ch 7

Overrun is the additional percentage amount by which estimates exceed actual costs.

false. Overrun is the additional percentage or dollar amount by which actual costs exceed estimates.

The primary output of the planning cost management process is a change request

false. The main output of the planning cost management 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.

IT project managers must be able to present and discuss project information both in financial and technical terms.

true

Project managers must conduct cash flow analysis to determine net present value

true

Intangible costs can be easily measured in monetary terms.

false

When deciding what projects to invest in or continue, one should include sunk costs.

false, sunk cost is money that has been spent in the past. When deciding what projects to invest in continue, one should not include sunk costs.

It is important for project managers to focus on indirect costs becasue they can be easily controlled

false

If an important supplier goes out of business, management reserves can be set aside to cover the resulting costs.

true

Contingency reserves are also known as unknown unknowns.

False, contingency reserves allow for future situations that may be partially planned for. They are sometimes called "known unknowns"

A cost management plan can include organizational procedures links, control thresholds, and process descriptions.

true

A budgetary estimate is the most accurate of the three types of estimates

false

Budgetary estimates are made even before a project is officially started.

false. Budgetary estimates are made one to two years prior to project completion.

Definitive estimates are made one year or less prior to project completion.

true

Estimates should become more accurate as time progresses.

true

Supporting details for an estimate include the ground rules and assumptions used in creating the estimate.

true

Analogous estimates are called activity-based costing.

false, 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.

Analogous estimates use the most accurate technique to estimate costs.

false

In a bottom-up estiamte, the size of the individual work items is one of the factors that drives the accuracy of the estimates.

true

Parametric models are reliable when the models are flexible in terms of the project's size

true

One of the reasons why project cost estimates are inaccurate is because human beings are biased toward underestimation

true

It is important for project managers to understand that every cost estimate is unique.

true

Determining the budget involves allocating the project cost estimate to individual work items over time.

true

The project management plan and project funding requirements are inputs of the process of controlling costs.

true

The formulas for variances and indexes start with EV, the earned value.

true

If cost variance is positive number, it means that performing the work costs more than planned.

false

A negative schedule variance means that it took lesser than planned to perform the work.

false, a negative schedule variance means that it tool longer than planned to perform the work, and a positive schedule variance means that the work took less time than planned to perform.

If the cost performance index (CPI) is less than 100 percent, the project is under budget.

false, 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.

A schedule performance index of one means that the project is on schedule

true

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.

false. 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.

Spreadsheets are a common tool for cost estimating, cost budgeting, and cost control.

true

_______________ includes the processes required to ensure that a project team completes a project within an approved budget.

project cost management

Which of the following involves developing an approximation of the costs of resources needed to compete a project?

estimating costs

_____________ involves allocating the overall cost estimate to individual work items to establish a baseline for measuring performance.

determining the budget

One of the main outputs of the ______________ process is a cost baseline.

cost budgeting

The process of controlling costs primarily involves:

managing changes to the project budget

Work performance information and cost forecasts are main outputs of the _________ process.

cost control

Profits may be defined as:

revenues minus expenditures

_____________ helps develop an accurate projection of a project's financial expenses and benefits.

life cycle costing.

______________ is a method for determining the estimated annual costs and benefits for a project.

cash flow analysis

Which of the following is true of tangible costs?

they can be easily measured

____________ are those costs that are difficult to measure in monetary terms

intangible

Newtech Inc. hires John for the position of a software programmer to work on their new project. Salary paid to John by Newtech Inc. would be an example of ____________ costs.

direct, Direct costs can be directly related to creating the products and services of a project. For instance, direct costs include the salaries of people working full time on a project.

Indirect costs are:

not directly related to the products or services of a project.

Soles is a footwear company which has recently set up its store in Ambrosia. To manufacture its products, Soles incurs a range of different costs. Which of the following would be an example of an indirect cost.

Electricity used to run its factories. Indirect costs are not directly related to the products or services of the project, but are indirectly related to performing the project. For example, indirect costs would include the cost of electricity, paper towels, and other necessities in a large building that houses 1,000 employees who work on many projects.

Which of the following is true of contingency reserves?

they allow for future situations that can be partially planned for,

Which of the following reserves allows for future situations that are unpredictable?

Management reserves

The first step in project cost management is:

to plan how costs will be managed

Which of the following is true of a rough order of magnitude estimate?

It provides an estimate of what a project will cost

A rough order of magnitude estimate can be referred to as a ________________ estimate

ballpark

A cost estimation tool which is used to allocate money into an organization's budget is known as a _______________ estimate.

budgetary

A _________________ estimate is used for making many purchasing decisions for which accurate estimates are required and for estimating final project costs

definitive

Which of the following types of estimates use the actual cost of a previous, similar project as the basis for estimating the cost of the current project?

Analogous estimates

Analogous estimates are also known as _______________ estimates.

top-down

Which of the following is true of analogous estimates?

they are most reliable when previous projects are similar in fact with current projects

A cost estimation tool which involves estimating individual work items or activities and summing them to get a project total is known as a _________________ estimate.

bottom-up

Which of the following is true of bottom-up estimates?

They are time-intensive and expensive to develop

____________________ uses project characteristics in a mathematical model to estimate project costs.

parametric estimating

Which of the following is most likely to be a reason for inaccuracies in information technology cost estimates?

people lack estimating experience

If the cost estimate for a project is a basis for contract awards and performance reporting, it should be a ________________

definitive

The main goal of the _______________ process is to produce a cost baseline for measuring project performance and project funding requirements.

cost budgeting

Which of the following is an output of the process of controlling costs?

cost forecasts

Which of the following is an input of the process of controlling costs?

work performance data

The budget is one of the three values of earned value management and is also known as ______________

planned value

Which of the following is true of earned value?

It is an estimate of the value of the physical work actually completed.

Variances are calculated by subtracting the actual cost from _____________

earned value

Cost variance is:

the earned value minus the actual cost

Schedule variance is:

the earned value minus the planned value

The cost performance index (CPI):

can be used to estimate the projected cost of completing the project

Which of the following is true of the schedule performance index (SPI)?

It can be used to estimate the projected time to complete the project