CAPM Exam 8 – Project Cost Management Questions with Answers

To calculate the Estimate at Completion (EAC) assuming the current work efficiency, we need to consider the current rate of spending and project completion. The EAC will be the total expected cost of the project based on the current performance. Given: - Total budget: $1,200,000 - Project duration: 12 months - Amount spent after 3 months: $400,000 - Project completion after 3 months: 25% Step 1: Calculate the planned value per percent complete. Planned value per percent = Total budget ÷ 100 Planned value per percent = $1,200,000 ÷ 100 = $12,000 per percent Step 2: Calculate the actual cost per percent complete. Actual cost per percent = Amount spent ÷ Percent complete Actual cost per percent = $400,000 ÷ 25 = $16,000 per percent Step 3: Calculate the cost performance index (CPI). CPI = Planned value per percent ÷ Actual cost per percent CPI = $12,000 ÷ $16,000 = 0.75 Step 4: Calculate the Estimate at Completion (EAC). EAC = Total budget ÷ CPI EAC = $1,200,000 ÷ 0.75 = $1,600,000 Therefore, assuming the current work efficiency continues, the Estimate at Completion (EAC) for the building project is $1,600,000. This means that if the current rate of spending and work efficiency persists, the project is expected to cost $400,000 more than the original budget. The reason for this is that the actual cost per percent complete ($16,000) is higher than the planned value per percent complete ($12,000), indicating that the project is currently less efficient than planned. The CPI of 0.75 (less than 1) confirms that the project is overspending relative to the work completed. As a result, if this trend continues, the total cost of the project will exceed the original budget.

In any project, especially in a software one, resource allocation and cost efficiency are of utmost importance. Answer 149702 suggests evaluating if the cheaper software library meets all project requirements and switch if appropriate. This step ensures that the project doesn't surpass the budget while achieving the required functionalities. Answer 149703 might not always be the best as the supposed 'hidden benefits' of the more expensive library may not always benefit the project, or might be unnecessary, leading to higher costs. Answer 149704 is incorrect as merging features of both libraries might lead to copyright issues, and also unnecessary workload, costs, and time consumption. Answer 149705 is incorrect because avoiding libraries and building functionalities from scratch would take up a lot of time and resources which might not be cost effective or efficient for the project.

The best practice in project management when the actual costs are found lower than the estimated costs at the end of a phase is to 'Re-evaluate and adjust cost estimates for upcoming phases based on achieved efficiency'. This is because the savings may highlight efficiencies or cost-saving strategies that could be applied to future phases of the project, helping to maximize resources and ensure the project remains within budget. The other options are not the best choices because: 1) 'Immediately reduce the project budget proportionately' is not a prudent approach as the saved costs in the first phase might be needed for unforeseen costs in later phases. 2) The assumption that 'the rest of the project will also be under budget' is risky as each project phase might involve different challenges and costs. 3) The option to 'Spend more in the next phase to balance out the savings' is not a responsible use of resources, as project budgeting should focus on efficiency and cost-effectiveness, not spending for the sake of balance.

Let's break this down: Schedule Variance (SV) is calculated as Earned Value (EV) minus Planned Value (PV). The Planned Value is the proportion of the total cost corresponding to the planned amount of work, which means 33.33% of $900,000 (since after 3 out of 9 months we would expect to have completed that percentage of work.), that is $300,000. The Earned Value, on the other hand, is the proportion of the total cost corresponding to the actual amount of work completed, which is 30% of $900,000, that is $270,000. Therefore, the SV is $270,000 - $300,000 = -$30,000. So, the correct answer is -$30,000. The other answers are incorrect because they do not accurately reflect the correct calculation of Schedule Variance.

The best approach in dealing with this situation is to identify specific activities responsible for quality checking and assign costs to these activities accordingly. This answer is most accurate as it reflects the principles of activity-based costing, allowing for a more precise allocation and understanding of costs. Assigning an average cost of quality checking to all activities, as suggested in the second answer, could lead to skewed data and ineffective cost management. Ignoring quality checking costs as insignificant, proposed in the third answer, is misleading since even insignificant costs can accumulate to become a substantial expense in the long run. Lastly, allocating most of the quality checking costs to the most expensive activity, as recommended in the fourth answer, is not a good practice because it assumes that the most expensive activity consumes the most resources and quality checking, which might not always be the case.

The best strategy is to 'Reforecast the budget, assessing the impact on the project, and get it approved by clients or project sponsors.' This is because project management requires adaptability and transparency. Given that the cost of resources has increased, it implies an impact on the budget and possibly the project schedule. Thus, it is reasonable to reforecast, taking the increased costs into account. Then, communicate this to stakeholders to ensure transparency and seek approval for revised budget. The other answers are less optimal. 'Reduce the scope of research to balance the budget' could compromise quality and is not a good long-term strategy. 'Continue with the project assuming the extra costs will be covered by the contingency reserve' could work, but it is not recommended without a clear assessment of the potential impact on the entire project. Finally, 'Cancel the project to avoid going over budget' is not an appropriate response to a 20% increase in laboratory supplies as there are many other strategies to manage such an issue before resorting to this drastic action.

Cost Variance (CV) is calculated as the Earned Value (EV) minus the Actual Cost (AC). In this case, the earned value is the budgeted cost of work performed which is the total budget multiplied by the percent of work complete. So, the earned value would be ($850,000 * 50%) which equals $425,000. The actual cost is the amount that has actually been spent, which is $500,000. So, the cost variance is (EV - AC) which equals $425,000 - $500,000, giving us -$75,000. Therefore, the correct answer is -$75,000 indicating a cost overrun. The other answers are incorrect because they do not correctly calculate the Cost Variance based on the given project details.

The correct estimate after a 10% increase on an initial cost of $5 Million would indeed be $5.5 Million (calculated by multiplying the initial cost by the increase percentage and then adding the result to the initial cost). Hence, id 156174 with answer $5,500,000 is correct. The other options are incorrect because they do not reflect a 10% increase on the initial $5 Million. The $5,000,000 does not represent any increase, the $5,250,000 only reflects a 5% increase, and the $6,000,000 is a 20% increase instead.

As a Certified Associate in Project Management, it's important to balance the different requirements and constraints of a project. When additional features are requested by the client, it may result in higher project cost and a shift in the project timeline. The answer 'Analyze the impact of the changes on the project costs and schedule then renegotiate the budget and timeline with the client' is the most suitable approach as it involves comprehending the implications of the feature additions and negotiating with the client accordingly to arrive at a solution beneficial for both parties. The choice of 'Include the additional features without adjusting the initial budget and schedule' is incorrect because it might lead to mismanagement of resources and failure to deliver on client expectations. 'Reject the addition of new features as it wasn't part of the initial plan' may disappoint the client and potentially lose their business. 'Implement the new features and deal with the cost variance later' is also inappropriate, as it shows lack of proper project management and might result in cost escalations or project delays.

This situation involves a Project Manager managing resources within the project team. The best choice in this scenario is 'Redistribute workload to effectively utilize this team member's skills.' This will contribute to the efficiency and productivity of the project. The other alternatives are incorrect because they either disregard the situation, propose a negative action, or fail to leverage the available resources. 'Ignore the situation as changing job roles might upset other team members' would allow inefficiencies to persist. 'Ask the under-utilized team member to slow down to ultimately align with other team members' workload.' would negatively impact productivity. 'Initiate the process to remove this team member from the project.' is not a productive solution as it fails to harness the potential of the under-utilized resource.

The ROI is increased when the cash inflow increases by 30%. It's because ROI (Return on Investment) is calculated as (Gain from Investment - Cost of Investment) / Cost of Investment. Increasing the cash inflow increases the 'Gain from Investment' portion of the equation, raising the ROI. Answer 145107 is incorrect because raising the inflow does not decrease the ROI. Answer 145109 is also wrong because an increased inflow, especially positive cash inflow, does not result in a negative ROI. Answer 145108 is incorrect because ROI inevitably changes with a change in cash inflow.

The best answer is that the initial cost estimates may have been too high, leading to inefficient resource allocation. A Cost Performance Index (CPI) above 1.0 indicates that the project is spending less money than planned for the work completed. When the CPI is consistently above 1.5, it suggests a significant discrepancy between the planned and actual costs. This situation raises concerns about the accuracy of the initial cost estimates. If estimates were too high, it could lead to inefficient resource allocation, as more resources might have been assigned than necessary. This can result in wasted resources and missed opportunities for optimization. The other options are less likely or less critical: 1. Cutting corners on quality: While possible, a high CPI doesn't necessarily indicate quality issues. It's an assumption not directly supported by the CPI data alone. 2. Errors in the financial reporting system: While this could be a possibility, it's less likely to consistently produce a high CPI over time. Systematic errors would typically be identified and corrected. 3. Reduced project scope: Scope reduction could contribute to cost savings, but it wouldn't typically result in such a high CPI consistently. Moreover, significant scope changes would generally be documented and communicated separately from CPI calculations. As a project manager, the primary concern should be understanding why the actual costs are significantly lower than estimated and ensuring that this discrepancy doesn't negatively impact the project's overall success or future planning efforts.

The best option is to execute the contingency plan designed for such changes. This is because having a contingency plan indicates you have prepared for unforeseen circumstances or changes, and its purpose is to mitigate the impact of these changes on the project timeline or overall project delivery. Thus, in the face of a sudden major change demanded by a key stakeholder, you should put the contingency plan in action. The other options are incorrect for the following reasons: Ignoring the stakeholder's demands could lead to project failure or strained relationships with the stakeholder, which is not desirable. Making changes without consulting the contingency plan disregards the preparations and forethought put into developing the plan. Lastly, terminating the project immediately is an extreme and wasteful measure, as it does not take into account the effort and resources already dedicated to the project.

The best adjustment would be to 'Reallocate the activities based on the owner's requirements to reflect the actual indirect costs.' This is because of the nature of activity-based costing, where costs are assigned to specific activities. If the owner's requirements have not been factored in and they represent significant indirect costs, it is important to reallocate costs accordingly to align with reality. Ignoring the indirect costs from the owner's requirements could lead to underestimation of the project budget, impacting the project's profitability. Assigning all indirect costs to the 'Electrical Wiring Installation' activity would create a misrepresentation of the costs associated with that specific activity, distorting cost analysis results. Lastly, cancelling the 'Electrical Wiring Installation' activity is not a good option, as this activity is likely critical to the project, and cancelling it could impact project outcomes or delay the project schedule.

The answer 'Implement the small opportunities as their combined effect might still result in substantial savings' is correct. In value analysis, even minor changes or improvements can add up to substantial savings over time. Therefore, even if the individual opportunities seem small, the cumulative value can be high, which is why such opportunities should not be ignored. On the other hand, the statements 'Ignore the small opportunities since none of them individually result in substantial savings', 'Focus only on major cost saving opportunities and overlook minor ones', and 'Allocate additional resources to quickly find major cost saving opportunities' could lead to missed opportunities for cost saving. Ignoring small opportunities could overlook the potential compound effect of these opportunities and focusing only on major cost saving opportunities might lead to an overemphasis on larger change at the expense of achievable, smaller change. Allocating additional resources in order to quickly find major cost saving opportunities could end up incurring more expense than savings.

To reach a Return on Investment (ROI) of 25%, the project either needs to increase its annual cash inflow, reducing the time frame necessary to achieve the ROI, or decrease the initial investment, thus lessening the amount needed for the 25% return. Option 'Increase the initial investment' is incorrect because increasing the initial investment would require an even larger cash inflow to reach the desired ROI. Option 'Shorten the project duration' doesn't necessarily correlate to a higher ROI, for it doesn't control the cash inflow or the initial investment. Same applies to 'Increase the project duration' which could even decrease the ROI as it could increase the total costs.

The correct answer is to 'Increase the annual cash inflow or decrease the initial cost.' The goal is to get a 40% Return on Investment (ROI), so we must make adjustments to increase profit or decrease expenses. 'Decrease the annual cash inflow' is incorrect because it would decrease the ROI, not increase it, thus moving further from the goal. Similarly, 'Increase the initial cost' is wrong because that would also lower the ROI, not increasing it. Lastly, 'Extend the project duration' could possibly increase total returns, but it may not necessarily increase the profit per year, which is what ROI measures.

In the given problem, the original project cost is $7 Million. The cost of the project increased by 18% due to unforeseen soil complications. To find the new estimated cost, we need to calculate 18% of the original cost and add it to the original cost. The calculation is as follows: 18% of $7 Million which equals $1.26 Million. Adding this to the original budget of $7 Million, gives us a total of $8.26 Million. This is why '$8.26 Million' is the correct answer. The answer '$8 Million' is incorrect because that is not the correct calculation of 18% increase on $7 Million. The answer '$7.18 Million' is wrong because it seems like a 2.6% increase on the original cost instead of 18%. Lastly, '$7.8 Million' is incorrect because it does not correctly represent an 18% increase on $7 Million.