CHAPTER 7
Project Cost Management
In this chapter, you will
• Understand the four project management processes in the Project Cost Management knowledge area
• Identify the inputs, tools, techniques, and outputs defined in the four processes in Project Cost Management
• Identify key concepts in Project Cost Management, including tailoring and special considerations for agile/adaptive environments
• Understand and apply basic forecasting and earned value methods for Project Cost Management
In the Project Cost Management processes, the project manager plans costs and schedules for the project. Early in a project, the initial budget and completion date are estimated. Creating good estimates cannot take place without good information from both the project team members and the key stakeholders. Information from project team members and key stakeholders provides the basis for estimates prepared by the project manager in order to fund and manage the resource costs and activities schedule.
The 27 practice questions in this chapter are mapped to the style and frequency of question types you will see on the CAPM exam.
Q QUESTIONS
1. Which of the following are often closely linked, particularly on smaller projects?
A. Collecting requirements and testing product
B. Planning the project and closing the project
C. Cost estimating and cost budgeting
D. Developing the team and managing the team
2. In which process does the project manager aggregate the estimated costs of individual activities in order to establish a cost baseline?
A. Plan Cost Management
B. Estimate Costs
C. Determine Budget
D. Control Costs
3. What is the key benefit of the Plan Cost Management process?
A. Provides estimates for project costs at the beginning of the project
B. Provides summary information to review project costs at the end of the project
C. Provides ratios and variance analysis results reviewed at the end of the project
D. Provides guidance on how project costs will be managed throughout the project
4. Which process creates an approximate monetary value for each project activity necessary to complete the work of the project?
A. Plan Cost Management
B. Estimate Costs
C. Determine Budget
D. Control Costs
5. What process are you performing if you are adding together the costs of individual activities into work packages and then rolling the work packages into control accounts and finishing with summarizing the control accounts?
A. Plan Cost Management
B. Estimate Costs
C. Determine Budget
D. Control Costs
6. In which process does the project manager perform a reserve analysis to account for unknown-unknown risks?
A. Plan Cost Management
B. Estimate Costs
C. Determine Budget
D. Control Costs
7. In which process is the project manager performing a variance analysis in order to take any necessary corrective actions to realign the project work with the project budget?
A. Plan Cost Management
B. Estimate Costs
C. Determine Budget
D. Control Costs
8. During project planning, you notice you do not have much information about one activity. You decide to estimate activity duration by referring to the actual duration of a similar activity on another project. This calculation method is called:
A. Analogous estimating
B. Expert judgment
C. Parametric estimating
D. Reserve analysis
9. Which technique are you using if you are calculating the theoretical early start and finish dates on your project schedule, along with late start and finish dates, for all the project activities?
A. Critical chain method
B. Critical path method
C. Schedule compression
D. What-if analysis
10. Your project sponsor for the current project expects to receive a narrow estimate for project costs because all project information is now known. Which of the following is considered a suitable range for this request?
A. –100% to +100%
B. –10% to +10%
C. –25% to +25%
D. –50% to +50%
11. You are calculating costs for your project based on costs from a previous similar project that was completed last month in your organization. This process is known as:
A. Analogous estimating
B. Bottom-up estimating
C. Parametric estimating
D. Three-point estimating
12. What estimation technique is your builder using if the cost has been presented to you as $100 per square foot?
A. Analogous estimating
B. Bottom-up estimating
C. Parametric estimating
D. Three-point estimating
13. Which estimation technique can make use of either triangular distribution or beta distribution?
A. Analogous estimating
B. Bottom-up estimating
C. Parametric estimating
D. Three-point estimating
14. Given a most likely value of 12, an optimistic value of 10, and a pessimistic value of 20, using the triangular distribution formula, what is the estimate for the task?
A. 7
B. 13
C. 14
D. 26
15. Which process group are you carrying out if you are primarily concerned with ensuring the project has the funds necessary for the resources needed to complete the project work?
A. Project Scope Management
B. Project Cost Management
C. Project Resource Management
D. Project Stakeholder Management
16. Which concern is being highlighted if the cost of an acquired item is allowed to be measured when the acquisition decision is made versus when the order is placed, versus when the item is delivered, versus when the actual cost is incurred?
A. Different stakeholders measure project costs in different ways and at different times.
B. Costs for a project cannot be accurately predicted.
C. Project costs should have multiple values associated with each line item.
D. Use multiple methods to measure costs and then aggregate all measurements.
17. What is the trend in Project Cost Management called Earned Schedules (ES) theory?
A. Replaces the cost variance measure of Earned Value (EV) minus Planned Value (PV) with Earned Schedules (ES) minus Actual Time (AT)
B. Replaces the cost variance measure of Earned Value (EV) plus Planned Value (PV) with Earned Schedules (ES) plus Actual Time (AT)
C. Replaces the schedule variance measure of Earned Value (EV) minus Planned Value (PV) with Earned Schedules (ES) minus Actual Time (AT)
D. Replaces the schedule variance measure of Earned Value (EV) plus Planned Value (PV) with Earned Schedules (ES) plus Actual Time (AT)
18. If your organization does not have an existing formal or informal cost estimation approach in place, what should you do as the project manager as a part of Project Cost Management?
A. Set a zero budget at the start of Project Cost Management and add costs to the budget as the project is progressively elaborated.
B. Transfer the responsibility for Project Cost Management to the PMO.
C. Set a budget that equals that of the previous project and update throughout the project.
D. Tailor the way Project Cost Management processes are applied.
19. When should a project manager make use of lightweight estimation methods to generate a high-level forecast of project labor costs?
A. On large projects
B. On small projects
C. On projects where the scope is fully defined
D. On projects with high degrees of uncertainty
20. In an agile/adaptive environment project that has high variability but must also hold to a strict budget, what approach should the project manager take to stay within the cost constraints?
A. Adjust the scope and schedule.
B. Reduce staffing.
C. Expand the project schedule.
D. Reduce the project schedule.
21. Which of the following is the correct formula to use when calculating Variance at Completion (VAC)?
A. EAC − AC
B. BAC − EAC
C. EV / AC
D. EV − PV
22. Which value for CV indicates that the project is over budget?
A. CV = 0
B. CV > 0
C. CV < 0
D. CV = 1
23. Which CPI measurement indicates that the project is currently experiencing a cost underrun?
A. CPI = 1.2
B. CPI = 0.8
C. CPI = 1
D. CPI = 0
24. Your current project has a planned value of 30, earned value of 35, and an actual value of 28. Which of the following values can be derived?
A. SPI = 0.86
B. SV = −5
C. CPI = 1.25
D. CV = −7
25. Your project has a dependency on an outside contractor and that contractor has fallen behind schedule. The contractor is promising to make up the ground lost and complete on their original deadline. You have calculated the following values for the current point in time: BAC = $12,000, PV = $8,000, EV = $7,000, AC = 9,000, SPI = 0.87, and CPI = 0.77. In order for the contractor to meet the original plan, what level of efficiency must the contractor maintain for the remainder of the project?
A. 60%
B. 80%
C. −133%
D. 167%
26. The expenses for your project are consistently showing the same CPI for each month of the project completed so far, and there are two months left in the project. Which formula should you use to calculate the project’s estimate at completion?
A. AC + ETC
B. BAC / CPI
C. AC + (Remaining PV / CPI)
D. AC + BAC − EV
27. Your current project was originally estimated to cost $1.5 million with a completion target of six months. You are three months into the project and have performed an earned value analysis with the following results: EV = $650,000, PV = $750,000, and AC = $800,000. What are the schedule and cost variances?
A. SV = $100,000 / CV = $150,000
B. SV = $150,000 / CV = −$100,000
C. SV = −$50,000 / CV = $150,000
D. SV = −$100,000 / CV = −$150,000
QUICK ANSWER KEY
1. C
2. C
3. D
4. B
5. C
6. C
7. D
8. A
9. B
10. B
11. A
12. C
13. D
14. C
15. B
16. A
17. C
18. D
19. D
20. A
21. B
22. C
23. A
24. C
25. D
26. B
27. D
A ANSWERS
1. Which of the following are often closely linked, particularly on smaller projects?
A. Collecting requirements and testing product
B. Planning the project and closing the project
C. Cost estimating and cost budgeting
D. Developing the team and managing the team
C. On small projects, estimating and budgeting costs are often done simultaneously and therefore are very closely linked and are often viewed as a single process carried out in a short period of time.
A, B, and D are incorrect because all are closely linked on all projects, including small projects. A is incorrect because collecting requirements and testing the product are linked on all projects because tests need to show the fulfillment of the requirements. B is incorrect because planning the project and closing the project are linked because a project manager cannot close a project unless all planned objectives have been met. D is incorrect because spending time as a project manager to develop a team and manage a team are important on every project and are closely linked.
2. In which process does the project manager aggregate the estimated costs of individual activities in order to establish a cost baseline?
A. Plan Cost Management
B. Estimate Costs
C. Determine Budget
D. Control Costs
C. The Project Cost Management process of the Determine Budget process is where the project manager summarizes the costs that were estimated for each individual activity in order to create the cost baseline for the project.
A, B, and D are incorrect. It is in the Determine Budget process (not Plan Cost Management, Estimate Costs, or Control Costs process) that the project manager summarizes the costs that were estimated for each individual activity in order to create the cost baseline for the project.
3. What is the key benefit of the Plan Cost Management process?
A. Provides estimates for project costs at the beginning of the project
B. Provides summary information to review project costs at the end of the project
C. Provides ratios and variance analysis results reviewed at the end of the project
D. Provides guidance on how project costs will be managed throughout the project
D. The Plan Cost Management process provides direction and guidance throughout the project on how costs will be managed. As a planning process, consideration of the project cost particulars includes deciding how to estimate the costs, how to budget the costs, how to manage the costs, and how to monitor and control the costs. The work including these tasks is not a planning process but is instead an Executing and Monitoring and Controlling process.
A, B, and C are incorrect. A is incorrect because although estimates can be planned at the beginning of the project, they may also be planned at predefined points in the project. B is incorrect because the Plan Cost Management process does not create summary information for review at the end of the project; instead, it happens early and at predefined points during the project. C is incorrect because the calculation of ratios and derivation of variances is done as a part of the Control Costs process.
4. Which process creates an approximate monetary value for each project activity necessary to complete the work of the project?
A. Plan Cost Management
B. Estimate Costs
C. Determine Budget
D. Control Costs
B. In the Project Cost Management process Estimate Costs, the project manager establishes estimates of the approximate amount of money needed to complete each activity in the project. A variety of estimation techniques (analogous, parametric, bottom-up, etc.) are used to estimate activity costs.
A, C, and D are incorrect. A is incorrect because Plan Cost Management is about planning and choosing which estimation techniques to use to estimate costs. C is incorrect because Determine Budget is done after Estimate Costs and makes use of the estimates for activities in order to create an overall project budget. D is incorrect because in the Control Costs process, the project manager compares planned costs to actual costs and takes corrective action if variances are found.
5. What process are you performing if you are adding together the costs of individual activities into work packages and then rolling the work packages into control accounts and finishing with summarizing the control accounts?
A. Plan Cost Management
B. Estimate Costs
C. Determine Budget
D. Control Costs
C. Aggregating activity estimates for work packages, which is what you are performing in this question, is a part of the Determine Budget process. Aggregates are created for the work packages level, then into the control account level, and finishing with the overall summary for the project budget.
A, B, and D are incorrect. A is incorrect because Plan Cost Management is about planning and choosing how to estimate, budget, and control costs during the project. B is incorrect because in the Estimate Costs process, the project manager establishes estimates of the approximate amount of money needed to complete all project activities. D is incorrect because in the Control Costs process, the project manager compares planned costs to actual costs and takes corrective action if variances are found.
6. In which process does the project manager perform a reserve analysis to account for unknown-unknown risks?
A. Plan Cost Management
B. Estimate Costs
C. Determine Budget
D. Control Costs
C. In the Determine Budget process, the project manager performs a reserve analysis to account for management reserves and contingency reserves in the project budget and project schedule. Time and money are set aside to handle unknown-unknown risks as a part of management reserves.
A, B, and D are incorrect. A is incorrect because Plan Cost Management is about planning and choosing how to estimate, budget, and control project costs during the project. B is incorrect because in the Estimate Costs process, the project manager establishes estimates of the approximate amount of money needed to complete all project activities. D is incorrect because in the Control Costs process, the project manager compares planned costs to actual costs and takes corrective action if variances are found.
7. In which process is the project manager performing a variance analysis in order to take any necessary corrective actions to realign the project work with the project budget?
A. Plan Cost Management
B. Estimate Costs
C. Determine Budget
D. Control Costs
D. In the Control Costs process, the project manager performs a variance analysis of costs and schedules, comparing what was planned to what is actually happening. A project manager takes corrective action if variances are found in order to realign the project work with the project budget and project schedule, making adjustments to the work, the budget, and the schedule if necessary.
A, B, and C are incorrect. A is incorrect because Plan Cost Management is about planning and choosing how to estimate, budget, and control project costs during the project. B is incorrect because in the Estimate Costs process, the project manager establishes estimates of the approximate amount of money needed to complete all project activities. C is incorrect because Determine Budget is done after Estimate Costs and makes use of the estimates for activities in order to create an overall project budget.
8. During project planning, you notice you do not have much information about one activity. You decide to estimate activity duration by referring to the actual duration of a similar activity on another project. This calculation method is called:
A. Analogous estimating
B. Expert judgment
C. Parametric estimating
D. Reserve analysis
A. Estimating the duration of a project activity by referring to the actual duration of a similar activity on another project is known as analogous estimating.
B, C, and D are incorrect. B is incorrect because expert judgment uses the opinions of specialists combined with their historical experience. C is incorrect because parametric estimating uses variables (e.g., $10 per square foot to install carpet) or metrics to calculate an estimate. D is incorrect because reserve analysis refers to contingency or time buffers, not estimating time and cost.
9. Which technique are you using if you are calculating the theoretical early start and finish dates on your project schedule, along with late start and finish dates, for all the project activities?
A. Critical chain method
B. Critical path method
C. Schedule compression
D. What-if analysis
B. Calculating the theoretical early start and finish dates, along with late start and finish dates, for all of the project activities using a forward and backward pass analysis is known as the critical path method.
A, C, and D are incorrect. A is incorrect because the critical chain method is specifically related to resource constraints. C is incorrect because schedule compression is about reducing project duration. D is incorrect because what-if analysis relates to calculating the durations of multiple combinations of tasks based on possible scenarios.
10. Your project sponsor for the current project expects to receive a narrow estimate for project costs because all project information is now known. Which of the following is considered a suitable range for this request?
A. –100% to +100%
B. –10% to +10%
C. –25% to +25%
D. –50% to +50%
B. It represents the smallest or narrowest range of percentages present in the answers. With all information known for the project, usually later in a project, a project manager can create their best estimates within a narrow range.
A, C, and D are incorrect because all of these answers offer wider ranges than +/−10%. Early in a project—for example, in the initiation stage when there is still information that needs to be progressively elaborated—estimates usually have a larger range.
11. You are calculating costs for your project based on costs from a previous similar project that was completed last month in your organization. This process is known as:
A. Analogous estimating
B. Bottom-up estimating
C. Parametric estimating
D. Three-point estimating
A. Using costs from a previous similar project that has been completed in your organization is known as analogous estimating.
B, C, and D are incorrect. B is incorrect because bottom-up estimating is based on WBS activities, with values provided for each task. C is incorrect because parametric estimating is based on pro-rata calculations from standard rates using a rate as an input parameter to a calculation. D is incorrect because three-point estimating requires three data points rather than similar project data.
12. What estimation technique is your builder using if the cost has been presented to you as $100 per square foot?
A. Analogous estimating
B. Bottom-up estimating
C. Parametric estimating
D. Three-point estimating
C. Parametric estimating is based on pro-rata calculations from standard rates based on a mathematical model using a rate, or metric, as an input parameter to a calculation.
A, B, and D are incorrect. A is incorrect because using costs from a previous similar project that has been completed in the organization is known as analogous estimating. B is incorrect because bottom-up estimating is based on WBS activities and aggregating to create the project estimate. D is incorrect because three-point estimating requires three data points, and the question does not provide evidence of the three data points (optimistic, pessimistic, most likely).
13. Which estimation technique can make use of either triangular distribution or beta distribution?
A. Analogous estimating
B. Bottom-up estimating
C. Parametric estimating
D. Three-point estimating
D. Three-point estimating is commonly performed using either the triangular distribution formula of (Optimistic + Most Likely + Pessimistic) / 3 or the beta distribution formula of (Optimistic + (4 * Most Likely) + Pessimistic) / 6. The beta distribution weights the most likely possibility with a higher probability by multiplying by 4.
A, B, and C are incorrect. Analogous, bottom-up, and parametric estimating do not make use of the triangular distribution or beta distribution formula.
14. Given a most likely value of 12, an optimistic value of 10, and a pessimistic value of 20, using the triangular distribution formula, what is the estimate for the task?
A. 7
B. 13
C. 14
D. 26
C. The formula for three-point estimation using a triangular distribution is (Optimistic + Most Likely + Pessimistic) / 3, with no additional weight given to the most likely value, yielding (12 + 10 + 20) / 3 = 14.
A, B, and D are incorrect. A is incorrect because the formula for three-point estimation using a triangular distribution is (Optimistic + Most Likely + Pessimistic) / 3 with no additional weight given to the most likely value. The incorrect formula used to reach the value of 7 is (12 + 10 + 20) / 6. B is incorrect because the beta distribution formula was used to reach the value of 13, giving the most likely value additional weight: ((4 * 12) + 10 + 20) / 6 = 13. D is incorrect because the formula used to reach the value of 26 is ((4 * 12) + 10 + 20) / 3 = 26.
15. Which process group are you carrying out if you are primarily concerned with ensuring the project has the funds necessary for the resources needed to complete the project work?
A. Project Scope Management
B. Project Cost Management
C. Project Resource Management
D. Project Stakeholder Management
B. The process group of Project Cost Management is primarily concerned with the cost of the resources needed to complete project activities.
A, C, and D are incorrect. A is incorrect because Project Scope Management is primarily concerned with identifying and controlling what work is done during a project, not its cost. C is incorrect because Project Resource Management is primarily concerned with identifying, acquiring, and managing the human and physical resources of the project. D is incorrect because Project Stakeholder Management is primarily concerned with identifying and engaging stakeholders throughout the project.
16. Which concern is being highlighted if the cost of an acquired item is allowed to be measured when the acquisition decision is made versus when the order is placed, versus when the item is delivered, versus when the actual cost is incurred?
A. Different stakeholders measure project costs in different ways and at different times.
B. Costs for a project cannot be accurately predicted.
C. Project costs should have multiple values associated with each line item.
D. Use multiple methods to measure costs and then aggregate all measurements.
A. Cost decisions introduced into a given project can vary based on how different projects choose to measure project cost. In many organizations, this variability is addressed by standardizing financial performance measures outside of all projects, for instance, by having a program management office (PMO) standardize the way costs will be calculated for all projects in the organization.
B, C, and D are incorrect. B is incorrect because costs for a project can be accurately predicted given an agreed-upon approach for all projects. C is incorrect because project costs should have a single value associated with each line item. D is incorrect because using multiple methods to measure costs and then aggregating all measurements is not standard practice and will lead to an inability to compare costs across projects.
17. What is the trend in Project Cost Management called Earned Schedules (ES) theory?
A. Replaces the cost variance measure of Earned Value (EV) minus Planned Value (PV) with Earned Schedules (ES) minus Actual Time (AT)
B. Replaces the cost variance measure of Earned Value (EV) plus Planned Value (PV) with Earned Schedules (ES) plus Actual Time (AT)
C. Replaces the schedule variance measure of Earned Value (EV) minus Planned Value (PV) with Earned Schedules (ES) minus Actual Time (AT)
D. Replaces the schedule variance measure of Earned Value (EV) plus Planned Value (PV) with Earned Schedules (ES) plus Actual Time (AT)
C. An emerging trend within the Project Cost Management process is to replace the schedule variance calculation with an earned schedule calculation. For schedule variance, the calculation is SV = EV − PV (Earned Value minus Planned Value). Under the theory of Earned Schedules, the replacement calculation is SV = ES – AT (Earned Schedules minus Actual Time).
A, B, and D are incorrect. A and B are incorrect because both answers focus on cost, not schedules. D is incorrect because the statement uses “plus” instead of “minus.”
18. If your organization does not have an existing formal or informal cost estimation approach in place, what should you do as the project manager as a part of Project Cost Management?
A. Set a zero budget at the start of Project Cost Management and add costs to the budget as the project is progressively elaborated.
B. Transfer the responsibility for Project Cost Management to the PMO.
C. Set a budget that equals that of the previous project and update throughout the project.
D. Tailor the way Project Cost Management processes are applied.
D. One of the tailoring considerations a project manager should consider is modifying how the Project Cost Management processes are applied if there is no pre-existing way (formal or informal) of performing cost estimation in the organization.
A, B, and C are incorrect. A is incorrect because setting a zero budget as the start of the Project Cost Management process and adding costs to it during the project is not considered estimating or budgeting. B is incorrect because it is unlikely there is a PMO for the organization. If there is a PMO, standards for how to estimate costs and develop project budgets would exist. C is incorrect because using a budget that equals that of the previous project will only be valid if all other project variables are the same. Regardless, a budget is not updated throughout the project.
19. When should a project manager make use of lightweight estimation methods to generate a high-level forecast of project labor costs?
A. On large projects
B. On small projects
C. On projects where the scope is fully defined
D. On projects with high degrees of uncertainty
D. Projects with high degrees of uncertainty or those where the scope is not yet fully defined may not benefit from detailed cost calculations due to the high frequency of changes. This is typically seen in agile/adaptive environments.
A, B, and C are incorrect. A and B are incorrect because the decision to use a lightweight estimation method to forecast project labor costs is not related to the size of the project. C is incorrect because if the scope is fully defined, accurate and complete estimates can be made, meaning lightweight estimates are not appropriate.
20. In an agile/adaptive environment project that has high variability but must also hold to a strict budget, what approach should the project manager take to stay within the cost constraints?
A. Adjust the scope and schedule.
B. Reduce staffing.
C. Expand the project schedule.
D. Reduce the project schedule.
A. If a high-variability agile/adaptive project must also hold to a strict budget, the project manager can adjust the project scope and project schedule to stay within budget.
B, C, and D are incorrect. B is incorrect because reducing staff on the project may not address the project cost. For example, if two people could accomplish the work in one month, it will now take one person two months netting the same project cost. C and D are incorrect because expanding or reducing the project schedule by itself is unlikely to fully address the project cost.
21. Which of the following is the correct formula to use when calculating Variance at Completion (VAC)?
A. EAC − AC
B. BAC − EAC
C. EV / AC
D. EV − PV
B. Variance at Completion (VAC) equals Budget at Completion (BAC) minus Estimate at Completion (EAC). It is important to know the words associated with the acronym in addition to understanding what the calculation tells you about the project. VAC predicts the project overrun (negative VAC) or project underrun (positive VAC).
A, C, and D are incorrect. A is incorrect because Estimate at Completion (EAC) minus Actual Cost (AC) is the formula for Estimate to Completion (ETC). C is incorrect because Earned Value (EV) divided by Actual Cost (AC) is the formula for Cost Performance Index (CPI). D is incorrect because Earned Value (EV) minus Planned Value (PV) is the formula for Cost Variance (CV).
22. Which value for CV indicates that the project is over budget?
A. CV = 0
B. CV > 0
C. CV < 0
D. CV = 1
C. For variance analysis, negative values are bad and positive values are good. When CV = 0, the project is on budget. When CV > 0, the project is within budget. When CV < 0, the project is over budget.
A, B, and D are incorrect. For variance analysis, negative values are bad news and positive values are good news. A is incorrect because a project is on budget when CV = 0. B is incorrect because a project is under budget when CV > 0. D is incorrect because when the CV = 1, which is greater than zero, the project is under budget.
23. Which CPI measurement indicates that the project is currently experiencing a cost underrun?
A. CPI = 1.2
B. CPI = 0.8
C. CPI = 1
D. CPI = 0
A. The cost performance index measures the cost efficiency of budgeted resources as a ratio of earned value to actual cost. A CPI of greater than 1 indicates a cost underrun of performance to date. CPI is calculated using CPI = EV / AC.
B, C, and D are incorrect. B and D are incorrect because a CPI of less than 1 indicates a cost overrun for work completed to date; both 0.8 and 0 are less than 1. C is incorrect because a CPI of 0 indicates the project is exactly on track for cost efficiency and is not running over or under the earned value to date as compared to actual cost.
24. Your current project has a planned value of 30, earned value of 35, and an actual value of 28. Which of the following values can be derived?
A. SPI = 0.86
B. SV = −5
C. CPI = 1.25
D. CV = −7
C. Using the formula of CPI = EV / AC yields the value 1.25; the cost performance index measures the cost efficiency of budgeted resources as a ratio of earned value to actual cost. The earned value is 35; the actual cost is 28.
A, B, and D are incorrect. A is incorrect because SPI = EV / PV; therefore, using the values provided, SPI would be 35 / 30, equaling 1.17, not 0.86; 0.86 was arrived at by incorrectly using PV / EV. B is incorrect because SV is calculated using SV = EV – PV, which would be 35 – 30, equaling 5, not −5. D is incorrect because CV is calculated using CV = EV – AC, which would be 35 – 28, equaling 7; incorrectly applying the formula as AC − EV would give the answer of −7.
25. Your project has a dependency on an outside contractor and that contractor has fallen behind schedule. The contractor is promising to make up the ground lost and complete on their original deadline. You have calculated the following values for the current point in time: BAC = $12,000, PV = $8,000, EV = $7,000, AC = 9,000, SPI = 0.87, and CPI = 0.77. In order for the contractor to meet the original plan, what level of efficiency must the contractor maintain for the remainder of the project?
A. 60%
B. 80%
C. −133%
D. 167%
D. Total complete performance index (TCPI) is the estimate of the future cost performance needed to complete the project as originally planned and is calculated using the formula TCPI = (BAC − EV) / (BAC − AC). SPI and CPI are extraneous information for this question. ($12,000 − $7,000) / ($12,000 − $9,000) = 1.67 (TCPI = 167%).
A, B, and C are incorrect. The formula TCPI = (BAC − EV) / (BAC − AC) is used to calculate the efficiency that must be maintained to complete on time. SPI and CPI are extraneous information for this question.
26. The expenses for your project are consistently showing the same CPI for each month of the project completed so far, and there are two months left in the project. Which formula should you use to calculate the project’s estimate at completion?
A. AC + ETC
B. BAC / CPI
C. AC + (Remaining PV / CPI)
D. AC + BAC − EV
B. When variances are typical of future variances, which is what the next two months of the project represent, you should calculate the project’s estimate at completion by using the formula EAC = BAC / CPI.
A, C, and D are incorrect. A is incorrect because AC (Actual Cost) + ETC (Estimate to Complete) is a made-up formula. C is incorrect because it is a made-up formula. D is incorrect because it is the formula for calculating EAC if the future work will be accomplished at the planned rate.
27. Your current project was originally estimated to cost $1.5 million with a completion target of six months. You are three months into the project and have performed an earned value analysis with the following results: EV = $650,000, PV = $750,000, and AC = $800,000. What are the schedule and cost variances?
A. SV = $100,000 / CV = $150,000
B. SV = $150,000 / CV = −$100,000
C. SV = −$50,000 / CV = $150,000
D. SV = −$100,000 / CV = −$150,000
D. Using the values provided and the formulas for schedule and cost variances of SV = EV – PV and CV = EV – AC, SV= −$100,000 and CV= −$150,000.
A, B, and C are incorrect. These answers do not come from using the numbers provided in the correct formulas. Using the values provided and the formulas for schedule and cost variances of SV = EV – PV and CV = EV – AC, SV= −$100,000 and CV= −$150,000.