Chapter 7 Project Cost Management True False

Chapter 7 - Project Cost Management True / False 1. Overrun is the additional percentage amount by which estimates exceed actual costs.  a. True  b. False ANSWER: False RATIONALE: Feedback: Overrun is the additional percentage or dollar amount by which actual costs exceed estimates. POINTS: 1 DIFFICULTY: Difficulty: Easy REFERENCES: p.286 QUESTIONTYPE: True / False HASVARIABLES: False LEARNINGOBJECTIVE INFO.SCHW.14.48 - LO: 7-1 S: NATIONALSTANDARDS United States - BUSPROG: Analytic : TOPICS: The Importance of Project Cost Management KEYWORDS: Bloom's: Knowledge DATECREATED: DATEMODIFIED: 2. The primary output of the planning cost management process is a change request.  a. True  b. False ANSWER: False RATIONALE: Feedback: The main output of the planning cost management process process is a cost management plan. Planning cost management involves determining the policies, procedures, and documentation that will be used for planning, executing, and controlling project cost. POINTS: 1 DIFFICULTY: Difficulty: Easy REFERENCES: p.288 QUESTIONTYPE:True / False HASVARIABLES:False LEARNINGOBJE INFO.SCHW.14.48 - LO: 7-1 CTIVES: NATIONALSTAND United States - BUSPROG: Analytic ARDS: TOPICS: The Importance of Project Cost Management KEYWORDS: Bloom's: Knowledge DATECREATED: DATEMODIFIED: 3. IT project managers must be able to present and discuss project information both in financial and technical terms.  a. True Page1 Chapter 7 - Project Cost Management  b. False True Feedback: Most members of a company’s executive board have a better understanding of financial terms than IT terms, and are more interested in finance. Therefore, IT project managers need to be able to present and discuss project information both in financial terms and technical terms. POINTS: 1 DIFFICULTY: Difficulty: Easy REFERENCES: p.289-290 QUESTIONTYPE:True / False HASVARIABLES:False LEARNINGOBJE INFO.SCHW.14.49 - LO: 7-2 CTIVES: NATIONALSTAND United States - BUSPROG: - Comprehension ARDS: TOPICS: Basic Principles of Cost Management KEYWORDS: Bloom's: Knowledge DATECREATED: DATEMODIFIED:  ANSWER: RATIONALE: 4. Project managers must conduct cash flow analysis to determine net present value.  a. True  b. False ANSWER: True RATIONALE: Feedback: Cash flow analysis is a method of determining the estimated annual costs and benefits for a project and the resulting annual cash flow. Project managers must conduct cash flow analysis to determine net present value. POINTS: 1 DIFFICULTY: Difficulty: Easy REFERENCES: p.292 QUESTIONTYPE:True / False HASVARIABLES:False LEARNINGOBJE INFO.SCHW.14.49 - LO: 7-2 CTIVES: NATIONALSTAND United States - BUSPROG: Analytic ARDS: TOPICS: The Importance of Project Cost Management KEYWORDS: Bloom's: Knowledge DATECREATED: DATEMODIFIED:  5. Intangible costs can be easily measured in monetary terms. a. True  b. False  Page2 Chapter 7 - Project Cost Management False Feedback: Intangible costs or benefits are difficult to measure in monetary terms. Conversely, tangible costs or benefits can easily be measured in dollars. POINTS: 1 DIFFICULTY: Difficulty: Moderate REFERENCES: p.292 QUESTIONTYPE:True / False HASVARIABLES:False LEARNINGOBJE INFO.SCHW.14.49 - LO: 7-2 CTIVES: NATIONALSTAND United States - BUSPROG: Analytic ARDS: TOPICS: Basic Principles of Cost Management KEYWORDS: Bloom's: Comprehension DATECREATED: DATEMODIFIED:  ANSWER: RATIONALE: 6. When deciding what projects to invest in or continue, one should include sunk costs.  a. True  b. False ANSWER: False RATIONALE: Feedback: Sunk cost is money that has been spent in the past. When deciding what projects to invest in or continue, one should not include sunk costs. POINTS: 1 DIFFICULTY: Difficulty: Moderate REFERENCES: p.292 QUESTIONTYPE:True / False HASVARIABLES:False LEARNINGOBJE INFO.SCHW.14.49 - LO: 7-2 CTIVES: NATIONALSTAND United States - BUSPROG: Analytic ARDS: TOPICS: Basic Principles of Cost Management KEYWORDS: Bloom's: Comprehension DATECREATED: DATEMODIFIED:  7. It is important for project managers to focus on indirect costs because they can be easily controlled.  a. True  b. False ANSWER: False RATIONALE: Feedback: Direct costs can be directly related to creating the products and services of the project. Project managers should focus on direct costs because they can be controlled. Page3 Chapter 7 - Project Cost Management POINTS: 1 DIFFICULTY: Difficulty: Moderate REFERENCES: p.292 QUESTIONTYPE:True / False HASVARIABLES:False LEARNINGOBJE INFO.SCHW.14.49 - LO: 7-2 CTIVES: NATIONALSTAND United States - BUSPROG: Analytic ARDS: TOPICS: Basic Principles of Cost Management KEYWORDS: Bloom's: Comprehension DATECREATED: DATEMODIFIED:  8. If an important supplier goes out of business, management reserves can be set aside to cover the resulting costs.  a. True  b. False ANSWER: True RATIONALE: Feedback: Management reserves allow for future situations that are unpredictable. For example, if a project manager gets sick for two weeks or an important supplier goes out of business, management reserves could be set aside to cover the resulting costs. POINTS: 1 DIFFICULTY: Difficulty: Moderate REFERENCES: p.293 QUESTIONTYPE:True / False HASVARIABLES:False LEARNINGOBJE INFO.SCHW.14.49 - LO: 7-2 CTIVES: NATIONALSTAND United States - BUSPROG: Analytic ARDS: TOPICS: Basic Principles of Cost Management KEYWORDS: Bloom's: Comprehension DATECREATED: DATEMODIFIED:  9. Contingency reserves are also known as unknown unknowns.  a. True  b. False ANSWER: False RATIONALE: Feedback: Contingency reserves allow for future situations that may be partially planned for. They are sometimes called known unknowns. POINTS: 1 DIFFICULTY: Difficulty: Easy Page4 Chapter 7 - Project Cost Management REFERENCES: p.293 QUESTIONTYPE: True / False HASVARIABLES: False LEARNINGOBJEC INFO.SCHW.14.49 - LO: 7-2 TIVES: NATIONALSTAND United States - BUSPROG: Analytic ARDS: TOPICS: Basic Principles of Cost Management KEYWORDS: Bloom's: Knowledge DATECREATED: DATEMODIFIED: 10. A cost management plan can include organizational procedures links, control thresholds, and process descriptions.  a. True  b. False ANSWER: True RATIONALE: Feedback: In general, a cost management plan includes level of accuracy, organizational procedures links, process descriptions, control thresholds, and rules of performance measurement, among others. POINTS: 1 DIFFICULTY: Difficulty: Easy REFERENCES: p.294 QUESTIONTYPE:True / False HASVARIABLES:False LEARNINGOBJE INFO.SCHW.14.50 - LO: 7-3 CTIVES: NATIONALSTAND United States - BUSPROG: Analytic ARDS: TOPICS: Planning Cost Management KEYWORDS: Bloom's: Knowledge DATECREATED: DATEMODIFIED:  11. A budgetary estimate is the most accurate of the three types of estimates.  a. True  b. False ANSWER: False RATIONALE: Feedback: A definitive estimate provides an accurate estimate of project costs. It provides details for purchases and estimates actual costs. POINTS: 1 DIFFICULTY: Difficulty: Easy REFERENCES: p.295 QUESTIONTYPE: True / False HASVARIABLES: False LEARNINGOBJEC INFO.SCHW.14.51 - LO: 7-4 Page5 Chapter 7 - Project Cost Management TIVES: NATIONALSTAND United States - BUSPROG: Analytic ARDS: TOPICS: Estimating Costs KEYWORDS: Bloom's: Knowledge DATECREATED: DATEMODIFIED: 12. Budgetary estimates are made even before a project is officially started.  a. True  b. False ANSWER: True RATIONALE: Feedback: Many organizations develop budgets at least two years into the future. Budgetary estimates are made one to two years prior to project completion. POINTS: 1 DIFFICULTY: Difficulty: Easy REFERENCES: p.295 QUESTIONTYPE:True / False HASVARIABLES:False LEARNINGOBJE INFO.SCHW.14.51 - LO: 7-4 CTIVES: NATIONALSTAND United States - BUSPROG: Analytic ARDS: TOPICS: Estimating Costs KEYWORDS: Bloom's: Knowledge DATECREATED: DATEMODIFIED:  13. Definitive estimates are made one year or less prior to project completion.  a. True  b. False ANSWER: True RATIONALE: Feedback: Definitive estimates are made one year or less prior to project completion. They provide an accurate estimate of project costs. POINTS: 1 DIFFICULTY: Difficulty: Easy REFERENCES: p.295-296 QUESTIONTYPE: True / False HASVARIABLES: False LEARNINGOBJEC INFO.SCHW.14.51 - LO: 7-4 TIVES: NATIONALSTAND United States - BUSPROG: Analytic ARDS: TOPICS: Estimating Costs Page6 Chapter 7 - Project Cost Management KEYWORDS: Bloom's: Knowledge DATECREATED: DATEMODIFIED: 14. Estimates should become more accurate as time progresses.  a. True  b. False ANSWER: True RATIONALE: Feedback: Estimates are usually done at various stages of a project and should become more accurate as time progresses. POINTS: 1 DIFFICULTY: Difficulty: Easy REFERENCES: p.296 QUESTIONTYPE: True / False HASVARIABLES: False LEARNINGOBJECTI INFO.SCHW.14.51 - LO: 7-4 VES: NATIONALSTANDAR United States - BUSPROG: Analytic DS: TOPICS: Estimating Costs KEYWORDS: Bloom's: Knowledge DATECREATED: DATEMODIFIED: 15. Supporting details for an estimate include the ground rules and assumptions used in creating the estimate.  a. True  b. False ANSWER: True RATIONALE: Feedback: In addition to creating cost estimates for the entire project and activity cost estimates, it is also important to provide supporting details for the estimates and updates to project documents. The supporting details include the ground rules and assumptions used in creating the estimate, a description of the project used as a basis for the estimate, and details on the cost estimation tools and techniques used to create the estimate. POINTS: 1 DIFFICULTY: Difficulty: Easy REFERENCES: p.296 QUESTIONTYPE:True / False HASVARIABLES:False LEARNINGOBJE INFO.SCHW.14.51 - LO: 7-4 CTIVES: NATIONALSTAND United States - BUSPROG: Analytic ARDS: TOPICS: Estimating Costs KEYWORDS: Bloom's: Knowledge DATECREATED: Page7 Chapter 7 - Project Cost Management DATEMODIFIED:  16. Analogous estimates are called activity-based costing.  a. True  b. False ANSWER: False RATIONALE: Feedback: Analogous estimates are also called top-down estimates. Such estimates use the actual cost of a previous, similar project as the basis for estimating the cost of the current project. POINTS: 1 DIFFICULTY: Difficulty: Easy REFERENCES: p.297 QUESTIONTYPE:True / False HASVARIABLES:False LEARNINGOBJE INFO.SCHW.14.51 - LO: 7-4 CTIVES: NATIONALSTAND United States - BUSPROG: Analytic ARDS: TOPICS: Estimating Costs KEYWORDS: Bloom's: Knowledge DATECREATED: DATEMODIFIED:  17. Analogous estimates are the most accurate technique to estimate costs.  a. True  b. False ANSWER: False RATIONALE: Feedback: Analogous estimates requires a good deal of expert judgment and is generally less costly than other techniques. However, it is also less accurate. POINTS: 1 DIFFICULTY: Difficulty: Easy REFERENCES: p.297 QUESTIONTYPE:True / False HASVARIABLES:False LEARNINGOBJE INFO.SCHW.14.51 - LO: 7-4 CTIVES: NATIONALSTAND United States - BUSPROG: Analytic ARDS: TOPICS: Estimating Costs KEYWORDS: Bloom's: Knowledge DATECREATED: DATEMODIFIED: 18. In a bottom-up estimate, the size of the individual work items is one of the factors that drives the accuracy of the Page8 Chapter 7 - Project Cost Management estimates.   a. b. True False True Feedback: The size of the individual work items and the experience of the estimators drive the accuracy of the estimates. Using smaller work items increases the accuracy of the cost estimate because the people assigned to do the work develop the cost estimate instead of someone unfamiliar with the work. POINTS: 1 DIFFICULTY: Difficulty: Easy REFERENCES: p.297 QUESTIONTYPE:True / False HASVARIABLES:False LEARNINGOBJE INFO.SCHW.14.51 - LO: 7-4 CTIVES: NATIONALSTAND United States - BUSPROG: Analytic ARDS: TOPICS: Estimating Costs KEYWORDS: Bloom's: Knowledge DATECREATED: DATEMODIFIED:  ANSWER: RATIONALE: 19. Parametric models are reliable when the models are flexible in terms of the project’s size.  a. True  b. False ANSWER: True RATIONALE: Feedback: Parametric models are most reliable when the historical information used to create the model is accurate, the parameters are readily quantifiable, and the model is flexible in terms of the project’s size. POINTS: 1 DIFFICULTY: Difficulty: Moderate REFERENCES: p.298 QUESTIONTYPE:True / False HASVARIABLES:False LEARNINGOBJE INFO.SCHW.14.51 - LO: 7-4 CTIVES: NATIONALSTAND United States - BUSPROG: Analytic ARDS: TOPICS: Estimating Costs KEYWORDS: Bloom's: Comprehension DATECREATED: DATEMODIFIED:  20. One of the reasons why project cost estimates are inaccurate is because human beings are biased toward Page9 Chapter 7 - Project Cost Management underestimation.   a. b. True False True Feedback: One of the reasons why project cost estimates are very inaccurate is because human beings are biased toward underestimation. It is thus important for project managers and top management to review estimates and ask important questions to make sure the estimates are not biased. POINTS: 1 DIFFICULTY: Difficulty: Moderate REFERENCES: p.298-299 QUESTIONTYPE:True / False HASVARIABLES:False LEARNINGOBJE INFO.SCHW.14.51 - LO: 7-4 CTIVES: NATIONALSTAND United States - BUSPROG: Analytic ARDS: TOPICS: Estimating Costs KEYWORDS: Bloom's: Comprehension DATECREATED: DATEMODIFIED:  ANSWER: RATIONALE: 21. It is important for project managers to understand that every cost estimate is unique.  a. True  b. False ANSWER: True RATIONALE: Feedback: Every cost estimate is unique, just as every project is unique. POINTS: 1 DIFFICULTY: Difficulty: Easy REFERENCES: p.299 QUESTIONTYPE: True / False HASVARIABLES: False LEARNINGOBJECTIVES: INFO.SCHW.14.51 - LO: 7-4 NATIONALSTANDARDS: United States - BUSPROG: Analytic TOPICS: Estimating Costs KEYWORDS: Bloom's: Knowledge DATECREATED: DATEMODIFIED: 22. Determining the budget involves allocating the project cost estimate to individual work items over time.  a. True  b. False ANSWER: True RATIONALE: Feedback: Determining the budget involves allocating the project cost estimate to individual material resources or work items over time. These material resources or work items are based on the activities Page10 Chapter 7 - Project Cost Management in the work breakdown structure for the project. POINTS: 1 DIFFICULTY: Difficulty: Easy REFERENCES: p.305 QUESTIONTYPE:True / False HASVARIABLES:False LEARNINGOBJE INFO.SCHW.14.52 - LO: 7-5 CTIVES: NATIONALSTAND United States - BUSPROG: Analytic ARDS: TOPICS: Determining the Budget KEYWORDS: Bloom's: Knowledge DATECREATED: DATEMODIFIED:  23. The project management plan and project funding requirements are inputs of the process of controlling costs.  a. True  b. False ANSWER: True RATIONALE: Feedback: The project management plan, project funding requirements, work performance data, and organizational process assets are inputs for controlling costs. POINTS: 1 DIFFICULTY: Difficulty: Easy REFERENCES: p.306-307 QUESTIONTYPE:True / False HASVARIABLES:False LEARNINGOBJE INFO.SCHW.14.53 - LO: 7-6 CTIVES: NATIONALSTAND United States - BUSPROG: Analytic ARDS: TOPICS: Controlling Costs KEYWORDS: Bloom's: Knowledge DATECREATED: DATEMODIFIED:  24. The formulas for variances and indexes start with EV, the earned value.  a. True  b. False ANSWER: True RATIONALE: Feedback: The formulas for variances and indexes start with EV, the earned value. Variances are calculated by subtracting the actual cost or planned value from EV, and indexes are calculated by dividing EV by the actual cost or planned value. POINTS: 1 Page11 Chapter 7 - Project Cost Management DIFFICULTY: Difficulty: Moderate REFERENCES: p.308 QUESTIONTYPE:True / False HASVARIABLES:False LEARNINGOBJE INFO.SCHW.14.53 - LO: 7-6 CTIVES: NATIONALSTAND United States - BUSPROG: Analytic ARDS: TOPICS: Controlling Costs KEYWORDS: Bloom's: Comprehension DATECREATED: DATEMODIFIED:  25. If cost variance is a positive number, it means that performing the work costs more than planned.  a. True  b. False ANSWER: False RATIONALE: Feedback: Cost variance (CV) is the earned value minus the actual cost. If cost variance is a negative number, it means that performing the work costs more than planned. If cost variance is a positive number, performing the work costs less than planned. POINTS: 1 DIFFICULTY: Difficulty: Moderate REFERENCES: p.308 QUESTIONTYPE:True / False HASVARIABLES:False LEARNINGOBJE INFO.SCHW.14.53 - LO: 7-6 CTIVES: NATIONALSTAND United States - BUSPROG: Analytic ARDS: TOPICS: Controlling Costs KEYWORDS: Bloom's: Comprehension DATECREATED: DATEMODIFIED:  26. A negative schedule variance means that it took less time than planned to perform the work.  a. True  b. False ANSWER: False RATIONALE: Feedback: A negative schedule variance means that it took longer than planned to perform the work, and a positive schedule variance means that the work took less time than planned to perform. POINTS: 1 DIFFICULTY: Difficulty: Moderate REFERENCES: p.308 Page12 Chapter 7 - Project Cost Management QUESTIONTYPE:True / False HASVARIABLES:False LEARNINGOBJE INFO.SCHW.14.53 - LO: 7-6 CTIVES: NATIONALSTAND United States - BUSPROG: Analytic ARDS: TOPICS: Controlling Costs KEYWORDS: Bloom's: Comprehension DATECREATED: DATEMODIFIED:  27. If the cost performance index (CPI) is less than 100 percent, the project is under budget.  a. True  b. False ANSWER: False RATIONALE: Feedback: If the CPI is less than one or less than 100 percent, the project is over budget. On the other hand, if the CPI is greater than one or more than 100 percent, the project is under budget. POINTS: 1 DIFFICULTY: Difficulty: Moderate REFERENCES: p.309 QUESTIONTYPE:True / False HASVARIABLES:False LEARNINGOBJE INFO.SCHW.14.53 - LO: 7-6 CTIVES: NATIONALSTAND United States - BUSPROG: Analytic ARDS: TOPICS: Controlling Costs KEYWORDS: Bloom's: Comprehension DATECREATED: DATEMODIFIED:  28. A schedule performance index of one means that the project is on schedule.  a. True  b. False ANSWER: True RATIONALE: Feedback: The schedule performance index (SPI) is the ratio of earned value to planned value; it can be used to estimate the projected time to complete the project. A schedule performance index of one means the project is on schedule. POINTS: 1 DIFFICULTY: Difficulty: Moderate REFERENCES: p.309 QUESTIONTYPE:True / False HASVARIABLES:False Page13 Chapter 7 - Project Cost Management LEARNINGOBJE INFO.SCHW.14.53 - LO: 7-6 CTIVES: NATIONALSTAND United States - BUSPROG: Analytic ARDS: TOPICS: Controlling Costs KEYWORDS: Bloom's: Comprehension DATECREATED: DATEMODIFIED:  29. In an earned value chart, when the actual cost line is right on or above the earned value line, it indicates that costs are less than planned.  a. True  b. False ANSWER: False RATIONALE: Feedback: Viewing earned value information in chart form helps in visualizing how a project is performing. If the actual cost line is always on or above the earned value line, it indicates that costs are equal to or more than planned. POINTS: 1 DIFFICULTY: Difficulty: Moderate REFERENCES: p.310 QUESTIONTYPE:True / False HASVARIABLES:False LEARNINGOBJE INFO.SCHW.14.53 - LO: 7-6 CTIVES: NATIONALSTAND United States - BUSPROG: Analytic ARDS: TOPICS: Controlling Costs KEYWORDS: Bloom's: Comprehension DATECREATED: DATEMODIFIED:  30. Spreadsheets are a common tool for cost estimating, cost budgeting, and cost control.  a. True  b. False ANSWER: True RATIONALE: Feedback: Most organizations use software to assist in various activities related to project cost management. Spreadsheets are a common tool for cost estimating, cost budgeting, and cost control. POINTS: 1 DIFFICULTY: Difficulty: Easy REFERENCES: p.314 QUESTIONTYPE:True / False HASVARIABLES:False LEARNINGOBJE INFO.SCHW.14.54 - LO: 7-7 CTIVES: Page14 Chapter 7 - Project Cost Management NATIONALSTAND United States - BUSPROG: Analytic ARDS: TOPICS: Using Project Management Software to assist In Project Cost Management KEYWORDS: Bloom's: Knowledge DATECREATED: DATEMODIFIED:  Page15