Test Bank for Information Technology Project Management 7th Edition by Kathy Schwalbe

Test Bank for Information Technology Project Management 7th Edition by Kathy Schwalbe

Chapter 7: Project Cost Management

TRUE/FALSE

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

ANS: F
Overrun is the additional percentage or dollar amount by which actual costs exceed estimates.

PTS: 1 DIF: Difficulty: Easy REF: p.272
OBJ: LO: 7-1 NAT: BUSPROG: Technology
TOP: The Importance of Project Cost Management KEY: Bloom’s: Knowledge

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

ANS: F
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.

PTS: 1 DIF: Difficulty: Easy REF: p.274
OBJ: LO: 7-1 NAT: BUSPROG: Technology
TOP: The Importance of Project Cost Management KEY: Bloom’s: Knowledge

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

ANS: T
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.

PTS: 1 DIF: Difficulty: Easy REF: p.276
OBJ: LO: 7-2 NAT: BUSPROG: Technology
TOP: Basic Principles of Cost Management KEY: Bloom’s: Knowledge

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

ANS: T
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.

PTS: 1 DIF: Difficulty: Easy REF: p.277
OBJ: LO: 7-2 NAT: BUSPROG: Technology
TOP: The Importance of Project Cost Management KEY: Bloom’s: Knowledge

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

ANS: F
Intangible costs or benefits are difficult to measure in monetary terms. Conversely, tangible costs or benefits can easily be measured in dollars.

PTS: 1 DIF: Difficulty: Easy REF: p.278
OBJ: LO: 7-2 NAT: BUSPROG: Analytic
TOP: Basic Principles of Cost Management KEY: Bloom’s: Knowledge

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

ANS: F
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.

PTS: 1 DIF: Difficulty: Moderate REF: p.278
OBJ: LO: 7-2 NAT: BUSPROG: Analytic
TOP: Basic Principles of Cost Management KEY: Bloom’s: Comprehension

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

ANS: F
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.

PTS: 1 DIF: Difficulty: Moderate REF: p.278
OBJ: LO: 7-2 NAT: BUSPROG: Analytic
TOP: Basic Principles of Cost Management KEY: Bloom’s: Comprehension

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

ANS: T
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.

PTS: 1 DIF: Difficulty: Moderate REF: p.279
OBJ: LO: 7-2 NAT: BUSPROG: Analytic
TOP: Basic Principles of Cost Management KEY: Bloom’s: Comprehension

9. Contingency reserves are also known as unknown unknowns.

ANS: F
Contingency reserves allow for future situations that may be partially planned for. They are sometimes called known unknowns.

PTS: 1 DIF: Difficulty: Easy REF: p.279
OBJ: LO: 7-2 NAT: BUSPROG: Analytic
TOP: Basic Principles of Cost Management KEY: Bloom’s: Knowledge

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

ANS: T
In general, a cost management plan includes level of accuracy, organizational procedures links, process descriptions, control thresholds, and rules of performance measurement, among others.

PTS: 1 DIF: Difficulty: Easy REF: p.279
OBJ: LO: 7-3 NAT: BUSPROG: Technology TOP: Planning Cost Management
KEY: Bloom’s: Knowledge

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

ANS: F
A definitive estimate provides an accurate estimate of project costs. It provides details for purchases and estimates actual costs.

PTS: 1 DIF: Difficulty: Easy REF: p.280
OBJ: LO: 7-4 NAT: BUSPROG: Technology TOP: Estimating Costs
KEY: Bloom’s: Knowledge

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

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

PTS: 1 DIF: Difficulty: Easy REF: p.280
OBJ: LO: 7-4 NAT: BUSPROG: Technology TOP: Estimating Costs
KEY: Bloom’s: Knowledge

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

ANS: T
Definitive estimates are made one year or less prior to project completion. They provide an accurate estimate of project costs.

PTS: 1 DIF: Difficulty: Easy REF: p.281
OBJ: LO: 7-4 NAT: BUSPROG: Technology TOP: Estimating Costs
KEY: Bloom’s: Knowledge

14. Estimates should become more accurate as time progresses.

ANS: T
Estimates are usually done at various stages of a project and should become more accurate as time progresses.

PTS: 1 DIF: Difficulty: Easy REF: p.281
OBJ: LO: 7-4 NAT: BUSPROG: Technology TOP: Estimating Costs
KEY: Bloom’s: Knowledge

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

ANS: T
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.

PTS: 1 DIF: Difficulty: Easy REF: p.281
OBJ: LO: 7-4 NAT: BUSPROG: Technology TOP: Estimating Costs
KEY: Bloom’s: Knowledge

16. Analogous estimates are called activity-based costing.

ANS: F
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.

PTS: 1 DIF: Difficulty: Easy REF: p.282
OBJ: LO: 7-4 NAT: BUSPROG: Technology TOP: Estimating Costs
KEY: Bloom’s: Knowledge

17. Analogous estimates are the most accurate technique to estimate costs.

ANS: F
Analogous estimates requires a good deal of expert judgment and is generally less costly than other techniques. However, it is also less accurate.

PTS: 1 DIF: Difficulty: Easy REF: p.282
OBJ: LO: 7-4 NAT: BUSPROG: Technology TOP: Estimating Costs
KEY: 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.

ANS: T
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.

PTS: 1 DIF: Difficulty: Easy REF: p.282
OBJ: LO: 7-4 NAT: BUSPROG: Technology TOP: Estimating Costs
KEY: Bloom’s: Knowledge

19. Parametric models are reliable when the models are flexible in terms of the project’s size.

ANS: T
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.

PTS: 1 DIF: Difficulty: Moderate REF: p.283
OBJ: LO: 7-4 NAT: BUSPROG: Technology TOP: Estimating Costs
KEY: Bloom’s: Comprehension

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

ANS: T
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.

PTS: 1 DIF: Difficulty: Moderate REF: p.284
OBJ: LO: 7-4 NAT: BUSPROG: Technology TOP: Estimating Costs
KEY: Bloom’s: Comprehension

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

ANS: T
Every cost estimate is unique, just as every project is unique.

PTS: 1 DIF: Difficulty: Easy REF: p.284
OBJ: LO: 7-4 NAT: BUSPROG: Technology TOP: Estimating Costs
KEY: Bloom’s: Knowledge

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

ANS: T
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.

PTS: 1 DIF: Difficulty: Moderate REF: p.289
OBJ: LO: 7-5 NAT: BUSPROG: Technology TOP: Determining the Budget
KEY: Bloom’s: Knowledge

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

ANS: T
The project management plan, project funding requirements, work performance data, and organizational process assets are inputs for controlling costs.

PTS: 1 DIF: Difficulty: Easy REF: p.289
OBJ: LO: 7-6 NAT: BUSPROG: Technology TOP: Controlling Costs
KEY: Bloom’s: Knowledge

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

ANS: T
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.

PTS: 1 DIF: Difficulty: Moderate REF: p.293
OBJ: LO: 7-6 NAT: BUSPROG: Technology TOP: Controlling Costs
KEY: Bloom’s: Comprehension

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

ANS: F
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.

PTS: 1 DIF: Difficulty: Moderate REF: p.293
OBJ: LO: 7-6 NAT: BUSPROG: Technology TOP: Controlling Costs
KEY: Bloom’s: Comprehension

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

ANS: F
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.

PTS: 1 DIF: Difficulty: Moderate REF: p.293
OBJ: LO: 7-6 NAT: BUSPROG: Technology TOP: Controlling Costs
KEY: Bloom’s: Comprehension

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

ANS: F
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.

PTS: 1 DIF: Difficulty: Moderate REF: p.293
OBJ: LO: 7-6 NAT: BUSPROG: Technology TOP: Controlling Costs
KEY: Bloom’s: Comprehension

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

ANS: T
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.

PTS: 1 DIF: Difficulty: Moderate REF: p.294
OBJ: LO: 7-6 NAT: BUSPROG: Technology TOP: Controlling Costs
KEY: Bloom’s: Comprehension

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.

ANS: F
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.

PTS: 1 DIF: Difficulty: Moderate REF: p.295
OBJ: LO: 7-6 NAT: BUSPROG: Technology TOP: Controlling Costs
KEY: Bloom’s: Comprehension

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

ANS: T
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.

PTS: 1 DIF: Difficulty: Easy REF: p.299
OBJ: LO: 7-7 NAT: BUSPROG: Technology
TOP: Using Project Management Software to assist In Project Cost Management
KEY: Bloom’s: Knowledge

MULTIPLE CHOICE

1. _____ includes the processes required to ensure that a project team completes a project within an approved budget.
a. Project scope management c. Project time management
b. Project quality management d. Project cost management

ANS: D
Project cost management includes the processes required to ensure that a project team completes a project within an approved budget. Project managers must make sure their projects are well defined, have accurate time and cost estimates, and have a realistic budget that they were involved in approving.

PTS: 1 DIF: Difficulty: Easy REF: p.274
OBJ: LO: 7-1 NAT: BUSPROG: Analytic
TOP: The Importance of Project Cost Management KEY: Bloom’s: Knowledge

2. Which of the following involves developing an approximation of the costs of resources needed to complete a project?
a. Determining the budget c. Controlling costs
b. Finalising the cost baseline d. Estimating costs

ANS: D
Estimating costs involves developing an approximation or estimate of the costs of the resources needed to complete a project. The main outputs of the cost estimating process are activity cost estimates, basis of estimates, and project documents updates.

PTS: 1 DIF: Difficulty: Moderate REF: p.274
OBJ: LO: 7-1 NAT: BUSPROG: Technology
TOP: The Importance of Project Cost Management KEY: Bloom’s: Comprehension

3. _____ involves allocating the overall cost estimate to individual work items to establish a baseline for measuring performance.
a. Determining the budget c. Controlling costs
b. Finalising policies for project costs d. Estimating costs

ANS: A
Determining the budget involves allocating the overall cost estimate to individual work items to establish a baseline for measuring performance.

PTS: 1 DIF: Difficulty: Moderate REF: p.275
OBJ: LO: 7-1 NAT: BUSPROG: Technology
TOP: The Importance of Project Cost Management KEY: Bloom’s: Comprehension

4. One of the main outputs of the _____ process is a cost baseline.
a. cost controlling c. cost budgeting
b. cost estimating d. cost planning

ANS: C
Determining the budget involves allocating the overall cost estimate to individual work items to establish a baseline for measuring performance. The main outputs of the cost budgeting process are a cost baseline, project funding requirements, and project documents updates.

PTS: 1 DIF: Difficulty: Easy REF: p.275
OBJ: LO: 7-1 NAT: BUSPROG: Technology
TOP: The Importance of Project Cost Management KEY: Bloom’s: Knowledge

5. The process of controlling costs primarily involves:
a. determining the policies for project costs. c. finalising the procedures for project costs.
b. managing changes to the project budget. d. determining a basis for estimates.

ANS: B
Controlling costs involves controlling changes to the project budget. The main outputs of the cost control process are work performance information, cost forecasts, change requests, project management plan updates, project documents updates, and organizational process assets updates.

PTS: 1 DIF: Difficulty: Moderate REF: p.275
OBJ: LO: 7-1 NAT: BUSPROG: Technology
TOP: The Importance of Project Cost Management KEY: Bloom’s: Comprehension