ 200,000

33. 16. In your project, you have reason to believe that the current variances occurred because of
extraneous factors, and you do not expect similar variances to happen in the future. What should be
the Estimate at Complete for your project?
* BAC = $ 300,000
* AC = $ 100,000
* EV = $ 150,000
* CPI = $ 1.5
$ 250,000
$ 220,000
$ 280,000
$ 200,000
Correct Choice: 1
Justification: Since current variances are atypical,
Estimate at Complete, EAC = AC + (BAC - EV) = $ 100,000
+ ($ 300,000 - $ 150,000) = $ 250,000
Reference: pmstudy.com notes as mentioned above

34. 17. Please refer to the following diagram:
What is the status of the project?
A.Behind Schedule, Under Budget
B.Ahead of Schedule, Under Budget
C.Ahead of Schedule, Over Budget
D.Behind Schedule, Over Budget

35. Correct Choice: 3
Justification:
Earned Value (EV)
= The sum of the approved cost estimates for activities completed
during a given period
= Estimated cost of work that is completed after day 11
= $ 5,000 + $ 5,000 + $5,000*.50 = $ 12,500 (because Task A,
Task B are complete, Task C is 50% complete)
Present Value(PV)
= Present work to be completed after day 11
= $ 5,000 + $ 5,000 + $ 5,000 * (1/5) (because at end of day 11,
according to our plan, Task A, Task B should be complete; Task C
only one day out of 5 days should be complete i.e. 20% complete
i.e. $ 1,000 of work should be done)
= $ 11,000
Actual Cost (AC)
= Actual Cost of work completed
= $ 13,000
Schedule Variance(SV)
= EV - PV = $ 12,500 - $ 11,000 = $ 1,500
Since SV is positive, we are Ahead of Schedule
Cost Variance(CV)
= EV - AC = $ 12,500 - $ 13,000 = - $ 500
Since CV is negative, we are Over Budget
Reference: pmstudy.com notes as mentioned above

36. 18. In your project, if the Benefit Cost Ratio is greater than 1, it means that
A. The ratio of profits to cost is greater than 1
B. The ratio of revenue to cost is greater than 1
C. You should select this project from all other competing alternatives
D. Appropriate project management processes have not been used during project planning

37. 18. In your project, if the Benefit Cost Ratio is greater than 1, it means that
A. The ratio of profits to cost is greater than 1
B. The ratio of revenue to cost is greater than 1
C. You should select this project from all other competing alternatives
D. Appropriate project management processes have not been used during project planning
Correct Choice: 2
Justification:
Please note that Option 3 is not valid because you do not know about other competing alternatives. The competing alternatives may have a greater
Benefit Cost Ratio than this project.
Reference: pmstudy.com notes as mentioned above

38. 19. A project was expected to cost $ 6 million for three months. At the end of one month, you
use Earned Value as a performance management tool and get the following information:
* BCWP = $ 1.5 million
* BCWS = $ 2.5 million
* ACWP = $ 2.2 million
What is the Schedule Variance?
A. -0.3 Million
B. -1 Million
C. 1 Million
D. 0.7 Million

39. 19. A project was expected to cost $ 6 million for three months. At the end of one month, you
use Earned Value as a performance management tool and get the following information:
* BCWP = $ 1.5 million
* BCWS = $ 2.5 million
* ACWP = $ 2.2 million
What is the Schedule Variance?
A. -0.3 Million
B. -1 Million
C. 1 Million
D. 0.7 Million
Correct Choice: 2
Justification:
Schedule Variance
= Earned Value - Present Value
= BCWP - BCWS
= $ 1.5 Million - $ 2.5 Million
= $ - 1 Million
Negative schedule variance means that the project is behind
schedule
Reference: pmstudy.com notes as mentioned above

40. Wrap Up
Conference Number: 547-941-6414 or 866-547-8978
Passcode: Leader – 844306338, Participant – 370670831
8 Procurement Management and November 20 2:00pm Presenter: https://
Tips & Tricks (PMBOK Chapters EST
www.rooms.hp.com/attend/default.aspx?key=EH629P4V3N
12) Participant: https://
www.rooms.hp.com/attend/default.aspx?key=EPKZ32VF62