07 pmp cost management exam

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cost management
Exam Questions
Some 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 Budget
Control 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 to
it. You consult with the cost performance baselines, lessons learned, and project managers from those
projects, and use that information to come up with your cost estimate. What technique are you using?
A. Parametric Estimating
Net 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 your
project?
$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 Accounts
payable department; in the end it will make the company around $400,000 when it has been rolled out
to all of the employees in that department. Project B is a payroll application that will make the company
around $388,000 when it has been put to use throughout the company. After a long deliberation, your
board chooses to go ahead with Project B. What is the opportunity cost for choosing Project B over
Project A?
$388,000A.
$400,000B.
$12,000C.
1.2D.
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380 Chapter 7
exam questions
Exam Questions
6. 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. Depreciation
Net Present ValueC.
D. Lifecycle Costing
7. You are working on a project with an SPI of .72 and a CPI of 1.1. Which of the following BEST
describes 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 should
end 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 think
he can improve his CPI above 1.05. Which of the following BEST describes the current state of the
project?
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 equal
amount of cable laid in each week. It’s currently week 5, and your team has laid 1,800 meters of cable
so far. What is the SPI of your project?
1.16A.
1.08B.
.92C.
.72D.

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Exam Questions
11. During the execution of a software project, one of your programmers informs you that she
discovered a design flaw that will require the team to go back and make a large change. What is the
BEST 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 learning
about Earned Value Management, and wants to know which of the variables represents the difference
between what you expect to spend on the project and what you’ve actually spent so far. What should
you 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 the
site, draw up preliminary plans, and run engineering simulations. You are preparing to meet with
your sponsor, when you discover that there a new local zoning law will cause you to have to spend
an additional estimated $15,000 to revise your plans. You contact the sponsor and initiate a change
request 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.
u

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Exam Questions
15. You are working on the project plan for a software project. Your company has a standard
spreadsheet that you use to generate estimates. To use the spreadsheet, you meet with the
team to estimate the number of functional requirements, use cases, and design wireframes for
the project. Then you categorize them into high, medium, or low complexity. You enter all of
those numbers into the spreadsheet, which uses a data table derived from past projects’ actual
costs and durations, performs a set of calculations, and generates a final estimate. What kind of
estimation 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 initial
investment 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 the
BEST 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 a
change that will affect the budget. What defines the processes that you must follow in order to
implement the change?
A. Cost change control system
Monitoring & Controlling process groupB.
Change control boardC.
Cost performance baselineD.

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Exam Questions
19. You are managing a software project, when one of your stakeholders needs to make a change that will
affect the budget. You follow the procedures to implement the change. Which of the following must get
updated to reflect the change?
Project management planA.
Project cost performance baselineB.
C. Cost change control system
D. Project performance reviews
20. 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 ask
for a time and cost estimate for the project. You have not yet gathered many of the project details. What
kind 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 to
tell your project sponsor how much more money it’s going to cost. You’ve already given him a forecast that
represents your estimate of total cost at the end of the project, so you need to take that into account. You
now need to figure out what your CPI needs to be for the rest of the project. Which of the following BEST
meets 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!

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exam answers
1. You are creating your cost
baseline. What process are you in?
Determine BudgetA.
Control CostsB.
Cost EstimatingC.
CostD. Baselining
Exam Questions
Answers
1. Answer: A
This is really a question about the order of the processes. Determine Budget and Control Costs both use the
Cost Performance Baseline, so it has to be created before you get to them. Cost Baselining isn’t a process at
all, so you should exclude that from the choices right away. The main output of Determine Budget is the Cost
Performance Baseline and supporting detail, so that’s the right choice here.
2. Answer: A
This one is just testing whether or not you know the formula for schedule variance. Just plug the values into the
SV formula: SV = EV – PV and you get answer A. Watch out for negative numbers, though! Answer B is a trap
because it’s a positive value. Also, the test will have answers like C that check if you’re using the right formula. If
you use the SPI formula, that’s the answer you’ll get! You can throw out D right away—you don’t need to do any
calculation to know that you have enough information to figure out SV!
3. Answer: D
When you’re using the past performance of previous projects to help come up with an estimate, that’s called
Analogous Estimation. This is the second time you saw this particular technique—it was also in the Time
Management chapter. So there’s a good chance that you’ll get an exam question on it.
4. Answer: A
The 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: B
If you see a question about opportunity cost of selecting one project over another, the answer is the value of
the project that was not selected! So even though the answers were all numbers, there’s no math at all in this
question.
Watch out for fake
processes! This isn’t
a 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 matter
what the projects were about, only how much they cost!

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6. Answer: D
This is one of those questions that gives you a definition and asks you to pick the term that’s being defined. So which
one is it?
Try using the process of elimination to find the right answer! It can’t be Benefit Cost Ratio, because you aren’t
being asked to compare the overall cost of the project to anything to figure out what its benefit will be. Depreciation
isn’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 Lifecycle
Costing.
7. Answer: C
When 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: C
Use the formula: EV=BAC x Actual % Complete.
When you plug the numbers into the formula,
the right answer pops out!
9. Answer: B
You might not have recognized this as a TCPI problem immediately, but take
another look at the question. It’s asking you whether or not a project is going
to come in under budget, and that’s what TCPI is for. Good thing you were
given all of the values you need to calculate it! The Actual % Complete is
57%, the BAC is $1,500,000 and the AC is $950,000. You can calculate the
EV = BAC x Actual % Complete = $1,500,000 x 57% = $855,000. So now you
have everything you need to calculate TCPI:
This means he needs a TCPI of 1.17 in order to come in under budget. Since
he knows that he can’t get better than 1.05, he’s likely to blow the budget.
Exam Questions
Answers
If you don’t know the answer to a
question, try to eliminate all the
answers you know are wrong.Don’t forget: Lower = Loser!
I love these calculation questions
because when I see that the
answer on my calculator matches
one of the choices, I know I got it
right!
TCPI = = = 1.17
BAC - EV
BAC - AC
($1,500,000 - $855,000)
($1,500,000 - $950,000)

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Exam Questions
Answers
10. Answer: D
Some of these calculation questions can get a little complicated—but that doesn’t mean they’re
difficult! 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 at
the 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 to
lay 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 the
4,000 meters you’ll lay in total… so that’s 1,800 ÷ 4,000 = 45% complete. All right! Now you know your
earned value: EV = $208,000 x 45% = $93,600.
So what’s next? You’ve got half of what you need for
SPI—now you have to figure out PV. The formula
for it is: PV = BAC x Scheduled % Complete. So
how much of the project were you supposed
to complete by now? You’re 5 weeks into an
8 week project, so 5 ÷ 8 = 62.5%. Your PV is
$208,000 x 62.5% = $130,000. Now you’ve
got everything you need to calculate SPI!
EV ÷ PV = $93,600 ÷ $130,000 = .72
11. Answer: B
You’ll run into a lot of questions like this where a problem happens, a person has an issue, or the
project runs into trouble. When this happens, the first thing you do is stop and gather information. And
that should make sense to you, since you don’t know if this change will really impact cost or not. It
may seem like a huge change to the programmer, but may not actually cost the project anything. Or
it may really be huge. So the first thing to do is figure out the impact of the change on the project
constraints, and that’s what answer B says!
So that question was really
about whether I could figure
out how to calculate EV and PV
from what I was given.
Did you think that this was a redherring? It wasn’t—you needed all thenumbers you were given.

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12. Answer: B
What formula do you know that has AC and EV? Right, the CPI formula does! Take a look at it: CPI = EV ÷ AC. So
what happens if AC is bigger than EV? Make up two numbers and plug them in! You get CPI that’s below 1, and you
know what that means… it means that you’ve blown your budget!
13. Answer: D
This 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 can
think of the definition for each of them. It’s definitely worth taking the time to understand
what each of these formulas and variables represents in real life! It will make the whole
exam a lot easier.
14. Answer: C
This 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: A
When you plug a bunch of values into a formula or computer program, and it generates an estimate, that’s called
parametric estimation. Parametric estimation often uses some historical data, but that doesn’t mean it’s the same as
analogous estimation!
Exam Questions
Answers
Here are more of those
four-letter abbreviations.
Don’t worry—you don’t
need to memorize these
12. If AC (ACWP) is greater than your EV (BCWP), what does this mean?
If I write down all of the formulas on
my scratch paper before the test starts,
questions like this will be a lot easier!
This is the only part of the question that
matters—the rest is a red herring.
14. You are managing an industrial architecture project. You’ve spent $26,410 so far to survey…

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Exam Questions
Answers
16. Answer: C
You’ve been given a net present value (NPV) for each project. NPV means the total value that this
project is worth to your company! It’s got the costs—including opportunity costs—built in already. So all
you need to do is select the project with the biggest NPV.
17. Answer: C
The Rough Order of Magnitude estimate is a very preliminary estimate that everyone knows is only
within an order of magnitude of the actual cost (or ±50%). That means it can be anywhere from half the
actual cost to one and a half times the actual cost!
18. Answer: A
You should definitely have a pretty good idea of how change control works by now! The change control
system defines the procedures that you use to carry out the changes. And Control Costs has its own set
of procedures, called the cost change control system.
19. Answer: B
You use the project Cost Performance Baseline
to measure and monitor your project’s cost
performance. The idea behind a baseline is that
when a change is approved and implemented, the
baseline gets updated.
20. Answer: C
You should have the hang of this by now! Plug the numbers into the formula (CPI = EV ÷ AC), and it
spits out the answer. Sometimes the question will give you more
numbers than you actually need to use—just ignore them like any
other red herring and only use the ones you need!
21. Answer: B
If your TCPI is above 1, you need to manage costs aggressively. It
means that you need to meet your goals without spending as much
money as you have been for the rest of the project.
I recognize this—a change is
requested, approved, and implemented,
and then the baseline is updated. So I’m
using the cost performance baseline just
like I used the scope baseline back in
the Scope Management chapter!

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Exam Questions
Answers
22. Answer: B
If you are just starting to work on your project charter, it means you’re just starting the project and you don’t have
enough 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. That
kind of estimate is not nearly as accurate as the other kinds of estimate and is used just to give a rough idea of how
much time and cost will be involved in doing a project.
23. Answer: D
This question may have seemed a little wordy, but it’s really just a question about the definition of TCPI. You’re being
asked 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 him
an EAC value already. So now you can calculate the EAC-based TCPI number to figure out where you need to keep
your CPI for the rest of the project.
By calculating this based on the EAC, it
shows your sponsor just how much money
they need to kick in (or less, if you’ve
got good news!) in order to come in
under budget.

07 pmp cost management exam

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