Project Cost Management Mastery for PMP Certification

1. Which type of project cost estimate is the most accurate?

Conceptual

B. Definitive

Preliminary

Order of magnitude

A definitive cost estimate provides the most accurate projection of costs as it involves detailed project planning and analysis compared to the other types which are more preliminary or high-level estimates.

Explanation

A definitive cost estimate provides the most accurate projection of costs as it involves detailed project planning and analysis compared to the other types which are more preliminary or high-level estimates.

2. Which type of contracts is most preferable to the contractor doing the project work?

Fixed price

A. Cost plus fixed fee

Fixed price plus incentive fee

B and C

Cost plus fixed fee contracts provide the contractor with reimbursement for all allowable expenses plus a fixed fee which incentivizes efficient and cost-effective work. Fixed price contracts may not account for unexpected costs, while fixed price plus incentive fee contracts can be risky as they may encourage cutting corners to maximize profit.

Explanation

Cost plus fixed fee contracts provide the contractor with reimbursement for all allowable expenses plus a fixed fee which incentivizes efficient and cost-effective work. Fixed price contracts may not account for unexpected costs, while fixed price plus incentive fee contracts can be risky as they may encourage cutting corners to maximize profit.

3. To assist in budget control, it is suggested that the estimate occur at the _______ level of the WBS

Major work effort

Third

Highest

B. Lowest

In order to accurately estimate costs for each work package, it is recommended to do so at the lowest level of the WBS where the work is broken down into manageable components.

Explanation

In order to accurately estimate costs for each work package, it is recommended to do so at the lowest level of the WBS where the work is broken down into manageable components.

4. Cost Variance (CV) is which of the following equations?

CV = BCWP - BCWS

CV = SV / BCWS

A and C

B. CV = BCWP - ACWP

Cost Variance (CV) is calculated by subtracting Actual Cost of Work Performed (ACWP) from Budgeted Cost of Work Performed (BCWP). This formula provides insight into whether a project is under or over budget in terms of costs.

Explanation

Cost Variance (CV) is calculated by subtracting Actual Cost of Work Performed (ACWP) from Budgeted Cost of Work Performed (BCWP). This formula provides insight into whether a project is under or over budget in terms of costs.

5. Cost budgeting can be best described by which of the following?

D. The process of gathering, accumulating, analyzing, reporting, and managing the costs on an on-going basis.

B. The process of assembling and predicting costs of a project over its life cycle

Cost budgeting is primarily about setting budgets, standards, and systems to measure and manage project costs effectively.

Explanation

Cost budgeting is primarily about setting budgets, standards, and systems to measure and manage project costs effectively.

6. Which of the following is a direct project cost?

A. Lighting and heating for the corporate office

D. A and B

C. Piping for an irrigation project

B. Workers Compensation insurance

Direct project costs are expenses that can be specifically attributed to a particular project. In this case, piping for an irrigation project is a direct project cost as it is directly related to the specific project being undertaken. On the other hand, lighting and heating for the corporate office, workers compensation insurance, and options that combine both are not direct project costs as they are more general expenses that may not be directly tied to the project itself.

Explanation

Direct project costs are expenses that can be specifically attributed to a particular project. In this case, piping for an irrigation project is a direct project cost as it is directly related to the specific project being undertaken. On the other hand, lighting and heating for the corporate office, workers compensation insurance, and options that combine both are not direct project costs as they are more general expenses that may not be directly tied to the project itself.

7. Cost controls can be best described by which of the following?

C. The process of assembling and predicting costs of a project over its life cycle

B. The process of assembling and predicting costs of a project over its life cycle

Cost controls involve the ongoing process of gathering, accumulating, analyzing, reporting, and managing the costs of a project to ensure it stays within budget and on track.

Explanation

Cost controls involve the ongoing process of gathering, accumulating, analyzing, reporting, and managing the costs of a project to ensure it stays within budget and on track.

8. The BCWS = $250, the ACWP = $350, and the BCWP = $200. Calculate the Cost Variance?

C. -$50

B. $150

A. -$150

D. $50

Cost Variance is calculated as BCWP - ACWP. In this case, the BCWP is $200 and the ACWP is $350. Thus, Cost Variance = $200 - $350 = -$150.

Explanation

Cost Variance is calculated as BCWP - ACWP. In this case, the BCWP is $200 and the ACWP is $350. Thus, Cost Variance = $200 - $350 = -$150.

9. Life Cycle Costing is a term that is:

Not used within the government

Typically used in the construction industry

E. A and B

Used when making decisions between alternatives

Life Cycle Costing is a term that is used when making decisions between alternatives and employed principally by the government, making options A and B the correct answer.

Explanation

Life Cycle Costing is a term that is used when making decisions between alternatives and employed principally by the government, making options A and B the correct answer.