Cost Estimation In Project Management Quiz

1. You are the project manager for a new technology implementation project. Management has requested that your estimates be as exact as possible. Which one of the following methods of estimating will provide the most accurate estimate?

Top-down estimating

Top-down budgeting

Bottom-up estimating

Parametric estimating

Bottom-up estimating provides the most accurate estimates. The project manager starts at zero, the bottom, and accounts for each cost within the project.

Explanation

Bottom-up estimating provides the most accurate estimates. The project manager starts at zero, the bottom, and accounts for each cost within the project.

2. Which one of the following provides the least accuracy in estimating?

Rough order of magnitude

Budget estimate

Definitive estimate

WBS estimate

The rough order of magnitude is the least accurate approach, since it may vary from -25 percent to +75 percent.

Explanation

The rough order of magnitude is the least accurate approach, since it may vary from -25 percent to +75 percent.

3. You are the project manager for a new technology implementation project. Management has requested that your estimates be as exact as possible. Which one of the following methods of estimating will provide the most accurate estimate?

Top-down estimating

Top-down budgeting

Bottom-up estimating

Parametric estimating

Bottom-up estimating provides the most accurate estimates. The project manager starts at zero, the bottom, and accounts for each cost within the project.

Explanation

Bottom-up estimating provides the most accurate estimates. The project manager starts at zero, the bottom, and accounts for each cost within the project.

4. Of the following, which one is the most reliable source of information for estimating project costs?

Historical information from a recently completed project

An SME's opinion

Recollections of team members that have worked on similar projects

Vendors' whitepapers

Of the choices presented, historical information from a recently completed project is the most reliable source of information.

Explanation

Of the choices presented, historical information from a recently completed project is the most reliable source of information.

5. You are the project manager for the GHG Project. You are about to create the cost estimates for the project. Which input to this process will help you the most?

Parametric modeling

WBS

Project scope

Requirements document

The WBS is the input that can help you the most with the cost estimates.

Explanation

The WBS is the input that can help you the most with the cost estimates.

6. You are the project manager of the JHD Project. Your project will cost your organization $250,000 to complete over the next eight months. Once the project is completed, the deliverables will begin earning the company $3,500 per month. Which of the following represents the time to recover the costs of the project?

Not enough information to know

8 months

72 months

5 years

The time to recoup the monies from the project is 72 months. This is calculated by dividing the ROI of $3,500 per month into the project cost.

Explanation

The time to recoup the monies from the project is 72 months. This is calculated by dividing the ROI of $3,500 per month into the project cost.

7. You are the project manager of the JHD Project. Your project will cost your organization $250,000 to complete over the next eight months. Once the project is completed, the deliverables will begin earning the company $3,500 per month. Which of the following represents the time to recover the costs of the project?

Not enough information to know

8 months

72 months

5 years

The time to recoup the monies from the project is 72 months. This is calculated by dividing the ROI of $3,500 per month into the project cost.

Explanation

The time to recoup the monies from the project is 72 months. This is calculated by dividing the ROI of $3,500 per month into the project cost.

8. You are the project manager for the CSR Training Project, and 21,000 customer service reps are invited to attend the training session. Attendance is optional. You have calculated the costs of the training facility, but the workbook expense depends on how many students register for the class. For every 5,000 workbooks created, the cost is reduced by a percentage of the original printing cost. The workbook expense is an example of which one of the following?

Fixed costs

Parametric costs

Variable costs

Indirect costs

This is an example of variable costs. The more students that register to take the class, the more the cost of the books will be.

Explanation

This is an example of variable costs. The more students that register to take the class, the more the cost of the books will be.

9. Which one of the following provides the least accuracy in estimating?

Rough order of magnitude

Budget estimate

Definitive estimate

WBS estimate

The rough order of magnitude is the least accurate approach, since it may vary from -25 percent to +75 percent.

Explanation

The rough order of magnitude is the least accurate approach, since it may vary from -25 percent to +75 percent.

10. Of the following, which one is the most reliable source of information for estimating project costs?

Historical information from a recently completed project

An SME's opinion

Recollections of team members that have worked on similar projects

Vendors' whitepapers

Of the choices presented, historical information from a recently completed project is the most reliable source of information.

Explanation

Of the choices presented, historical information from a recently completed project is the most reliable source of information.

11. You have just started a project for a manufacturer. Project team members report they are 30 percent complete with the project. You have spent $25,000 out of the project's $250,000 budget. What is the earned value for this project?

10 percent

$75,000

$25,000

Not enough information to know

The earned value is 30 percent of the project's budget.

Explanation

The earned value is 30 percent of the project's budget.

12. You are the project manager for the Facility Installation Project. The project calls for 1,500 units to be installed in a new baseball stadium. Your team wants to know why you have not assigned the same amount of time for the last 800 units as you had for the first 500 units. You tell them it is because of the learning curve. Which one of the following best describes this theory?

Production increases as workers become more efficient with the installation procedure.

Efficiency increases as workers become more familiar with the installation procedure.

Costs decrease as workers complete more of the installation procedure.

Time decreases as workers complete more of the installation procedure in the final phases of a project.

The learning curve allows the cost to decrease as a result of decreased installation time because workers will complete more of the installation procedure.

Explanation

The learning curve allows the cost to decrease as a result of decreased installation time because workers will complete more of the installation procedure.

13. You have just started a project for a manufacturer. Project team members report they are 30 percent complete with the project. You have spent $25,000 out of the project's $250,000 budget. What is the earned value for this project?

10 percent

$75,000

$25,000

Not enough information to know

The earned value is 30 percent of the project's budget.

Explanation

The earned value is 30 percent of the project's budget.

14. You are the project manager for the Hardware Inventory Project. You have a piece of equipment that was purchased recently for $10,000 and is expected to last five years in production. At the end of the five years, the expected worth of the equipment will be $1,000. Using straight-line depreciation, what is the amount that can be written off each year?

Zero

$1,000

$1,800

$2,000

The straight-line depreciation takes the purchase value of the item, minus the salvage price of the item, divided by the number of time periods. In this instance, it would be $10,000 minus $1,000, or $9,000. The $9,000 is divided by five years and equates to $1,800 per year.

Explanation

The straight-line depreciation takes the purchase value of the item, minus the salvage price of the item, divided by the number of time periods. In this instance, it would be $10,000 minus $1,000, or $9,000. The $9,000 is divided by five years and equates to $1,800 per year.

15. You are the project manager of a construction project scheduled to last 24 months. You have elected to rent a piece of equipment for the duration of a project, even though you will need the equipment only periodically throughout the project. The costs of the equipment rental per month are $890. This is an example of which of the following?

Fixed costs

Parametric costs

Variable costs

Indirect costs

This is a fixed-cost expense of $890 per month—regardless of how often the piece of equipment is used.

Explanation

This is a fixed-cost expense of $890 per month—regardless of how often the piece of equipment is used.

16. You are the project manager of the Carpet Installation Project for a new building. Your BAC is $600,000. You have spent $270,000 of your budget. You are now 40 percent done with the project, though your plan called for you to be 45 percent done with the work by this time. What is your CPI?

100

89

0.89

0.79

The EV of $240,000 is divided by the AC of $270,000 for a value of 0.89.

Explanation

The EV of $240,000 is divided by the AC of $270,000 for a value of 0.89.

17. You are the project manager for the construction of a new hotel. Before you begin the cost budgeting process, what is needed?

Cost estimates and project schedule

Cost estimates and supporting detail

EAC and BAC

A parametric model to arrive at the costs submitted

Cost estimates and the project schedule are inputs to the cost budgeting process.

Explanation

Cost estimates and the project schedule are inputs to the cost budgeting process.

18. You are the project manager of the Carpet Installation Project for a new building. Your BAC is $600,000. You have spent $270,000 of your budget. You are now 40 percent done with the project, though your plan called for you to be 45 percent done with the work by this time. What is your CPI?

100

89

0.89

0.79

The EV of $240,000 is divided by the AC of $270,000 for a value of 0.89.

Explanation

The EV of $240,000 is divided by the AC of $270,000 for a value of 0.89.

19. What is the present value if an organization expects to make $100,000 four years from now and the annual interest rate is 6 percent?

$100,000

$79,000

$25,000

Zero

The present value of $100,000 four years from now can be calculated by using this formula: present value = FV / (1 + i)n. FV is the future value, i is the interest rate, and n is the number of time periods.

Explanation

The present value of $100,000 four years from now can be calculated by using this formula: present value = FV / (1 + i)n. FV is the future value, i is the interest rate, and n is the number of time periods.

20. You are the project manager for the construction of a new hotel. Before you begin the cost budgeting process, what is needed?

Cost estimates and project schedule

Cost estimates and supporting detail

EAC and BAC

A parametric model to arrive at the costs submitted

Cost estimates and the project schedule are inputs to the cost budgeting process.

Explanation

Cost estimates and the project schedule are inputs to the cost budgeting process.

21. You are the project manager of the LKG Project. The project has a budget of $290,000 and is expected to last three years. The project is now 10 percent complete and is on schedule. What is the BAC?

$29,000

$290,000

$96,666

$9,666

The BAC is the budget at completion, which is $290,000.

Explanation

The BAC is the budget at completion, which is $290,000.

22. Which of the following best describes analogous estimating?

Regression analysis

Bottom-up estimating

Less accurate

More accurate

Analogous estimating is less accurate than other estimating methods.

Explanation

Analogous estimating is less accurate than other estimating methods.

23. You are the project manager for the GHG Project. You are about to create the cost estimates for the project. Which input to this process will help you the most?

Parametric modeling

WBS

Project scope

Requirements document

The WBS is the input that can help you the most with the cost estimates.

Explanation

The WBS is the input that can help you the most with the cost estimates.

24. You are the project manager of the LKG Project. The project has a budget of $290,000 and is expected to last three years. The project is now 10 percent complete and is on schedule. What is the BAC?

$29,000

$290,000

$96,666

$9,666

The BAC is the budget at completion, which is $290,000.

Explanation

The BAC is the budget at completion, which is $290,000.

25. Your company has been hired to install the tile in 1,000 hotel rooms. All rooms will be identical in nature and will require the same amount of materials. You calculate the time to install the tile in each hotel room at six hours. The cost of labor for each room is calculated at $700. Your project sponsor disagrees with your labor estimate. Why?

You haven't completed one hotel room yet, so you don't know how long the work will actually take.

You have not factored in all of the effort applied to the work.

You have not considered the law of diminishing returns.

You have not considered the learning curve.

As the project team completes more and more units, the time to complete a hotel room should take less and less time

Explanation

As the project team completes more and more units, the time to complete a hotel room should take less and less time

26. You are the project manager for a technical implementation project. The customer has requested that you factor in the after-the-project costs, such as maintenance and service. This is an example of which one of the following?

Life-cycle costs

Scope creep

Project spin-off

Operations

The after-project costs are known as the life-cycle costs.

Explanation

The after-project costs are known as the life-cycle costs.

27. You are the project manager for the CSR Training Project, and 21,000 customer service reps are invited to attend the training session. Attendance is optional. You have calculated the costs of the training facility, but the workbook expense depends on how many students register for the class. For every 5,000 workbooks created, the cost is reduced by a percentage of the original printing cost. The workbook expense is an example of which one of the following?

Fixed costs

Parametric costs

Variable costs

Indirect costs

This is an example of variable costs. The more students that register to take the class, the more the cost of the books will be.

Explanation

This is an example of variable costs. The more students that register to take the class, the more the cost of the books will be.

28. You are the project manager of the MNJ Project. Your project is falling behind schedule, and you have already spent $130,000 of your $150,000 budget. What do you call the $130,000?

Planned value

Present value

Sunk costs

Capital expenditure

Sunk costs are monies that have been spent.

Explanation

Sunk costs are monies that have been spent.

29. You are the project manager for the JKH Project. You have elected to use parametric estimating in your cost estimating for the project. Which of the following is an example of parametric estimating?

$750 per ton

Historical information from a similar project

Estimates built bottom-up based on the WBS

Estimates based on top-down budgeting

$750 per ton is an example of parametric estimating.

Explanation

$750 per ton is an example of parametric estimating.

30. You are the project manager of the Carpet Installation Project for a new building. Your BAC is $600,000. You are now 40 percent complete with the project, though your plan called for you to be 45 percent complete with the work by this time. What is your earned value?

$240,000

$270,000

$30,000

-$30,000

The earned value is calculated by multiplying the percentage of completion, 40 percent, by the BAC, which is $600,000, for a value of $240,000.

Explanation

The earned value is calculated by multiplying the percentage of completion, 40 percent, by the BAC, which is $600,000, for a value of $240,000.

31. You are the project manager of a construction project scheduled to last 24 months. You have elected to rent a piece of equipment for the duration of a project, even though you will need the equipment only periodically throughout the project. The costs of the equipment rental per month are $890. This is an example of which of the following?

Fixed costs

Parametric costs

Variable costs

Indirect costs

This is a fixed-cost expense of $890 per month—regardless of how often the piece of equipment is used.

Explanation

This is a fixed-cost expense of $890 per month—regardless of how often the piece of equipment is used.

32. You are the project manager for the Facility Installation Project. The project calls for 1,500 units to be installed in a new baseball stadium. Your team wants to know why you have not assigned the same amount of time for the last 800 units as you had for the first 500 units. You tell them it is because of the learning curve. Which one of the following best describes this theory?

Production increases as workers become more efficient with the installation procedure.

Efficiency increases as workers become more familiar with the installation procedure.

Costs decrease as workers complete more of the installation procedure.

Time decreases as workers complete more of the installation procedure in the final phases of a project.

The learning curve allows the cost to decrease as a result of decreased installation time because workers will complete more of the installation procedure.

Explanation

The learning curve allows the cost to decrease as a result of decreased installation time because workers will complete more of the installation procedure.

33. Which of the following best describes analogous estimating?

Regression analysis

Bottom-up estimating

Less accurate

More accurate

Analogous estimating is less accurate than other estimating methods.

Explanation

Analogous estimating is less accurate than other estimating methods.

34. You are the project manager for the JKH Project. You have elected to use parametric estimating in your cost estimating for the project. Which of the following is an example of parametric estimating?

$750 per ton

Historical information from a similar project

Estimates built bottom-up based on the WBS

Estimates based on top-down budgeting

$750 per ton is an example of parametric estimating.

Explanation

$750 per ton is an example of parametric estimating.

35. You are the project manager for a technical implementation project. The customer has requested that you factor in the after-the-project costs, such as maintenance and service. This is an example of which one of the following?

Life-cycle costs

Scope creep

Project spin-off

Operations

The after-project costs are known as the life-cycle costs.

Explanation

The after-project costs are known as the life-cycle costs.

36. What is the present value if an organization expects to make $100,000 four years from now and the annual interest rate is 6 percent?

$100,000

$79,000

$25,000

Zero

The present value of $100,000 four years from now can be calculated by using this formula: present value = FV / (1 + i)n. FV is the future value, i is the interest rate, and n is the number of time periods.

Explanation

The present value of $100,000 four years from now can be calculated by using this formula: present value = FV / (1 + i)n. FV is the future value, i is the interest rate, and n is the number of time periods.

37. Your project has a budget of $130,000 and is expected to last ten months, with the work and budget spread evenly across all months. The project is now in month three, the work is on schedule, but you have spent $65,000 of the project budget. What is your variance?

$65,000

$39,000

$26,000

$64,999

$26,000 is the variance. This is calculated by subtracting the actual costs of $65,000 from the earned value of $39,000. EV is calculated by taking the 30 percent completion of the project against the BAC. The project is considered to be 30 percent complete because it's slated for 10 months, is currently in month three, and is on schedule.

Explanation

$26,000 is the variance. This is calculated by subtracting the actual costs of $65,000 from the earned value of $39,000. EV is calculated by taking the 30 percent completion of the project against the BAC. The project is considered to be 30 percent complete because it's slated for 10 months, is currently in month three, and is on schedule.

38. You are the project manager of the MNJ Project. Your project is falling behind schedule, and you have already spent $130,000 of your $150,000 budget. What do you call the $130,000?

Planned value

Present value

Sunk costs

Capital expenditure

Sunk costs are monies that have been spent.

Explanation

Sunk costs are monies that have been spent.

39. You and your project team are about to enter a meeting to determine project costs. You have elected to use bottom-up estimating and will base your estimates on the WBS. Which one of the following is not an attribute of bottom-up estimating?

People doing the work create the estimates.

It creates a more accurate estimate.

It's more expensive to do than other methods.

It's less expensive to do than other methods.

Using bottom-up estimating is not less expensive to do.

Explanation

Using bottom-up estimating is not less expensive to do.

40. You are the project manager of the Carpet Installation Project for a new building. Your BAC is $600,000. You are now 40 percent complete with the project, though your plan called for you to be 45 percent complete with the work by this time. What is your earned value?

$240,000

$270,000

$30,000

-$30,000

The earned value is calculated by multiplying the percentage of completion, 40 percent, by the BAC, which is $600,000, for a value of $240,000.

Explanation

The earned value is calculated by multiplying the percentage of completion, 40 percent, by the BAC, which is $600,000, for a value of $240,000.

41. You are the project manager for the Hardware Inventory Project. You have a piece of equipment that was purchased recently for $10,000 and is expected to last five years in production. At the end of the five years, the expected worth of the equipment will be $1,000. Using straight-line depreciation, what is the amount that can be written off each year?

Zero

$1,000

$1,800

$2,000

The straight-line depreciation takes the purchase value of the item, minus the salvage price of the item, divided by the number of time periods. In this instance, it would be $10,000 minus $1,000, or $9,000. The $9,000 is divided by five years and equates to $1,800 per year.

Explanation

The straight-line depreciation takes the purchase value of the item, minus the salvage price of the item, divided by the number of time periods. In this instance, it would be $10,000 minus $1,000, or $9,000. The $9,000 is divided by five years and equates to $1,800 per year.

42. You are the project manager for a consulting company. Your company has two possible projects to manage, but they can only choose one. Project KJH is worth $17,000, while Project ADS is worth $22,000. Management elects to choose Project ADS. The opportunity cost of this choice is which one of the following?

$5,000

$17,000

$22,000

Zero, as project ADS is worth more than Project KJH

The opportunity cost is the amount of the project that was not chosen.

Explanation

The opportunity cost is the amount of the project that was not chosen.

43. You are the project manager for a consulting company. Your company has two possible projects to manage, but they can only choose one. Project KJH is worth $17,000, while Project ADS is worth $22,000. Management elects to choose Project ADS. The opportunity cost of this choice is which one of the following?

$5,000

$17,000

$22,000

Zero, as project ADS is worth more than Project KJH

The opportunity cost is the amount of the project that was not chosen.

Explanation

The opportunity cost is the amount of the project that was not chosen.

44. Which one of the following is true?

The cost management plan controls how change management affects the BAC.

The cost management plan controls how cost variances will be managed.

The cost management plan controls how the project manager may update the cost estimates.

The cost management plan controls how the BAC may be adjusted.

The cost management plan controls how cost variances will be managed.

Explanation

The cost management plan controls how cost variances will be managed.

45. You and your project team are about to enter a meeting to determine project costs. You have elected to use bottom-up estimating and will base your estimates on the WBS. Which one of the following is not an attribute of bottom-up estimating?

People doing the work create the estimates.

It creates a more accurate estimate.

It's more expensive to do than other methods.

It's less expensive to do than other methods.

Using bottom-up estimating is not less expensive to do.

Explanation

Using bottom-up estimating is not less expensive to do.

46. Your project has a budget of $130,000 and is expected to last ten months, with the work and budget spread evenly across all months. The project is now in month three, the work is on schedule, but you have spent $65,000 of the project budget. What is your variance?

$65,000

$39,000

$26,000

$64,999

$26,000 is the variance. This is calculated by subtracting the actual costs of $65,000 from the earned value of $39,000. EV is calculated by taking the 30 percent completion of the project against the BAC. The project is considered to be 30 percent complete because it's slated for 10 months, is currently in month three, and is on schedule.

Explanation

$26,000 is the variance. This is calculated by subtracting the actual costs of $65,000 from the earned value of $39,000. EV is calculated by taking the 30 percent completion of the project against the BAC. The project is considered to be 30 percent complete because it's slated for 10 months, is currently in month three, and is on schedule.

47. Which one of the following is true?

The cost management plan controls how change management affects the BAC.

The cost management plan controls how cost variances will be managed.

The cost management plan controls how the project manager may update the cost estimates.

The cost management plan controls how the BAC may be adjusted.

The cost management plan controls how cost variances will be managed.

Explanation

The cost management plan controls how cost variances will be managed.

48. You are the project manager for a construction project to build 17 cabins. All of the cabins will be identical in nature. The contract for the project is set at a fixed cost, the incentive being that the faster the project work is completed, the more profitable the job. Management has requested that you study the work method to determine a faster, less costly, and better method of completing the project. This is an example of which one of the following?

Time constraint

Schedule constraint

Value engineering

Learning curve

Value engineering is a systematic approach to finding less costly ways to complete the same work.

Explanation

Value engineering is a systematic approach to finding less costly ways to complete the same work.

49. You are the project manager for a construction project to build 17 cabins. All of the cabins will be identical in nature. The contract for the project is set at a fixed cost, the incentive being that the faster the project work is completed, the more profitable the job. Management has requested that you study the work method to determine a faster, less costly, and better method of completing the project. This is an example of which one of the following?

Time constraint

Schedule constraint

Value engineering

Learning curve

Value engineering is a systematic approach to finding less costly ways to complete the same work.

Explanation

Value engineering is a systematic approach to finding less costly ways to complete the same work.

50. Your company has been hired to install the tile in 1,000 hotel rooms. All rooms will be identical in nature and will require the same amount of materials. You calculate the time to install the tile in each hotel room at six hours. The cost of labor for each room is calculated at $700. Your project sponsor disagrees with your labor estimate. Why?

You haven't completed one hotel room yet, so you don't know how long the work will actually take.

You have not factored in all of the effort applied to the work.

You have not considered the law of diminishing returns.

You have not considered the learning curve.

As the project team completes more and more units, the time to complete a hotel room should take less and less time

Explanation

As the project team completes more and more units, the time to complete a hotel room should take less and less time