07 pmp cost management exam


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PMP Exqam Preparation by: Jamil Faraj

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07 pmp cost management exam

  1. 1. you are here 4   379cost managementExam QuestionsSome of the Earned Value numbers havealternate four-letter abbreviations.This one stands for “Budgeted Costof Work Performed.” Don’t worry—youdon’t need to memorize them!1. You are creating your Cost Performance Baseline. What process are you in?A. Determine BudgetControl CostsB. Estimate CostsC. Cost BaseliningD. 2. You’re working on a project that has an EV of $7362 and a PV (BCWS) of $8232. What’s your SV? –$870A.  $870B.  0.89C.  Not enough information to tellD. 3. You are managing a project for a company that has previously done three projects that were similar toit. You consult with the cost performance baselines, lessons learned, and project managers from thoseprojects, and use that information to come up with your cost estimate. What technique are you using?A. Parametric EstimatingNet Present ValueB. Rough Order of Magnitude EstimationC. Analogous EstimatingD. 4. You are working on a project with a PV of $56,733 and an SPI of 1.2. What’s the Earned Value of yourproject?$68,079.60A. $47,277.50B. $68,733C. .72D. 5. Your company has two projects to choose from. Project A is a billing software project for the Accountspayable department; in the end it will make the company around $400,000 when it has been rolled outto all of the employees in that department. Project B is a payroll application that will make the companyaround $388,000 when it has been put to use throughout the company. After a long deliberation, yourboard chooses to go ahead with Project B. What is the opportunity cost for choosing Project B overProject A?$388,000A. $400,000B. $12,000C. 1.2D. Download at Boykma.Com
  2. 2. 380   Chapter 7exam questionsExam Questions6. Your company has asked you to provide a cost estimate that includes maintenance, installation,support, and upkeep costs for as long as the product will be used. What is that kind of estimate called?Benefit Cost RatioA. B. DepreciationNet Present ValueC. D. Lifecycle Costing7. You are working on a project with an SPI of .72 and a CPI of 1.1. Which of the following BESTdescribes your project?Your project is ahead of schedule and under budgetA. Your project is behind schedule and over budgetB. Your project is behind schedule and under budgetC. Your project is ahead of schedule and over budgetD. 8. Your project has a BAC of $4,522 and is 13% complete. What is the earned value (EV)?$3934.14A. There is not enough information to answerB. $587.86C. $4522D. 9. A project manager is working on a large construction project. His plan says that the project shouldend up costing $1.5 million, but he’s concerned that he’s not going come in under budget. He’s spent$950,000 of the budget so far, and he calculates that he’s 57% done with the work, and he doesn’t thinkhe can improve his CPI above 1.05. Which of the following BEST describes the current state of theproject?The project is likely to come in under budgetA. The project is likely to exceed its budgetB. The project right on targetA. There is no way to determine this informationB. 10. You are managing a project laying underwater fiber optic cable. The total cost of the project is $52/meter to lay 4 km of cable across a lake. It’s scheduled to take 8 weeks to complete, with an equalamount of cable laid in each week. It’s currently week 5, and your team has laid 1,800 meters of cableso far. What is the SPI of your project?1.16A. 1.08B. .92C. .72D. Download at Boykma.Com
  3. 3. you are here 4   381cost managementExam Questions11. During the execution of a software project, one of your programmers informs you that shediscovered a design flaw that will require the team to go back and make a large change. What is theBEST way to handle this situation?Ask the programmer to consult with the rest of the team and get back to you with a recommendationA. Determine how the change will impact the project constraintsB. Stop all work and call a meeting with the sponsorC. Update the cost performance baseline to reflect the changeD. 12. If AC (ACWP) is greater than your EV (BCWP), what does this mean?The project is under budgetA. The project is over budgetB. The project is ahead of scheduleC. The project is behind scheduleD. 13. A junior project manager is studying for her PMP exam, and asks you for advice. She’s learningabout Earned Value Management, and wants to know which of the variables represents the differencebetween what you expect to spend on the project and what you’ve actually spent so far. What shouldyou tell her?A. Actual Cost (AC)Cost Performance Index (CPI)B. Earned Value (EV)C. D. Cost Variance (CV)14. You are managing an industrial architecture project. You’ve spent $26,410 so far to survey thesite, draw up preliminary plans, and run engineering simulations. You are preparing to meet withyour sponsor, when you discover that there a new local zoning law will cause you to have to spendan additional estimated $15,000 to revise your plans. You contact the sponsor and initiate a changerequest to update the cost performance baseline.What variable would you use to represent the $26,410 in an Earned Value calculation?PVA. BACB. ACC. EVD. uDownload at Boykma.Com
  4. 4. 382   Chapter 7exam questionsExam Questions15. You are working on the project plan for a software project. Your company has a standardspreadsheet that you use to generate estimates. To use the spreadsheet, you meet with theteam to estimate the number of functional requirements, use cases, and design wireframes forthe project. Then you categorize them into high, medium, or low complexity. You enter all ofthose numbers into the spreadsheet, which uses a data table derived from past projects’ actualcosts and durations, performs a set of calculations, and generates a final estimate. What kind ofestimation is being done?ParametricA. Rough Order of MagnitudeB. Bottom-UpC. AnalogousD. 16. Project A has a NPV of $75,000, with an internal rate of return of 1.5% and an initialinvestment of $15,000. Project B has a NPV of $60,000 with a BCR of 2:1. Project C has a NPV of$80,000, which includes an opportunity cost of $35,000. Based on these projects, which is theBEST one to select:Project AA. Project BB. Project CC. There is not enough information to select a projectD. 17. What is the range of a Rough Order of Magnitude Estimate? –5% to +10%A.  –25% to +75%B.  –50% to +50%C.  –100% to +200%D. 18. You are managing a software project, when one of your stakeholders needs to make achange that will affect the budget. What defines the processes that you must follow in order toimplement the change?A. Cost change control systemMonitoring & Controlling process groupB. Change control boardC. Cost performance baselineD. Download at Boykma.Com
  5. 5. you are here 4   383cost managementExam Questions19. You are managing a software project, when one of your stakeholders needs to make a change that willaffect the budget. You follow the procedures to implement the change. Which of the following must getupdated to reflect the change?Project management planA. Project cost performance baselineB. C. Cost change control systemD. Project performance reviews20. You are managing a project with a BAC of $93,000, EV (BCWP) of $51,840, PV (BCWS) of $64,800, and AC(ACWP) of $43,200. What is the CPI? 1.5A.  0.8B.  1.2C.  $9,000D. 21. You are managing a project that has a TCPI of 1.19. What is the BEST course of action? You’re under budget, you can manage costs with lenienceA. Manage costs aggressively.B.  Create a new scheduleC. Create a new budgetD. 22. You are starting to write your project charter with your project sponsor when the senior managers askfor a time and cost estimate for the project. You have not yet gathered many of the project details. Whatkind of estimate can you give?Analogous EstimateA. Rough Order of Magnitude EstimateB. Parametric EstimateC. Bottom-up EstimateD. 23. You are managing a project for a defense contractor. You know that you’re over budget, and you need totell your project sponsor how much more money it’s going to cost. You’ve already given him a forecast thatrepresents your estimate of total cost at the end of the project, so you need to take that into account. Younow need to figure out what your CPI needs to be for the rest of the project. Which of the following BESTmeets your needs?BACA. ETCB. TCPI (BAC calculation)C. TCPI (EAC calculation)D. Again, don’t panic if you seethese four-letter abbreviations.You’ll always be given the onesyou’re used to on the exam!Download at Boykma.Com
  6. 6. 384   Chapter 7exam answers1. You are creating your costbaseline. What process are you in?Determine BudgetA. Control CostsB. Cost EstimatingC. CostD. BaseliningExam QuestionsAnswers1. Answer: AThis is really a question about the order of the processes. Determine Budget and Control Costs both use theCost Performance Baseline, so it has to be created before you get to them. Cost Baselining isn’t a process atall, so you should exclude that from the choices right away. The main output of Determine Budget is the CostPerformance Baseline and supporting detail, so that’s the right choice here.2. Answer: AThis one is just testing whether or not you know the formula for schedule variance. Just plug the values into theSV formula: SV = EV – PV and you get answer A. Watch out for negative numbers, though! Answer B is a trapbecause it’s a positive value. Also, the test will have answers like C that check if you’re using the right formula. Ifyou use the SPI formula, that’s the answer you’ll get! You can throw out D right away—you don’t need to do anycalculation to know that you have enough information to figure out SV!3. Answer: DWhen you’re using the past performance of previous projects to help come up with an estimate, that’s calledAnalogous Estimation. This is the second time you saw this particular technique—it was also in the TimeManagement chapter. So there’s a good chance that you’ll get an exam question on it.4. Answer: AThe formula for SPI is: SPI = EV ÷ PV. So you just have to fill in the numbers that you know, which gets you1.2 =EV ÷ $56,733. Now flip it around. You end up with EV = 1.2 x $56,733, which multiplies out to $68,079.60.5. Answer: BIf you see a question about opportunity cost of selecting one project over another, the answer is the value ofthe project that was not selected! So even though the answers were all numbers, there’s no math at all in thisquestion.Watch out for fakeprocesses! This isn’ta real process name.Don’t get thrown off by four-letter abbreviationslike BCWP—some people have different abbreviationsfor PV, EV, and AC. The PMP exam will always giveyou the abbreviations you’re familiar with.2. You’re working on a project that has an EV of $7362 and a PV (BCWS) of $8232. What’s your SV?Did you notice the red herring in the question? It didn’t matterwhat the projects were about, only how much they cost!Download at Boykma.Com
  7. 7. you are here 4   385cost management6. Answer: DThis is one of those questions that gives you a definition and asks you to pick the term that’s being defined. So whichone is it?Try using the process of elimination to find the right answer! It can’t be Benefit Cost Ratio, because you aren’tbeing asked to compare the overall cost of the project to anything to figure out what its benefit will be. Depreciationisn’t right—that’s about how your project loses value over time, not about its costs. And it’s not Net Present Value,because the question didn’t ask you about how much value your project is delivering today. That leaves LifecycleCosting.7. Answer: CWhen you see an SPI that’s lower than one, that means your project is behind schedule. But your CPI is above one,which means that you’re ahead on your budget!8. Answer: CUse the formula: EV=BAC x Actual % Complete.When you plug the numbers into the formula,the right answer pops out!9. Answer: BYou might not have recognized this as a TCPI problem immediately, but takeanother look at the question. It’s asking you whether or not a project is goingto come in under budget, and that’s what TCPI is for. Good thing you weregiven all of the values you need to calculate it! The Actual % Complete is57%, the BAC is $1,500,000 and the AC is $950,000. You can calculate theEV = BAC x Actual % Complete = $1,500,000 x 57% = $855,000. So now youhave everything you need to calculate TCPI:This means he needs a TCPI of 1.17 in order to come in under budget. Sincehe knows that he can’t get better than 1.05, he’s likely to blow the budget.Exam QuestionsAnswersIf you don’t know the answer to aquestion, try to eliminate all theanswers you know are wrong.Don’t forget: Lower = Loser!I love these calculation questionsbecause when I see that theanswer on my calculator matchesone of the choices, I know I got itright!TCPI  = =  = 1.17BAC - EVBAC - AC($1,500,000 - $855,000)($1,500,000 - $950,000)Download at Boykma.Com
  8. 8. 386   Chapter 7exam answersExam QuestionsAnswers10. Answer: DSome of these calculation questions can get a little complicated—but that doesn’t mean they’redifficult! Just relax—you can do them!The formula you need to use is: SPI = EV ÷ PV. But what do you use for EV and PV? If you look atthe question again, you’ll find everything you need to calculate them. First, figure out Earned Value:EV = BAC x Actual % Complete. But wait! You weren’t given these in the question!OK, no problem—you just need to think your way through it. The project will cost $52/meter tolay 4 km (or 4,000 meters) of cable, which means the total cost of the project will be $52 x 4,000 =$208,000. And you can figure out Actual % Complete too! You’ve laid 1,800 meters so far out of the4,000 meters you’ll lay in total… so that’s 1,800 ÷ 4,000 = 45% complete. All right! Now you know yourearned value: EV = $208,000 x 45% = $93,600.So what’s next? You’ve got half of what you need forSPI—now you have to figure out PV. The formulafor it is: PV = BAC x Scheduled % Complete. Sohow much of the project were you supposedto complete by now? You’re 5 weeks into an8 week project, so 5 ÷ 8 = 62.5%. Your PV is$208,000 x 62.5% = $130,000. Now you’vegot everything you need to calculate SPI!EV ÷ PV = $93,600 ÷ $130,000 = .7211. Answer: BYou’ll run into a lot of questions like this where a problem happens, a person has an issue, or theproject runs into trouble. When this happens, the first thing you do is stop and gather information. Andthat should make sense to you, since you don’t know if this change will really impact cost or not. Itmay seem like a huge change to the programmer, but may not actually cost the project anything. Orit may really be huge. So the first thing to do is figure out the impact of the change on the projectconstraints, and that’s what answer B says!So that question was reallyabout whether I could figureout how to calculate EV and PVfrom what I was given.Did you think that this was a redherring? It wasn’t—you needed all thenumbers you were given.Download at Boykma.Com
  9. 9. you are here 4   387cost management12. Answer: BWhat formula do you know that has AC and EV? Right, the CPI formula does! Take a look at it: CPI = EV ÷ AC. Sowhat happens if AC is bigger than EV? Make up two numbers and plug them in! You get CPI that’s below 1, and youknow what that means… it means that you’ve blown your budget!13. Answer: DThis question gave you a definition and is checking to see if you know what it refers to.You should take a minute to look at each of the four possible answers and see if you canthink of the definition for each of them. It’s definitely worth taking the time to understandwhat each of these formulas and variables represents in real life! It will make the wholeexam a lot easier.14. Answer: CThis is a classic Red Herring question! The money you’ve spent so far is the actual cost.It’s a simple definition question, wrapped up in a whole bunch of fluff!15. Answer: AWhen you plug a bunch of values into a formula or computer program, and it generates an estimate, that’s calledparametric estimation. Parametric estimation often uses some historical data, but that doesn’t mean it’s the same asanalogous estimation!Exam QuestionsAnswersHere are more of thosefour-letter abbreviations.Don’t worry—you don’tneed to memorize these12. If AC (ACWP) is greater than your EV (BCWP), what does this mean?If I write down all of the formulas onmy scratch paper before the test starts,questions like this will be a lot easier!This is the only part of the question thatmatters—the rest is a red herring.14. You are managing an industrial architecture project. You’ve spent $26,410 so far to survey…Download at Boykma.Com
  10. 10. 388   Chapter 7exam answersExam QuestionsAnswers16. Answer: CYou’ve been given a net present value (NPV) for each project. NPV means the total value that thisproject is worth to your company! It’s got the costs—including opportunity costs—built in already. So allyou need to do is select the project with the biggest NPV.17. Answer: CThe Rough Order of Magnitude estimate is a very preliminary estimate that everyone knows is onlywithin an order of magnitude of the actual cost (or ±50%). That means it can be anywhere from half theactual cost to one and a half times the actual cost!18. Answer: AYou should definitely have a pretty good idea of how change control works by now! The change controlsystem defines the procedures that you use to carry out the changes. And Control Costs has its own setof procedures, called the cost change control system.19. Answer: BYou use the project Cost Performance Baselineto measure and monitor your project’s costperformance. The idea behind a baseline is thatwhen a change is approved and implemented, thebaseline gets updated.20. Answer: CYou should have the hang of this by now! Plug the numbers into the formula (CPI = EV ÷ AC), and itspits out the answer. Sometimes the question will give you morenumbers than you actually need to use—just ignore them like anyother red herring and only use the ones you need!21. Answer: BIf your TCPI is above 1, you need to manage costs aggressively. Itmeans that you need to meet your goals without spending as muchmoney as you have been for the rest of the project.I recognize this—a change isrequested, approved, and implemented,and then the baseline is updated. So I’musing the cost performance baseline justlike I used the scope baseline back inthe Scope Management chapter!Download at Boykma.Com
  11. 11. you are here 4   389cost managementExam QuestionsAnswers22. Answer: BIf you are just starting to work on your project charter, it means you’re just starting the project and you don’t haveenough information yet to do analogous, parametric, or bottom-up estimates.The only estimation technique that you can use that early in the project is the Rough Order of Magnitude estimate. Thatkind of estimate is not nearly as accurate as the other kinds of estimate and is used just to give a rough idea of howmuch time and cost will be involved in doing a project.23. Answer: DThis question may have seemed a little wordy, but it’s really just a question about the definition of TCPI. You’re beingasked to figure out where you need to keep your project’s CPI in order to meet your budget. And you know it’s the EAC-based TCPI number, because the question specified that you already gave him a forecast, which means you gave himan EAC value already. So now you can calculate the EAC-based TCPI number to figure out where you need to keepyour CPI for the rest of the project.By calculating this based on the EAC, itshows your sponsor just how much moneythey need to kick in (or less, if you’vegot good news!) in order to come inunder budget.Download at Boykma.Com