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# Session 6 gdas pmp study group presentation

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• GDAS PM Professions:PMP Study Group Session #6: Cost ManagementMonique HowardNovember 13, 2008© 2005 Hewlett-Packard Development Company, L.P.The information contained herein is subject to change without notice
• 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: 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
• 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 baselineCorrect Choice:    D  Justification:     Many projects, especially large ones may have multiple cost and resource baselines, andconsumables production baselines to measure different aspects of project performance.Reference: PMBOK Third Edition, Page Number: 170
• 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 calledA.Planned ValueB.Earned ValueC.Actual CostD.Budgeted Cost for Work Scheduled (BCWS)
• 5. Physical Work Actually accomplished is also calledA.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 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.
• 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 performanceC. Searching the cause of positive and negative variances as part of Integrated Change Control processD. 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 performanceC. Searching the cause of positive and negative variances as part of Integrated Change Control processD. 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
• 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
• 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 projectCorrect Choice:     2  Justification:     In some cases, cost variances can be so severe that a revised cost baseline isneeded to provide a realistic basis for performance measurement.Reference: PMBOK Third Edition, Page Number: 177
• 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 ThresholdsCorrect Choice:     4  Justification:     Control Thresholds: Variance thresholds for costs or other indicators (e.g. person-days, volumeor product) at designated time points over the duration of the project can be defined to indicate the agreedamount of variation allowed.Reference: PMBOK Third Edition, Page Number: 158
• 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) Reference: PMBOK Third Edition, Page Number: 359
• 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 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
• 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
• 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 estimatingCorrect Choice:     4  Justification:     Cost management plan does not specify preferred tools to be used for cost estimatingReference: pmstudy.com notes as mentioned abovepmstudy.com commments: Also, please refer to PMBOK page 158, 159
• 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 = \$ 120,000A. \$ 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 = \$ 120,000A. \$ 250,000B. \$ 220,000C. \$ 280,000D. \$ 300,000Correct Choice: 2Justification: Since Original Estimating Assumptions are no longervalid, EAC = AC + ETC = \$ 100,000 + \$ 120,000 = \$ 220,000Reference: pmstudy.com notes as mentioned above
• 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
• 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. Reference: pmstudy.com notes as mentioned above
• 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. 0.83Correct Choice:     1  Justification:     BCR = Payback/Project Cost =2000/800 = 2.50Reference: pmstudy.com notes as mentioned above
• 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 \$ 200,000Correct Choice: 1Justification: Since current variances are atypical,Estimate at Complete, EAC = AC + (BAC - EV) = \$ 100,000+ (\$ 300,000 - \$ 150,000) = \$ 250,000Reference: pmstudy.com notes as mentioned above
• 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
• Correct Choice: 3Justification:Earned Value (EV)= The sum of the approved cost estimates for activities completedduring 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 Conly one day out of 5 days should be complete i.e. 20% completei.e. \$ 1,000 of work should be done)= \$ 11,000Actual Cost (AC)= Actual Cost of work completed= \$ 13,000Schedule Variance(SV)= EV - PV = \$ 12,500 - \$ 11,000 = \$ 1,500Since SV is positive, we are Ahead of ScheduleCost Variance(CV)= EV - AC = \$ 12,500 - \$ 13,000 = - \$ 500Since CV is negative, we are Over BudgetReference: pmstudy.com notes as mentioned above
• 18. In your project, if the Benefit Cost Ratio is greater than 1, it means thatA. 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 thatA. 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. Reference: pmstudy.com notes as mentioned above
• 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 MillionCorrect Choice: 2Justification:Schedule Variance= Earned Value - Present Value= BCWP - BCWS= \$ 1.5 Million - \$ 2.5 Million= \$ - 1 MillionNegative schedule variance means that the project is behindscheduleReference: pmstudy.com notes as mentioned above
• Wrap Up Conference Number: 547-941-6414 or 866-547-8978 Passcode: Leader – 844306338, Participant – 3706708318 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