Session 6 gdas pmp study group presentation

© 2005 Hewlett-Packard Development Company, L.P. The information contained herein is subject to change without notice

GDAS PM Professions:PMP Study Group

Monique HowardNovember 13, 2008

Session #6: Cost Management

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

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: BJustification: 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

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 ReportB. Cost Management PlanC. Cost BaselineD. Performance Measure

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 ReportB. Cost Management PlanC. Cost BaselineD. 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

3. All the following statements about Cost Baseline are correct EXCEPT:

A. It is a time phased budgetB. To measure disbursements, a spending plan can be used as a cost-baselineC. It is used to measure and monitor project performanceD. All projects have one cost baseline

3. All the following statements about Cost Baseline are correct EXCEPT:

A. It is a time phased budgetB. To measure disbursements, a spending plan can be used as a cost-baselineC. It is used to measure and monitor project performanceD. 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.


4. If cost variance is negative, but schedule variance is positive, then this indicates:

A. Cost and schedule are not dependent on each otherB. The project is under budget and behind scheduleC. The project is over budget and ahead of scheduleD. Crashing may be recommended to make the cost variance positive

4. If cost variance is negative, but schedule variance is positive, then this indicates:

A. Cost and schedule are not dependent on each otherB. The project is under budget and behind scheduleC. The project is over budget and ahead of scheduleD. Crashing may be recommended to make the cost variance positive

Correct Choice: C

5. Physical Work Actually accomplished is also called

A.Planned ValueB.Earned ValueC.Actual CostD.Budgeted Cost for Work Scheduled (BCWS)

5. Physical Work Actually accomplished is also called

A.Planned ValueB.Earned ValueC.Actual CostD.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

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. PERTB. CPMC. Parametric EstimatingD. None of the above

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. PERTB. CPMC. Parametric EstimatingD. 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


pmstudy.com comments: Although PERT uses Mostly, Optimistic and Pessimistic values, it is used for Schedule estimates and not for activity duration estimates.

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.

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.


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 updatesB. Revising the cost baselineC. Corrective action e.g. adjusting schedule activity budgetsD. 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.


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 updatesB. Revising the cost baselineC. Corrective action e.g. adjusting schedule activity budgetsD. Closing the project

9. To define variance thresholds at the designated time points over the duration of a project, you will use:

A. Units of MeasureB. Precision LevelC. Organizational Procedure LinksD. Control Thresholds

9. To define variance thresholds at the designated time points over the duration of a project, you will use:

A. Units of MeasureB. Precision LevelC. Organizational Procedure LinksD. 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.


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 workB. Physical work scheduled to be performed, including the estimated value of this workC. Actual cost incurred to accomplish the earned valueD. Resource plan for the project

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 workB. Physical work scheduled to be performed, including the estimated value of this workC. Actual cost incurred to accomplish the earned valueD. 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)


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

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 timeCorrect 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

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 indicatorsC. Defines formats for various cost reportsD. 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


pmstudy.com commments: Also, please refer to PMBOK page 158, 159

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 indicatorsC. Defines formats for various cost reportsD. Specifies preferred tools to be used for cost estimating

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. $ 250,000B. $ 220,000C. $ 280,000D. $ 300,000

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. $ 250,000B. $ 220,000C. $ 280,000D. $ 300,000

Correct Choice: 2

Justification: Since Original Estimating Assumptions are no longer valid, EAC = AC + ETC = $ 100,000 + $ 120,000 = $ 220,000


14. When deciding which project to select,

A. Select the project with higher Life Cycle CostB. Select the project with lower Life Cycle CostC. Select the project with higher Sunk CostD. 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.


14. When deciding which project to select,

A. Select the project with higher Life Cycle CostB. Select the project with lower Life Cycle CostC. Select the project with higher Sunk CostD. Select the project with lower Sunk Cost

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. 2.50B. 1.25C. 1.67D. 0.83

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. 2.50B. 1.25C. 1.67D. 0.83

Correct Choice: 1

Justification: BCR = Payback/Project Cost = 2000/800 = 2.50


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

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


17. Please refer to the following diagram:

What is the status of the project?

A.Behind Schedule, Under BudgetB.Ahead of Schedule, Under BudgetC.Ahead of Schedule, Over BudgetD.Behind Schedule, Over Budget

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 = $ 1,500Since SV is positive, we are Ahead of Schedule

Cost Variance(CV)= EV - AC = $ 12,500 - $ 13,000 = - $ 500Since CV is negative, we are Over Budget


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 1B. The ratio of revenue to cost is greater than 1C. You should select this project from all other competing alternativesD. Appropriate project management processes have not been used during project planning

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 1B. The ratio of revenue to cost is greater than 1C. You should select this project from all other competing alternativesD. 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.


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 MillionB. -1 MillionC. 1 MillionD. 0.7 Million

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 MillionB. -1 MillionC. 1 MillionD. 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


Wrap Up

Conference Number: 547-941-6414 or 866-547-8978Passcode: Leader – 844306338, Participant – 370670831

8 Procurement Management and Tips & Tricks (PMBOK Chapters 12)

November 20 2:00pm EST

Presenter: https://www.rooms.hp.com/attend/default.aspx?key=EH629P4V3NParticipant: https://www.rooms.hp.com/attend/default.aspx?key=EPKZ32VF62

Session 6 gdas pmp study group presentation

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