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Information Technology Project Management 8e Kathy Schwalbe

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Information Technology Project Management 8e Kathy Schwalbe

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.264

LEARNING OBJECTIVES:

INFO.SCHW.14.48 – LO: 7-1

NATIONAL STANDARDS:

United States – BUSPROG: Technology

TOPICS:

The Importance of Project Cost Management

KEYWORDS:

Bloom’s: Knowledge

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.266

LEARNING OBJECTIVES:

INFO.SCHW.14.48 – LO: 7-1

NATIONAL STANDARDS:

United States – BUSPROG: Technology

TOPICS:

The Importance of Project Cost Management

KEYWORDS:

Bloom’s: Knowledge

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

a.

True

b.

False

ANSWER:

True

RATIONALE:

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.266

LEARNING OBJECTIVES:

INFO.SCHW.14.49 – LO: 7-2

NATIONAL STANDARDS:

United States – BUSPROG: Technology

TOPICS:

Basic Principles of Cost Management

KEYWORDS:

Bloom’s: Knowledge

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.269

LEARNING OBJECTIVES:

INFO.SCHW.14.49 – LO: 7-2

NATIONAL STANDARDS:

United States – BUSPROG: Technology

TOPICS:

The Importance of Project Cost Management

KEYWORDS:

Bloom’s: Knowledge

5. Intangible costs can be easily measured in monetary terms.

a.

True

b.

False

ANSWER:

False

RATIONALE:

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: Easy

REFERENCES:

p.269

LEARNING OBJECTIVES:

INFO.SCHW.14.49 – LO: 7-2

NATIONAL STANDARDS:

United States – BUSPROG: Analytic

TOPICS:

Basic Principles of Cost Management

KEYWORDS:

Bloom’s: Knowledge

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.270

LEARNING OBJECTIVES:

INFO.SCHW.14.49 – LO: 7-2

NATIONAL STANDARDS:

United States – BUSPROG: Analytic

TOPICS:

Basic Principles of Cost Management

KEYWORDS:

Bloom’s: Comprehension

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.

POINTS:

1

DIFFICULTY:

Difficulty: Moderate

REFERENCES:

p.269-270

LEARNING OBJECTIVES:

INFO.SCHW.14.49 – LO: 7-2

NATIONAL STANDARDS:

United States – BUSPROG: Analytic

TOPICS:

Basic Principles of Cost Management

KEYWORDS:

Bloom’s: Comprehension

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.270

LEARNING OBJECTIVES:

INFO.SCHW.14.49 – LO: 7-2

NATIONAL STANDARDS:

United States – BUSPROG: Analytic

TOPICS:

Basic Principles of Cost Management

KEYWORDS:

Bloom’s: Comprehension

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

REFERENCES:

p.270

LEARNING OBJECTIVES:

INFO.SCHW.14.49 – LO: 7-2

NATIONAL STANDARDS:

United States – BUSPROG: Analytic

TOPICS:

Basic Principles of Cost Management

KEYWORDS:

Bloom’s: Knowledge

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.271

LEARNING OBJECTIVES:

INFO.SCHW.14.50 – LO: 7-3

NATIONAL STANDARDS:

United States – BUSPROG: Technology

TOPICS:

Planning Cost Management

KEYWORDS:

Bloom’s: Knowledge

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.272

LEARNING OBJECTIVES:

INFO.SCHW.14.51 – LO: 7-4

NATIONAL STANDARDS:

United States – BUSPROG: Technology

TOPICS:

Estimating Costs

KEYWORDS:

Bloom’s: Knowledge

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

a.

True

b.

False

ANSWER:

False

RATIONALE:

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

POINTS:

1

DIFFICULTY:

Difficulty: Easy

REFERENCES:

p.272

LEARNING OBJECTIVES:

INFO.SCHW.14.51 – LO: 7-4

NATIONAL STANDARDS:

United States – BUSPROG: Technology

TOPICS:

Estimating Costs

KEYWORDS:

Bloom’s: Knowledge

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.272

LEARNING OBJECTIVES:

INFO.SCHW.14.51 – LO: 7-4

NATIONAL STANDARDS:

United States – BUSPROG: Technology

TOPICS:

Estimating Costs

KEYWORDS:

Bloom’s: Knowledge

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.273

LEARNING OBJECTIVES:

INFO.SCHW.14.51 – LO: 7-4

NATIONAL STANDARDS:

United States – BUSPROG: Technology

TOPICS:

Estimating Costs

KEYWORDS:

Bloom’s: Knowledge

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.273

LEARNING OBJECTIVES:

INFO.SCHW.14.51 – LO: 7-4

NATIONAL STANDARDS:

United States – BUSPROG: Technology

TOPICS:

Estimating Costs

KEYWORDS:

Bloom’s: Knowledge

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.273

LEARNING OBJECTIVES:

INFO.SCHW.14.51 – LO: 7-4

NATIONAL STANDARDS:

United States – BUSPROG: Technology

TOPICS:

Estimating Costs

KEYWORDS:

Bloom’s: Knowledge

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.273

LEARNING OBJECTIVES:

INFO.SCHW.14.51 – LO: 7-4

NATIONAL STANDARDS:

United States – BUSPROG: Technology

TOPICS:

Estimating Costs

KEYWORDS:

Bloom’s: Knowledge

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

a.

True

b.

False

ANSWER:

True

RATIONALE:

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.274

LEARNING OBJECTIVES:

INFO.SCHW.14.51 – LO: 7-4

NATIONAL STANDARDS:

United States – BUSPROG: Technology

TOPICS:

Estimating Costs

KEYWORDS:

Bloom’s: Knowledge

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.274

LEARNING OBJECTIVES:

INFO.SCHW.14.51 – LO: 7-4

NATIONAL STANDARDS:

United States – BUSPROG: Technology

TOPICS:

Estimating Costs

KEYWORDS:

Bloom’s: Comprehension

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

a.

True

b.

False

ANSWER:

True

RATIONALE:

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.275

LEARNING OBJECTIVES:

INFO.SCHW.14.51 – LO: 7-4

NATIONAL STANDARDS:

United States – BUSPROG: Technology

TOPICS:

Estimating Costs

KEYWORDS:

Bloom’s: Comprehension

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.275

LEARNING OBJECTIVES:

INFO.SCHW.14.51 – LO: 7-4

NATIONAL STANDARDS:

United States – BUSPROG: Technology

TOPICS:

Estimating Costs

KEYWORDS:

Bloom’s: Knowledge

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 in the work breakdown structure for the project.

POINTS:

1

DIFFICULTY:

Difficulty: Moderate

REFERENCES:

p.281

LEARNING OBJECTIVES:

INFO.SCHW.14.52 – LO: 7-5

NATIONAL STANDARDS:

United States – BUSPROG: Technology

TOPICS:

Determining the Budget

KEYWORDS:

Bloom’s: Knowledge

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.282

LEARNING OBJECTIVES:

INFO.SCHW.14.53 – LO: 7-6

NATIONAL STANDARDS:

United States – BUSPROG: Technology

TOPICS:

Controlling Costs

KEYWORDS:

Bloom’s: Knowledge

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

DIFFICULTY:

Difficulty: Moderate

REFERENCES:

p.284

LEARNING OBJECTIVES:

INFO.SCHW.14.53 – LO: 7-6

NATIONAL STANDARDS:

United States – BUSPROG: Technology

TOPICS:

Controlling Costs

KEYWORDS:

Bloom’s: Comprehension

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.284

LEARNING OBJECTIVES:

INFO.SCHW.14.53 – LO: 7-6

NATIONAL STANDARDS:

United States – BUSPROG: Technology

TOPICS:

Controlling Costs

KEYWORDS:

Bloom’s: Comprehension

26. A negative schedule variance means that it took lesser 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.284

LEARNING OBJECTIVES:

INFO.SCHW.14.53 – LO: 7-6

NATIONAL STANDARDS:

United States – BUSPROG: Technology

TOPICS:

Controlling Costs

KEYWORDS:

Bloom’s: Comprehension

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.284

LEARNING OBJECTIVES:

INFO.SCHW.14.53 – LO: 7-6

NATIONAL STANDARDS:

United States – BUSPROG: Technology

TOPICS:

Controlling Costs

KEYWORDS:

Bloom’s: Comprehension

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.284

LEARNING OBJECTIVES:

INFO.SCHW.14.53 – LO: 7-6

NATIONAL STANDARDS:

United States – BUSPROG: Technology

TOPICS:

Controlling Costs

KEYWORDS:

Bloom’s: Comprehension

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