21
Wed, Nov
0 New Articles

Project Management 2016 - Pinto - Quiz - Chapter 8

MBA Project Management

PROJECT MANAGEMENT 2016

Case study guides and online resources (2016)

Project Management: Achieving Competitive Advantage, 4th Edition, 2016, Jeffrey K. Pinto

 

 

 

Project Management: Achieving Competitive Advantage, 4e (Pinto)

Chapter 8   Cost Estimation and Budgeting

 

1) Which of the following is a direct cost?

  1. A) Labor
  2. B) Rent
  3. C) Depreciation on equipment
  4. D) Health benefits

Answer:  A

Diff: 1

Section:  8.1 Cost Management

LO:  8.1: Understand the various types of common project costs.

Classification:  Concept

AACSB:  Application of Knowledge

 

2) Which worker's wages would constitute a direct cost for a construction project?

  1. A) The project's cost accountant
  2. B) The brick mason
  3. C) The architect's assistant
  4. D) The foreman

 

Answer:  B

Diff: 1

Section:  8.1 Cost Management

LO:  8.1: Understand the various types of common project costs.

Classification:  Application

AACSB:  Application of Knowledge

 

3) Direct costs are those clearly assigned to the aspect of the project that generated the cost.

Answer:  TRUE

Diff: 1

Section:  8.1 Cost Management

LO:  8.1: Understand the various types of common project costs.

Classification:  Concept

AACSB:  Application of Knowledge

 

 

4) What are four major categories of costs? Provide descriptions for each category.

Answer:  Some of the more common project costs include labor, materials, subcontractors, equipment and facilities, and travel. Labor costs are those associated with hiring and paying the various personnel involved in developing the project. Material costs apply to the specific equipment and supplies the project team will require in order to complete the project tasks. Subcontractors may provide resources (and in the case of consultants, expertise) for the project, their costs must be factored into the preliminary cost estimate and be reflected in the budget. Firms commonly include rental of equipment and facilities as a charge against the cost of the project when the project is developed away from the firm's home office. If necessary, expenses that are related to business travel can be applied to the project as an up-front charge.

Diff: 2

Section:  8.1 Cost Management

LO:  8.1: Understand the various types of common project costs.

Classification:  Application

AACSB:  Application of Knowledge

5) The gentleman farmer and surrealist aficionado commissioned a mural on barn that was an homage to Salvador Dalí's Persistence of Memory with a few farm animals included. The project would require the services of a senior muralist, a junior muralist, and a gofer. The senior muralist has an annual salary of $120,000, the junior muralist draws an annual salary of $75,000, and the gofer makes $30,000 per year. It is anticipated that the project will require 25 hours of senior muralist time, 40 hours of junior muralist time, and 60 hours of gofer time. Overhead charges vary by position; the gofer has a lower overhead rate (30%) than the two muralist positions (50%). Use 2080 hours as an estimate for the number of hours in a year and a 15% factor for personal time. What is the total direct labor cost for the project?

Answer:  The table displays the sequence of calculations; the total direct labor cost is $6,269.71

 

Annual Salary

Hourly Rate

Hours Needed

Overhead

Personal

Direct Labor

$120,000.00

$57.69

25

1.5

1.15

$2,487.98

$75,000.00

$36.06

40

1.5

1.15

$2,487.98

$30,000.00

$14.42

60

1.3

1.15

$1,293.75

 

 

 

 

Total

$6,269.71

Diff: 2

Section:  8.1 Cost Management

LO:  8.1: Understand the various types of common project costs.

Classification:  Application

AACSB:  Application of Knowledge

 

 

6) Three workers complete a full 8-hour day finishing concrete for a terrace. All three workers are paid $12 an hour and the job bills to the customer for $450. What are the total direct labor costs?

  1. A) $450
  2. B) $12
  3. C) $288
  4. D) $96

Answer:  C

Diff: 1

Section:  8.1 Cost Management

LO:  8.2: Recognize the difference between various forms of project costs.

Classification:  Application

AACSB:  Analytical Thinking

 

7) Which of these indirect costs is typically classified as an overhead cost?

  1. A) Advertising
  2. B) Shipping
  3. C) Sales commissions
  4. D) Taxes

Answer:  D

Diff: 2

Section:  8.1 Cost Management

LO:  8.2: Recognize the difference between various forms of project costs.

Classification:  Application

AACSB:  Application of Knowledge

8) Which of these indirect costs is typically classified as a selling or administrative cost?

  1. A) Secretarial support
  2. B) Utilities
  3. C) Insurance
  4. D) Depreciation

Answer:  A

Diff: 2

Section:  8.1 Cost Management

LO:  8.2: Recognize the difference between various forms of project costs.

Classification:  Application

AACSB:  Application of Knowledge

 

 

9) A systems analyst is paid at the rate of $50/hour and will be needed for 40 hours. Her employer uses an overhead multiplier of 60% and does not factor in personal time. Her total direct labor cost should be billed at:

  1. A) $2,000.
  2. B) $3,200.
  3. C) $1,250.
  4. D) $4,500.

Answer:  B

Diff: 2

Section:  8.1 Cost Management

LO:  8.2: Recognize the difference between various forms of project costs.

Classification:  Application

AACSB:  Analytical Thinking

 

10) Workers paid $15.00 per hour with an overhead charge of 1.45 and a personal time allowance of 1.15, have what total direct labor cost for an 8-hour work day?

  1. A) $151.30
  2. B) $174.00
  3. C) $200.10
  4. D) $236.80

Answer:  C

Diff: 2

Section:  8.1 Cost Management

LO:  8.2: Recognize the difference between various forms of project costs.

Classification:  Application

AACSB:  Analytical Thinking

 

11) Which of these is typically a recurring cost?

  1. A) Preliminary market analysis
  2. B) Personnel training
  3. C) Outplacement services
  4. D) Logistics

Answer:  D

Diff: 2

Section:  8.1 Cost Management

LO:  8.2: Recognize the difference between various forms of project costs.

Classification:  Application

AACSB:  Application of Knowledge

 

12) Which of these is typically a nonrecurring cost?

  1. A) Site study
  2. B) Labor
  3. C) Material
  4. D) Sales

Answer:  A

Diff: 2

Section:  8.1 Cost Management

LO:  8.2: Recognize the difference between various forms of project costs.

Classification:  Application

AACSB:  Application of Knowledge

 

13) The charge that is most likely a fixed cost is for:

  1. A) Materials.
  2. B) Equipment rental.
  3. C) Direct labor.
  4. D) Utilities.

Answer:  B

Diff: 2

Section:  8.1 Cost Management

LO:  8.2: Recognize the difference between various forms of project costs.

Classification:  Application

AACSB:  Application of Knowledge

 

14) You are probably looking at a bill for a variable cost when you are paying for:

  1. A) Leased capital equipment.
  2. B) Salaries.
  3. C) Materials.
  4. D) Health insurance.

Answer:  C

Diff: 2

Section:  8.1 Cost Management

LO:  8.2: Recognize the difference between various forms of project costs.

Classification:  Application

AACSB:  Application of Knowledge

 

15) A normal cost is incurred when:

  1. A) Overtime is used more than originally planned.
  2. B) Shipments are expedited.
  3. C) Additional temporary workers are brought on site.
  4. D) The aggressive baseline plan is adhered to.

Answer:  D

Diff: 2

Section:  8.1 Cost Management

LO:  8.2: Recognize the difference between various forms of project costs.

Classification:  Concept

AACSB:  Application of Knowledge

16) Unplanned costs incurred when steps are taken to speed up a project's completion are called:

  1. A) Expedited costs.
  2. B) Accelerated costs.
  3. C) Pass-through costs.
  4. D) Normal costs.

Answer:  A

Diff: 2

Section:  8.1 Cost Management

LO:  8.2: Recognize the difference between various forms of project costs.

Classification:  Concept

AACSB:  Application of Knowledge

 

17) Material is an example of a cost that is recurring, variable and direct.

Answer:  TRUE

Diff: 2

Section:  8.1 Cost Management

LO:  8.2: Recognize the difference between various forms of project costs.

Classification:  Concept

AACSB:  Application of Knowledge

 

18) An expedited cost is one that does not vary with respect to their usage.

Answer:  FALSE

Diff: 2

Section:  8.1 Cost Management

LO:  8.2: Recognize the difference between various forms of project costs.

Classification:  Concept

AACSB:  Application of Knowledge

 

19) The term expedited cost has the same meaning as crashing cost in the project management milieu.

Answer:  TRUE

Diff: 2

Section:  8.1 Cost Management

LO:  8.2: Recognize the difference between various forms of project costs.

Classification:  Concept

AACSB:  Application of Knowledge

 

 

20) Provide examples and discuss the differences between direct and indirect costs.

Answer:  Direct costs are those clearly assigned to the aspect of the project that generated the cost. Examples include labor that is hands-on in the production of the project and materials that are used and sold or consumed in the creation of the project. Indirect costs are generally linked to two features: overhead and selling and general administration. Health benefits for the labor force, taxes, insurance, depreciation and repairs are all indirect costs. Direct costs of materials and labor are generally easier to calculate than indirect costs, which are often calculated as a multiplier of some of the direct costs.

Diff: 2

Section:  8.1 Cost Management

LO:  8.2: Recognize the difference between various forms of project costs.

Classification:  Application

AACSB:  Application of Knowledge

21) Explain the difference between normal and expedited costs, fixed and variable costs, and recurring or nonrecurring costs. Create a 2 × 2 × 2 matrix and provide one example each (8 total examples) of each combination of these costs.

Answer:  Examples may vary.

Nonrecurring costs might be those charges applied once at the beginning or end of the project while recurring costs are those that typically continue to operate over the project's life cycle. Fixed costs do not vary with their usage but variable costs accelerate through usage. Normal costs are those incurred through the routine process of working to complete the project according to the original schedule but expedited costs are unplanned costs incurred when steps are taken to speed up the project's completion.

Diff: 3

Section:  8.1 Cost Management

LO:  8.2: Recognize the difference between various forms of project costs.

Classification:  Application

AACSB:  Application of Knowledge

 

22) A key for developing project cost estimates is to:

  1. A) Cost the project while considering the total package.
  2. B) Cost the project on a work package and task basis.
  3. C) Cost the project on a major module basis.
  4. D) Cost the project and add 33% for contingency.

Answer:  B

Diff: 2

Section:  8.2 Cost Estimation

LO:  8.3: Apply common forms of cost estimation for project work, including ballpark estimates and definitive estimates.

Classification:  Concept

AACSB:  Application of Knowledge

 

 

23) The order of magnitude cost estimate is used when:

  1. A) Ballpark estimates are not considered accurate enough.
  2. B) Historical data are readily available.
  3. C) Information or time is scarce.
  4. D) Parametric estimation has already been performed.

Answer:  C

Diff: 2

Section:  8.2 Cost Estimation

LO:  8.3: Apply common forms of cost estimation for project work, including ballpark estimates and definitive estimates.

Classification:  Concept

AACSB:  Application of Knowledge

24) When asked to provide an estimate of an irrigation system, Pete looked from one end of the field to the other, licked a finger and held it in the air, squinted into the sun and said $25,000, give or take 30%. The technique employed for cost estimation is:

  1. A) Parametric.
  2. B) Comparative.
  3. C) Definitive.
  4. D) Ballpark.

Answer:  D

Diff: 2

Section:  8.2 Cost Estimation

LO:  8.3: Apply common forms of cost estimation for project work, including ballpark estimates and definitive estimates.

Classification:  Concept

AACSB:  Application of Knowledge

 

25) Estimates based on the assumption that historical data can be used as a frame of reference for current estimates are:

  1. A) Comparative estimates.
  2. B) Ballpark estimates.
  3. C) Definitive estimates.
  4. D) Feasibility estimates.

Answer:  A

Diff: 2

Section:  8.2 Cost Estimation

LO:  8.3: Apply common forms of cost estimation for project work, including ballpark estimates and definitive estimates.

Classification:  Concept

AACSB:  Application of Knowledge

 

 

26) An order of magnitude estimate is usually more accurate than a ballpark estimate.

Answer:  FALSE

Diff: 1

Section:  8.2 Cost Estimation

LO:  8.3: Apply common forms of cost estimation for project work, including ballpark estimates and definitive estimates.

Classification:  Concept

AACSB:  Application of Knowledge

 

27) Comparative estimates are more accurate than definitive estimates when applied to the same project.

Answer:  TRUE

Diff: 2

Section:  8.2 Cost Estimation

LO:  8.3: Apply common forms of cost estimation for project work, including ballpark estimates and definitive estimates.

Classification:  Concept

AACSB:  Application of Knowledge

28) Rank the four different types of cost estimates from most to least accurate and explain what the inputs are to each type.

Answer:  The cost estimates as ranked from most accurate to least accurate are definitive estimates, feasibility estimates, comparative estimates, and ballpark, or order of magnitude estimates. Definitive estimates are expected to have an accuracy of plus or minus 5% and can be completed only after the completion of most design work, at a point when the scope and capabilities of the project are quite well understood. Feasibility estimates are within plus or minus 10% and are made after completion of the preliminary design work following initial scope development upon receiving quotes from suppliers and subcontractors. Comparative estimates approach plus or minus 15% accuracy and are based on the assumption that historical data can be used as a frame of reference for current estimates on similar projects. Ballpark estimates are created when information or time (or both) are scarce and are targeted at plus or minus 30%.

Diff: 3

Section:  8.2 Cost Estimation

LO:  8.3: Apply common forms of cost estimation for project work, including ballpark estimates and definitive estimates.

Classification:  Application

AACSB:  Application of Knowledge

 

 

29) When their baby was ready to head off to college, the beleaguered parents pulled out the college folder from their file cabinet and added up the cost of putting their first child through college from 1995-2000. The mother whimpered as she factored in the rising cost of tuition, fees, books, and inflation by multiplying the total by 2.5. The father felt a searing pain go through his chest as he saw the total, knowing full well that their cost estimation approach, called:

  1. A) An order of magnitude estimate, was highly accurate.
  2. B) Parametric estimation, was highly accurate.
  3. C) Feasibility estimation, was highly accurate.
  4. D) Definitive estimation, was highly accurate.

Answer:  B

Diff: 2

Section:  8.2 Cost Estimation

LO:  8.4: Understand the advantages of parametric cost estimation and the application of learning curve models in cost estimation.

Classification:  Concept

AACSB:  Application of Knowledge

 

30) Effective comparative estimates rely most heavily on:

  1. A) An accurate inflation factor.
  2. B) The correct number of years elapsed between the old project and the current one.
  3. C) True comparability between the current project and previous project work.
  4. D) The correct number of employees on the new project compared with the previous one.

Answer:  C

Diff: 2

Section:  8.2 Cost Estimation

LO:  8.4: Understand the advantages of parametric cost estimation and the application of learning curve models in cost estimation.

Classification:  Concept

AACSB:  Application of Knowledge

31) Cost estimates that are based as a guideline on real numbers, or figures derived after the completion of preliminary design work, are:

  1. A) Definitive estimates.
  2. B) Order of magnitude estimates.
  3. C) Parametric estimates.
  4. D) Feasibility estimates.

Answer:  D

Diff: 2

Section:  8.2 Cost Estimation

LO:  8.4: Understand the advantages of parametric cost estimation and the application of learning curve models in cost estimation.

Classification:  Concept

AACSB:  Application of Knowledge

 

 

32) Once most of the design work is complete, at a point when the scope and capabilities of the project are quite well understood, a ________ may be developed.

  1. A) definitive estimate
  2. B) comparative estimate
  3. C) parametric estimate
  4. D) non-parametric estimate

Answer:  A

Diff: 2

Section:  8.2 Cost Estimation

LO:  8.4: Understand the advantages of parametric cost estimation and the application of learning curve models in cost estimation.

Classification:  Application

AACSB:  Application of Knowledge

 

33) Which of these estimates should be the most accurate?

  1. A) Parametric
  2. B) Definitive
  3. C) Comparative
  4. D) Order of magnitude

Answer:  B

Diff: 2

Section:  8.2 Cost Estimation

LO:  8.4: Understand the advantages of parametric cost estimation and the application of learning curve models in cost estimation.

Classification:  Concept

AACSB:  Application of Knowledge

 

34) An activity with a learning rate of 0.85 takes 25 hours for the first iteration. How long will it take to complete this task for the 15th time?

  1. A) 12.55 hours
  2. B) 12.85 hours
  3. C) 13.15 hours
  4. D) 13.25 hours

Answer:  D

Diff: 2

Section:  8.2 Cost Estimation

LO:  8.4: Understand the advantages of parametric cost estimation and the application of learning curve models in cost estimation.

Classification:  Application

AACSB:  Analytical Thinking

 

35) If it takes 40 hours to complete the first unit and the company knows from experience that the learning rate should be 0.80, how fast can they be expected to finish all twelve units?

  1. A) 18 hours
  2. B) 289 hours
  3. C) 264 hours
  4. D) 316 hours

Answer:  B

Diff: 3

Section:  8.2 Cost Estimation

LO:  8.4: Understand the advantages of parametric cost estimation and the application of learning curve models in cost estimation.

Classification:  Application

AACSB:  Analytical Thinking

 

36) It took 44 hours of analysis to complete the first phase, but the second phase was done in 42 hours. If this learning rate continues, then the 8th analysis should take a mere:

  1. A) 36 hours and 26 minutes, give or take.
  2. B) 37 hours and 36 minutes, give or take.
  3. C) 38 hours and 16 minutes, give or take.
  4. D) 39 hours and 6 minutes, give or take.

Answer:  C

Diff: 3

Section:  8.2 Cost Estimation

LO:  8.4: Understand the advantages of parametric cost estimation and the application of learning curve models in cost estimation.

Classification:  Application

AACSB:  Analytical Thinking

 

37) What learning rate is being demonstrated if the first unit takes 25 hours and the third unit takes 24 hours to complete?

  1. A) Greater than or equal to 97 percent
  2. B) Less than 97 percent but greater than or equal to 95 percent
  3. C) Less than 95 percent but greater than or equal to 93 percent
  4. D) Less than 93 percent

Answer:  A

Diff: 3

Section:  8.2 Cost Estimation

LO:  8.4: Understand the advantages of parametric cost estimation and the application of learning curve models in cost estimation.

Classification:  Application

AACSB:  Analytical Thinking

 

38) An activity with a learning rate of 0.8 takes 30 hours for the first six units. How long will it take to complete this task for the 12th time?

  1. A) 2.985 hours
  2. B) 3.055 hours
  3. C) 3.135 hours
  4. D) 3.325 hours

Answer:  C

Diff: 3

Section:  8.2 Cost Estimation

LO:  8.4: Understand the advantages of parametric cost estimation and the application of learning curve models in cost estimation.

Classification:  Application

AACSB:  Analytical Thinking

 

39) If it takes 40 hours to complete the first unit and the company knows from experience that the learning rate should be 0.75, how fast can they be expected to finish all ten units?

  1. A) 208.48 hours
  2. B) 213.52 hours
  3. C) 218.46 hours
  4. D) 223.54 hours

Answer:  C

Diff: 3

Section:  8.2 Cost Estimation

LO:  8.4: Understand the advantages of parametric cost estimation and the application of learning curve models in cost estimation.

Classification:  Application

AACSB:  Analytical Thinking

 

40) It took 66 hours of analysis to complete the first phase, but the second phase was done in 61 hours. If this learning rate continues, then the 8th analysis should take a mere:

  1. A) 52 hours and 11 minutes, give or take.
  2. B) 53 hours and 22 minutes, give or take.
  3. C) 54 hours and 33 minutes, give or take.
  4. D) 55 hours and 44 minutes, give or take.

Answer:  C

Diff: 3

Section:  8.2 Cost Estimation

LO:  8.4: Understand the advantages of parametric cost estimation and the application of learning curve models in cost estimation.

Classification:  Application

AACSB:  Analytical Thinking

 

41) What learning rate is being demonstrated if the first unit takes 25 hours and the seventh unit takes 22 hours to complete?

  1. A) Greater than or equal to 97 percent
  2. B) Less than 97 percent but greater than or equal to 96 percent
  3. C) Less than 96 percent but greater than or equal to 95 percent
  4. D) Less than 95 percent

Answer:  C

Diff: 3

Section:  8.2 Cost Estimation

LO:  8.4: Understand the advantages of parametric cost estimation and the application of learning curve models in cost estimation.

Classification:  Application

AACSB:  Analytical Thinking

 

42) Which statement about the use of learning curves is BEST?

  1. A) Learning curve effects stay constant across projects.
  2. B) A job that is substantially re-engineered will have no disruption of its learning curve.
  3. C) It may be more likely to see learning curve effects in construction than in research and development.
  4. D) Every worker performing an identical task will exhibit the same learning effect.

Answer:  B

Diff: 1

Section:  8.2 Cost Estimation

LO:  8.4: Understand the advantages of parametric cost estimation and the application of learning curve models in cost estimation.

Classification:  Concept

AACSB:  Application of Knowledge

 

43) A learning rate of 90% means that for every doubling of output, the time required by the activity falls by 10%.

Answer:  TRUE

Diff: 2

Section:  8.2 Cost Estimation

LO:  8.4: Understand the advantages of parametric cost estimation and the application of learning curve models in cost estimation.

Classification:  Concept

AACSB:  Application of Knowledge

 

44) Function point analysis is a system for estimating the size of software projects based on the number of lines of code a typical programmer can write in a day.

Answer:  FALSE

Diff: 1

Section:  8.2 Cost Estimation

LO:  8.4: Understand the advantages of parametric cost estimation and the application of learning curve models in cost estimation.

Classification:  Concept

AACSB:  Application of Knowledge

45) What are parametric cost estimates and how are they developed?

Answer:  Parametric estimates are a form of comparative estimates, which are based on the assumption that historical data can be used as a frame of reference for current estimates on similar projects. Parametric estimation takes older work and uses a multiplier to account for the impact of inflation, labor and materials increases, and other reasonable costs.

Diff: 2

Section:  8.1 Cost Management

LO:  8.4: Understand the advantages of parametric cost estimation and the application of learning curve models in cost estimation.

Classification:  Application

AACSB:  Application of Knowledge

 

46) Define learning curve theory and describe how learning curves are used in project management.

Answer:  Learning curve theory says that a task can be performed more quickly as repetitions increase, specifically a doubling of output results in a fixed percentage reduction in time required to complete the last unit produced. Learning curve rates can be used in a project if there is an activity that remains fairly constant and is performed repeatedly. Rather than using a direct multiplier of the number of repetitions times the time required to complete the first iteration, the project manager can use the learning curve equation

Yx = aXb

to calculate the time required for successive units as long as the learning curve rate can be estimated. The result will be a time estimate lower than by direct multiplication, which might permit the project manager to more accurately gauge the amount of labor and time required and prepare a more competitive bid.

Diff: 2

Section:  8.2 Cost Estimation

LO:  8.4: Understand the advantages of parametric cost estimation and the application of learning curve models in cost estimation.

Classification:  Concept

AACSB:  Analytical Thinking

 

 

47) Big Mike has to prepare a bid for the swimming pools to be placed in every backyard in a new housing addition. Each swimming pool represents only a slight variation on the other, so there is a good opportunity to leverage learning effects in the bid process. A swimming pool installation can be broken down into four major steps: excavation, concrete, plumbing, and finish work. Mike has found the best contractors and asks each of them how long it will take to complete work on the first pool and what their learning rates are. Amazingly, each contractor is intimately familiar with learning curve theory and knows what his learning rate is for this type of work. This information is summarized in the table.

 

Function

First Pool

Learning Rate

Excavation

22 hours

.95

Concrete

32 hours

.90

Plumbing

10 hours

.85

Finishing

30 hours

.85

 

How long will it take to complete the 25th pool for the subdivision?

How long will it take to complete all 25 pools for the subdivision?

Answer:  The twenty-fifth unit for each function is calculated as follows:

 

Excavation: Y25 = 22 × 25 ln(.95)/ln(2) = 20.9

Concrete: Y25 = 32 × 25 ln(.90)/ln(2) = 28.8

Plumbing: Y25 = 10 × 25 ln(.85)/ln(2) = 8.5

Finishing: Y25 = 30 × 25 ln(.85)/ln(2) = 25.5

 

 

A full table for units one through twenty-five is below:

The total time for all twenty-five pools is:

Total Time = 464.1 + 566.8 + 148 + 444 = 1623 hours

Diff: 2

Section:  8.2 Cost Estimation

LO:  8.4: Understand the advantages of parametric cost estimation and the application of learning curve models in cost estimation.

Classification:  Application

AACSB:  Analytical Thinking

 

48) Juan Valdez trades in his old donkeys for two new llamas in order to transport his mountain grown coffee to the marketplace. Llamas make excellent pack animals and are surefooted, so I should be able to spend more time harvesting and less time wrangling animals, Juan thought to himself as he led the two back to his mountain farm. Much to his dismay, the first time he tried to strap the bags of coffee beans to his new llamas they resisted by running away and when he got close, they spit copiously. However, he was persistent and methodical, and he noticed that things went a little better each day. The time it took to get the llamas loaded up is summarized in the table.

 

Day

Time (min)

Day

Time (min)

1

140

5

84

2

116

6

79

3

100

7

79

4

93

8

76

 

What learning rate is evident from the data?

How long will it take to load up the llamas next month (on the 30th attempt) if the same learning pattern continues?

Answer:  The data were generated using an 80% learning curve plus an error term, which was generated by the function RAND()∗5, resulting in a mean of 2.5 and a standard deviation of 1.4. To determine the learning effect on display, the student might choose some output-doubling observations to make the comparison: Days 1 & 2 yields an estimate of 116/140= .825; days 2 & 4 an estimate of 93/116=.801; and days 4 & 8 an estimate of 76/93=.817. Moving forward with a learning effect of 81%

T30 = 140 × 30

T30 = 140 × 30-.3041

T30 = 140 × .3555875

T30 = 49.78 minutes

 

Juan is still trying to determine whether he or the llamas contribute more to the learning effect, but that's another question for another test bank.

Diff: 2

Section:  8.2 Cost Estimation

LO:  8.4: Understand the advantages of parametric cost estimation and the application of learning curve models in cost estimation.

Classification:  Critical Thinking

AACSB:  Analytical Thinking

 

 

49) Acme is exploring two locations for a new plant to supply product for a government contract. They dispatch a team of industrial engineers and cost estimators to the Minneapolis-St.Paul area of Minnesota and to Kennewick-Pasco-Richland area in Washington. After conducting some tests, the teams return with some unusual findings, the Minneapolis-St. Paul workers seem to obey classic learning effect rules; their learning rate is 80% and is based on a doubling of output. They are much slower than their counterparts at the other site; it is estimated that the first batch units they assemble will take them 700 hours. The workforce in the Kennewick-Pasco-Richland area is much faster; their first batch will take only 470 hours. Strangely, these workers also exhibit learning effects, but their learning is based on a tripling of output rather than the traditional doubling and their rate is 78%. How many batches must be made before Minneapolis-St. Paul's time falls below Kennewick-Pasco-Richland's?

Answer:  The crossover point is just above the 64th unit; at the 64th unit the Kennewick-Pasco-Richland workers are faster by one hundredth of an hour and at the 65th unit the Minneapolis-St. Paul workers are faster by a quarter of an hour.

 

Yx =  Minneapolis-St. Paul

Yx =  Kennewick-Pasco-Richland

Yx =  =

 =

700X-.32193 = 470X-.22616

 

 =

1.489362 = X-.095769

1n(1.489362) = 1n(X-.095769)

0.398349 = 0.095769 1n(X)

 = 1n(X)

 

exp = X

 

X = 64.03765

Diff: 3

Section:  8.2 Cost Estimation

LO:  8.4: Understand the advantages of parametric cost estimation and the application of learning curve models in cost estimation.

Classification:  Critical Thinking

AACSB:  Analytical Thinking

50) What are function points and how do they work?

Answer:  Function points are a standard unit of measure that represents the functional size of a software application. In one sense, they are an ABC approach to cost estimation based on the functional complexity of different program features. Total system cost is estimated based on the number and complexity of different elements needed for the software package.

Diff: 2

Section:  8.2 Cost Estimation

LO:  8.4: Understand the advantages of parametric cost estimation and the application of learning curve models in cost estimation.

Classification:  Application

AACSB:  Information Technology

 

51) What are the major issues with cost estimation of software projects?

Answer:  The software project industry has a very poor record when it comes to project performance. Research has shown that for large companies, less than 9% of IT projects are completed on schedule and budget and over half of the software projects will cost almost 200% of their original budget. A recent book by Steven McConnell offers some insights why software projects suffer. Among these findings are the common failure to budget adequate time and funding for project activities. Small IT projects spend the majority of their time in detailed design, coding and debugging, and unit testing. As the complexity of the projects rises, the focus of activity shifts to three other activities – architecture, integration, and system testing. The implications suggest that IT project budgets must consider the size of the project as they calculate cost components so that the separate functions can be allocated an appropriate budget.

Diff: 2

Section:  8.2 Cost Estimation

LO:  8.4: Understand the advantages of parametric cost estimation and the application of learning curve models in cost estimation.

Classification:  Application

AACSB:  Information Technology

 

52) There was no way that the study tour to Italy could cost only $1500 for 14 days and 13 nights and include all transportation, meals and hotels, but the smarmy professor knew that students would balk at a higher advertised price. Once they were thousands of miles away from home in a country where none of them spoke the language it would be easier to tell them about unanticipated charges and approach the more realistic price of $3500 per person. This type of:

  1. A) Specification change is a common reason for a cost overrun.
  2. B) Lack of definition is a common reason for a cost overrun.
  3. C) Low initial estimate is a common reason for a cost overrun.
  4. D) Unexpected technical difficulty is a common reason for a cost overrun.

Answer:  C

Diff: 1

Section:  8.2 Cost Estimation

LO:  8.5: Discern the various reasons why project cost estimation is often done poorly..

Classification:  Application

AACSB:  Application of Knowledge

 

53) Whether it is the Boeing V-22 Osprey or a simple storm door installation for a do-it-yourselfer, nothing is ever completed as quickly or as cheaply as initial estimates due to:

  1. A) Lack of definition.
  2. B) Low initial estimates.
  3. C) Specification changes.
  4. D) Unexpected technical difficulties.

Answer:  D

Diff: 2

Section:  8.2 Cost Estimation

LO:  8.5: Discern the various reasons why project cost estimation is often done poorly..

Classification:  Application

AACSB:  Application of Knowledge

 

54) Poor initial scope development and work breakdown structure often creates cost overruns that are attributable to:

  1. A) Lack of definition.
  2. B) Deliberate low initial estimates.
  3. C) Unexpected technical difficulties.
  4. D) External factors.

Answer:  A

Diff: 2

Section:  8.2 Cost Estimation

LO:  8.5: Discern the various reasons why project cost estimation is often done poorly..

Classification:  Application

AACSB:  Application of Knowledge

 

55) It began as a simple macro that would extract grades and post them on a web site, but once the web programmer began the work, he became obsessed with various charting features, grade summaries, and reports that could be added to make this the grandest web site in the tri-county area. As 2 hours of programming work grew to 20 and then 80, he knew that the client wouldn't be happy with the cost overrun. The only comment he mumbled as he finished his work was:

  1. A) "I had some technical difficulties, sorry."
  2. B) "There were some specification changes, sorry."
  3. C) "This project lacked definition from the outset, sorry."
  4. D) "I thought I'd never get the wizard's hat! Oh, by the way, your grades work."

Answer:  B

Diff: 2

Section:  8.2 Cost Estimation

LO:  8.5: Discern the various reasons why project cost estimation is often done poorly..

Classification:  Application

AACSB:  Application of Knowledge

 

56) The 1974 model Eldorado is a three-ton behemoth with a 500-cubic-inch engine that is long on style but short on gas mileage. During its five-year development process no one could possibly have anticipated that gas prices would go through the roof in 1973, making it far more expensive to operate and subsequently less attractive to a gas-price-conscious public. Design engineers scrambled to change the car in the last few months leading up to its debut, adding a slimmed down version with a smaller engine. All of the design overtime meant that the project budget took a big hit though, thanks to:

  1. A) The initial low estimate.
  2. B) The unexpected technical difficulties.
  3. C) This external factor.
  4. D) The lack of definition.

Answer:  C

Diff: 2

Section:  8.2 Cost Estimation

LO:  8.5: Discern the various reasons why project cost estimation is often done poorly..

Classification:  Application

AACSB:  Application of Knowledge

 

57) A common reason for cost overruns in a project is a low initial estimate of project cost.

Answer:  TRUE

Diff: 2

Section:  8.2 Cost Estimation

LO:  8.5: Discern the various reasons why project cost estimation is often done poorly..

Classification:  Concept

AACSB:  Application of Knowledge

 

58) Describe any three reasons that cost overruns occur in project work.

Answer:  The most common reasons for cost overruns are low initial estimates, unexpected technical difficulties, lack of definition, specification changes, and external factors. Low initial estimates may be created deliberately, perhaps as an effort to gain approval, or accidentally, through carelessness, but will almost always result in a cost overrun. Unexpected technical difficulties often occur in high-tech projects that require bleeding-edge technology. Lack of definition as a result of poor initial scope development creates projects with poorly defined features or goals, which spills over into poor cost estimates. Specification changes resulting in scope creep from the initial baseline project inevitably require more time and money to bring the project into alignment with the new, larger scope. External factors beyond the control of the project organization require a response, one that calls unanticipated resource requirements into the fray, resulting in cost overruns.

Diff: 2

Section:  8.2 Cost Estimation

LO:  8.5: Discern the various reasons why project cost estimation is often done poorly..

Classification:  Application

AACSB:  Application of Knowledge

 

59) The project management research in brief titled "Delusion and Deception Taking Place in Large Infrastructure Projects," describes three reasons that cost overruns occur in large infrastructure project work. Briefly describe these three reasons

Answer:  In most cases, the causes of runaway costs come from one of three sources – over-optimism bias, deliberate deception, or simple bad luck.

Optimism bias — Executives commonly fall victim to delusions called the "planning fallacy" when it comes to projects. Under the planning fallacy, managers routinely minimize problems and make their decisions on the basis of delusional optimism — underestimating costs and obstacles, involuntarily spinning scenarios for success, and assuming best case options and outcomes.

Deliberate deception — Large capital investment projects often require complex layers of decision making in order to get them approved. Some opportunities to inappropriately bias the project (deception) occur when a project's stakeholders all hold different incentives for the project. If the project is grossly underestimated, the project contracts signed; once the project is "on the books," it tends to stay there.

Bad luck — A final reason for escalating project costs is simple bad luck. Bad luck implies that in spite of sound estimates, due diligence from all parties involved in the project, and the best intentions of both the contractors and project clients, there are always going to be cases where circumstances, environmental impacts, and sheer misfortune can conspire to derail a project or severely cripple its delivery.

Diff: 2

Section:  8.2 Cost Estimation

LO:  8.5: Discern the various reasons why project cost estimation is often done poorly..

Classification:  Application

AACSB:  Application of Knowledge

 

60) A plan that identifies the allocated resources, the project's goals, and the schedule that allows an organization to achieve those goals is:

  1. A) The work breakdown structure.
  2. B) The risk management plan.
  3. C) The statement of work.
  4. D) The project budget.

Answer:  D

Diff: 2

Section:  8.3 Creating a Project Budget

LO:  8.6: Apply both top-down and bottom-up budgeting procedures for cost management.

Classification:  Concept

AACSB:  Application of Knowledge

 

 

61) The project plan is supported by:

  1. A) The work breakdown structure, the budget, and the schedule.
  2. B) The work breakdown structure, the budget, and the work packages.
  3. C) The work breakdown structure, the work packages, and the schedule.
  4. D) The work breakdown structure, the schedule, and the contingency plan.

Answer:  A

Diff: 2

Section:  8.3 Creating a Project Budget

LO:  8.6: Apply both top-down and bottom-up budgeting procedures for cost management.

Classification:  Concept

AACSB:  Application of Knowledge

62) Input is received from an organization's management to create a project budget in:

  1. A) Zero-based budgeting.
  2. B) Top-down budgeting.
  3. C) Bottom-up budgeting.
  4. D) Activity-based budgeting.

Answer:  B

Diff: 1

Section:  8.3 Creating a Project Budget

LO:  8.6: Apply both top-down and bottom-up budgeting procedures for cost management.

Classification:  Concept

AACSB:  Application of Knowledge

 

63) An advantage of top-down budgeting is:

  1. A) That top management estimates of project costs are often quite accurate, at least in aggregate.
  2. B) An elimination of the friction between top and lower levels in the competition for budget money.
  3. C) That projects are no longer a zero-sum game among lower level managers.
  4. D) That top management budgets, by definition, cannot experience overruns.

Answer:  A

Diff: 2

Section:  8.3 Creating a Project Budget

LO:  8.6: Apply both top-down and bottom-up budgeting procedures for cost management.

Classification:  Concept

AACSB:  Application of Knowledge

 

 

64) A budget that is created by starting with the work breakdown structure, determining costs for each work package, and then adding these costs together is:

  1. A) Zero-based budgeting.
  2. B) Top-down budgeting.
  3. C) Bottom-up budgeting.
  4. D) Activity-based budgeting.

Answer:  C

Diff: 1

Section:  8.3 Creating a Project Budget

LO:  8.6: Apply both top-down and bottom-up budgeting procedures for cost management.

Classification:  Concept

AACSB:  Application of Knowledge

 

65) When properly performed, bottom-up budgeting has the disadvantage of:

  1. A) A lack of detail needed in project plans.
  2. B) A lack of coordination among project managers and functional department heads.
  3. C) Being a hindrance to top managers when prioritizing projects that are competing for the same scarce resources.
  4. D) A reduction of top management's control of the budget process to one of oversight.

Answer:  D

Diff: 3

Section:  8.3 Creating a Project Budget

LO:  8.6: Apply both top-down and bottom-up budgeting procedures for cost management.

Classification:  Application

AACSB:  Application of Knowledge

66) A budgeting method that assigns costs first to activities and then to projects based on each project's use of resources is:

  1. A) Activity-based budgeting.
  2. B) Zero-based budgeting.
  3. C) Top-down budgeting.
  4. D) Bottom-up budgeting.

Answer:  A

Diff: 1

Section:  8.3 Creating a Project Budget

LO:  8.6: Apply both top-down and bottom-up budgeting procedures for cost management.

Classification:  Concept

AACSB:  Application of Knowledge

 

 

67) Activity-based costing and bottom-up budgeting share the step of:

  1. A) Identifying cost drivers associated with each activity.
  2. B) Identifying activities that consumer resources and assigning costs to them.
  3. C) Assigning costs to projects by multiplying the cost driver rate times the volume of units.
  4. D) Tending to overestimate project costs due to the lack of involvement by top management.

Answer:  B

Diff: 2

Section:  8.3 Creating a Project Budget

LO:  8.6: Apply both top-down and bottom-up budgeting procedures for cost management.

Classification:  Concept

AACSB:  Application of Knowledge

 

68) There is a tendency for different departments or functions to compete for scarce resources in a zero-sum game when bottom-up budgeting is used to develop a project budget.

Answer:  FALSE

Diff: 2

Section:  8.3 Creating a Project Budget

LO:  8.6: Apply both top-down and bottom-up budgeting procedures for cost management.

Classification:  Concept

AACSB:  Application of Knowledge

 

69) Top-down budgeting, where input is gathered directly from the organization's top management, is often quite accurate.

Answer:  TRUE

Diff: 2

Section:  8.3 Creating a Project Budget

LO:  8.6: Apply both top-down and bottom-up budgeting procedures for cost management.

Classification:  Concept

AACSB:  Application of Knowledge

70) What's the relationship between WBS, scheduling, and budgeting?

Answer:  The central goal of a budget is the need to support, rather than conflict with the project's and organization's goals. The project budget is a plan that identifies the allocated resources, the project's goals, and the schedule that allows an organization to achieve those goals. The project budget must be coordinated with the project activities defined in the work breakdown structure, as the WBS sets the stage for creating the project schedule and the budget assigns the necessary resources to support the schedule.

Diff: 1

Section:  8.3 Creating a Project Budget

LO:  8.6: Apply both top-down and bottom-up budgeting procedures for cost management.

Classification:  Application

AACSB:  Application of Knowledge

 

 

71) How are top-down and bottom-up budgets created? What advantages does each approach hold over the other?

Answer:  Top-down budgeting requires direct input from the organization's top management; in essence, this approach seeks to first ascertain the opinions and experiences of top management regarding estimated project costs. Bottom-up budgeting begins inductively from the work breakdown structure to apply direct costs to project activities that are then aggregated, first at the work package level, then at the deliverable level, at which point all task budgets are combined, and then higher up the chain to create an overall project budget. Top-down budgeting has the benefit of experienced senior personnel getting directly involved in project estimation, but can create friction between departments, functions, and managers at lower levels in the organization as they scramble for the largest share of the budget that they can grab. Bottom-up budgeting emphasizes the need to create detailed plans and facilitates coordination between project managers and functional department heads. Unfortunately, bottom-up budgeting reduces top management's control of the budget process to one of oversight and may result in a disconnect between their strategic plans and the direction the project is taking.

Diff: 2

Section:  8.3 Creating a Project Budget

LO:  8.6: Apply both top-down and bottom-up budgeting procedures for cost management.

Classification:  Application

AACSB:  Analytical Thinking

 

72) The new bridge would require 14 piers to support it and it was known that each time a pier is sunk into the harbor it would take 30 man hours of labor at $50 per hour. An activity-based costing of the entire pier system results in a total labor cost of:

  1. A) $19,500.
  2. B) $21,000.
  3. C) $22,500.
  4. D) $24,000.

Answer:  B

Diff: 2

Section:  8.3 Creating a Project Budget

LO:  8.7: Understand the uses of activity-based budgeting and time-phased budgets for cost estimation and control.

Classification:  Application

AACSB:  Analytical Thinking

 

73) The new artisanal greenhouse would require 700 empty wine bottles be embedded in a frame made of clay and straw. The builder, a man with too much time on his hands, had determined that each time a bottle was added to the structure it would take 30 minutes of labor at $7.50 per hour in the blazing sun. An activity-based costing of the entire artisanal greenhouse revealed that the total labor cost would be:

  1. A) $2,525.
  2. B) $2,850.
  3. C) $2,625.
  4. D) $2,450.

Answer:  C

Diff: 1

Section:  8.3 Creating a Project Budget

LO:  8.7: Understand the uses of activity-based budgeting and time-phased budgets for cost estimation and control.

Classification:  Application

AACSB:  Analytical Thinking

 

74) A budget containing disaggregated figures across the schedule when work is planned is a:

  1. A) Time-phased budget.
  2. B) Chronic budget.
  3. C) Temporal budget.
  4. D) Calendar budget.

Answer:  A

Diff: 2

Section:  8.3 Creating a Project Budget

LO:  8.7: Understand the uses of activity-based budgeting and time-phased budgets for cost estimation and control.

Classification:  Concept

AACSB:  Application of Knowledge

 

75) Which of the following is NOT contained in a typical time-phased budget?

  1. A) Total expenses for each activity
  2. B) Total expenses for each time unit
  3. C) Cumulative expenses for each time unit
  4. D) Cumulative time for each expense

Answer:  D

Diff: 2

Section:  8.3 Creating a Project Budget

LO:  8.7: Understand the uses of activity-based budgeting and time-phased budgets for cost estimation and control.

Classification:  Application

AACSB:  Analytical Thinking

 

76) What is the cumulative cost in February in this time-phased budget?

 

Activity

January

February

March

April

Survey

8,000

 

 

 

Design

5,250

4,500

 

 

Dirt

 

6,700

 

 

Foundation

 

12,550

 

 

Framing

 

 

37,250

 

Plumb

 

 

7,800

 

Wire

 

 

 

5,500

  1. A) $23,750
  2. B) $37,000
  3. C) $45,050
  4. D) $50,550

Answer:  B

Diff: 2

Section:  8.3 Creating a Project Budget

LO:  8.7: Understand the uses of activity-based budgeting and time-phased budgets for cost estimation and control.

Classification:  Application

AACSB:  Analytical Thinking

 

77) What is the total amount budgeted for design costs in this time-phased budget?

 

Activity

January

February

March

April

Survey

8,000

 

 

 

Design

5,250

4,500

 

 

Dirt

 

6,700

 

 

Foundation

 

12,550

 

 

Framing

 

 

37,250

 

Plumb

 

 

7,800

 

Wire

 

 

 

5,500

  1. A) $5,250
  2. B) $4,500
  3. C) $9,750
  4. D) $12,550

Answer:  C

Diff: 1

Section:  8.3 Creating a Project Budget

LO:  8.7: Understand the uses of activity-based budgeting and time-phased budgets for cost estimation and control.

Classification:  Application

AACSB:  Analytical Thinking

 

78) What is the total amount budgeted for March in this time-phased budget?

 

Activity

January

February

March

April

Survey

8,000

 

 

 

Design

5,250

4,500

 

 

Dirt

 

6,700

 

 

Foundation

 

12,550

 

 

Framing

 

 

37,250

 

Plumb

 

 

7,800

 

Wire

 

 

 

5,500

  1. A) $37,250
  2. B) $82,050
  3. C) $41,000
  4. D) $45,050

Answer:  D

Diff: 2

Section:  8.3 Creating a Project Budget

LO:  8.7: Understand the uses of activity-based budgeting and time-phased budgets for cost estimation and control.

Classification:  Application

AACSB:  Analytical Thinking

 

79) What is the total project budget in this time-phased budget?

 

Activity

January

February

March

April

Survey

8,000

 

 

 

Design

5,250

4,500

 

 

Dirt

 

6,700

 

 

Foundation

 

12,550

 

 

Framing

 

 

37,250

 

Plumb

 

 

7,800

 

Wire

 

 

 

5,500

  1. A) $85,450
  2. B) $87,550
  3. C) $82,050
  4. D) $86,550

Answer:  B

Diff: 1

Section:  8.3 Creating a Project Budget

LO:  8.7: Understand the uses of activity-based budgeting and time-phased budgets for cost estimation and control.

Classification:  Application

AACSB:  Analytical Thinking

 

80) What is the total project budget in this time-phased budget?

 

Activity

July

August

September

October

November

RFP

34,721

 

 

 

 

Analysis

11,049

33,655

34,388

 

 

Design

33,718

34,474

26,759

36,328

 

Coding

 

7,713

34,905

40,244

 

Testing

 

 

 

40,916

896

Training

 

 

 

20,958

9,327

Roll-Out

 

 

 

 

8,186

  1. A) $251,382
  2. B) $389,828
  3. C) $408,237
  4. D) $478,300

Answer:  C

Diff: 1

Section:  8.3 Creating a Project Budget

LO:  8.7: Understand the uses of activity-based budgeting and time-phased budgets for cost estimation and control.

Classification:  Application

AACSB:  Analytical Thinking

 

81) What is the cumulative project budget for September in this time-phased budget?

 

Activity

July

August

September

October

November

RFP

34,721

 

 

 

 

Analysis

11,049

33,655

34,388

 

 

Design

33,718

34,474

26,759

36,328

 

Coding

 

7,713

34,905

40,244

 

Testing

 

 

 

40,916

896

Training

 

 

 

20,958

9,327

Roll-Out

 

 

 

 

8,186

  1. A) $96,052
  2. B) $155,330
  3. C) $152,927
  4. D) $251,382

Answer:  D

Diff: 2

Section:  8.3 Creating a Project Budget

LO:  8.7: Understand the uses of activity-based budgeting and time-phased budgets for cost estimation and control.

Classification:  Application

AACSB:  Analytical Thinking

 

82) What is the total project budget for design in this time-phased budget?

 

Activity

July

August

September

October

November

RFP

34,721

 

 

 

 

Analysis

11,049

33,655

34,388

 

 

Design

33,718

34,474

26,759

36,328

 

Coding

 

7,713

34,905

40,244

 

Testing

 

 

 

40,916

896

Training

 

 

 

20,958

9,327

Roll-Out

 

 

 

 

8,186

  1. A) $131,279
  2. B) $155,330
  3. C) $124,688
  4. D) $146,983

Answer:  A

Diff: 1

Section:  8.3 Creating a Project Budget

LO:  8.7: Understand the uses of activity-based budgeting and time-phased budgets for cost estimation and control.

Classification:  Application

AACSB:  Analytical Thinking

 

83) What is the project budget for November in this time-phased budget?

 

Activity

July

August

September

October

November

RFP

34,721

 

 

 

 

Analysis

11,049

33,655

34,388

 

 

Design

33,718

34,474

26,759

36,328

 

Coding

 

7,713

34,905

40,244

 

Testing

 

 

 

40,916

896

Training

 

 

 

20,958

9,327

Roll-Out

 

 

 

 

8,186

  1. A) $8,186
  2. B) $18,409
  3. C) $389,828
  4. D) $408,237

Answer:  B

Diff: 2

Section:  8.3 Creating a Project Budget

LO:  8.7: Understand the uses of activity-based budgeting and time-phased budgets for cost estimation and control.

Classification:  Application

AACSB:  Analytical Thinking

 

84) Activity-based costing is based on the notion that projects consume activities and activities consume resources.

Answer:  TRUE

Diff: 2

Section:  8.3 Creating a Project Budget

LO:  8.7: Understand the uses of activity-based budgeting and time-phased budgets for cost estimation and control.

Classification:  Concept

AACSB:  Application of Knowledge

 

85) A time-phased budget allocates costs across both project activities and the anticipated time in which the budget is to be expended.

Answer:  TRUE

Diff: 2

Section:  8.3 Creating a Project Budget

LO:  8.7: Understand the uses of activity-based budgeting and time-phased budgets for cost estimation and control.

Classification:  Concept

AACSB:  Application of Knowledge

 

86) Normal conditions, by definition, occur the vast majority of the time in project management.

Answer:  FALSE

Diff: 1

Section:  8.4 Developing Budget Contingencies

LO:  8.7: Understand the uses of activity-based budgeting and time-phased budgets for cost estimation and control.

Classification:  Concept

AACSB:  Analytical Thinking

 

87) What is activity-based costing and how is it performed?

Answer:  Activity-based costing (ABC) is a budgeting method that assigns costs first to activities and then to the projects based on each project's use of resources. It is based on the notion that projects consume activities and activities consume resources. Activity-based costing consists of four steps:

Identify the activities that consume resource and assign costs to them as is done in a bottom-up budgeting process.

Identify the cost drivers associated with the activity.

Compute a cost rate per cost driver unit or transaction.

Assign costs to projects by multiplying the cost driver rate times the volume of cost driver units consumed by the project.

Diff: 1

Section:  8.3 Creating a Project Budget

LO:  8.7: Understand the uses of activity-based budgeting and time-phased budgets for cost estimation and control.

Classification:  Application

AACSB:  Application of Knowledge

88) What is a time-phased budget and how does it help a project manager control costs?

Answer:  A time-phased budget allocates costs across both project activities and the anticipated time in which the budget is to be expended. The budget can be displayed as a table with one dimension representing time and the other dimension representing the major cost categories or the budget can be summarized by a time plot of dollars. A time-phased budget allows the project manager to match the project schedule with a budget baseline, identifying milestones for both schedule performance and project expense.

Diff: 1

Section:  8.3 Creating a Project Budget

LO:  8.7: Understand the uses of activity-based budgeting and time-phased budgets for cost estimation and control.

Classification:  Application

AACSB:  Application of Knowledge

 

89) An allocation of extra funds to cover uncertainties and improve chances that the project can be completed within the timeframe originally specified is a:

  1. A) Setback.
  2. B) Budget contingency.
  3. C) Reallocation budget.
  4. D) Reserve line budget.

Answer:  B

Diff: 2

Section:  8.4 Developing Budget Contingencies

LO:  8.8: Recognize the appropriateness of applying contingency funds for cost estimation.

Classification:  Concept

AACSB:  Application of Knowledge

 

90) Contingency money is:

  1. A) The money that must be received before any project work can begin.
  2. B) Money that is spent first to lock-in all contract guarantees.
  3. C) Not usually a part of the activity-based costing process.
  4. D) Valued at a higher rate than non-contingency money when determining project costs.

Answer:  C

Diff: 2

Section:  8.4 Developing Budget Contingencies

LO:  8.8: Recognize the appropriateness of applying contingency funds for cost estimation.

Classification:  Concept

AACSB:  Application of Knowledge

 

 

91) Contingency money is:

  1. A) Not formally in the project budget, but held in a separate company account for all projects.
  2. B) Added to the project's budget following the identification of all project costs.
  3. C) The first line item in any project budget at an amount dictated by company policy.
  4. D) Not in the project's budget, but calculated and set aside once the project budget is completed.

Answer:  B

Diff: 2

Section:  8.4 Developing Budget Contingencies

LO:  8.8: Recognize the appropriateness of applying contingency funds for cost estimation.

Classification:  Concept

AACSB:  Application of Knowledge

92) It was fortunate that the project budget included contingency funding; the top manager had not foreseen that the project would need the services of their elite slide rule squad in more than one area at the same time. Design couldn't complete their work without their services, nor could marketing, or production. Contingency funds came in handy to meet the unanticipated:

  1. A) Change in project scope.
  2. B) Abnormal project conditions.
  3. C) Consequences of Murphy's Law.
  4. D) Interaction costs.

Answer:  D

Diff: 2

Section:  8.4 Developing Budget Contingencies

LO:  8.8: Recognize the appropriateness of applying contingency funds for cost estimation.

Classification:  Application

AACSB:  Application of Knowledge

 

93) After years of tinkering and reverse engineering initiatives, Kimray had finally unlocked the secrets of the Beta tape format. A quick trip to the rental store was an epiphany for company leadership when they realized that only a handful of Beta tapes were available; the rest of the world had adopted the VHS format seemingly overnight. Now they would have to buy a few of those newfangled VHS machines to see how they ticked. The contingency funds that management had set aside would be put to good use on this:

  1. A) Change in project scope.
  2. B) Abnormal condition.
  3. C) Unanticipated interaction cost.
  4. D) Latest evidence of Murphy's Law.

Answer:  A

Diff: 2

Section:  8.4 Developing Budget Contingencies

LO:  8.8: Recognize the appropriateness of applying contingency funds for cost estimation.

Classification:  Application

AACSB:  Application of Knowledge

 

 

94) "If anything can go wrong it often will" is an articulation of:

  1. A) Taylor's Theorem.
  2. B) Pinto's Postulate.
  3. C) Murphy's Law.
  4. D) The Pareto Principle.

Answer:  C

Diff: 1

Section:  8.4 Developing Budget Contingencies

LO:  8.8: Recognize the appropriateness of applying contingency funds for cost estimation.

Classification:  Concept

AACSB:  Application of Knowledge

95) Project cost estimates usually anticipate that resources will be available, that the weather will not be extreme, and that funding will materialize, creating what are called:

  1. A) Hyperactivity.
  2. B) Standard operating procedures.
  3. C) Standard duress.
  4. D) Normal conditions.

Answer:  D

Diff: 1

Section:  8.4 Developing Budget Contingencies

LO:  8.8: Recognize the appropriateness of applying contingency funds for cost estimation.

Classification:  Application

AACSB:  Application of Knowledge

 

96) "If the weather holds and the utility service has correctly marked the location of the gas, telephone, and electric lines zigzagging across my property, I should be able to install the accent lighting in my back yard in an afternoon's time," the do-it-yourselfer commented to his jealous (and skeptical) neighbor. The only reply he received was his neighbor's, "Good luck with all that, I remember reading somewhere that:

  1. A) Project scope is fixed once the planning period is completed."
  2. B) Normal conditions are rarely encountered."
  3. C) There are no truly external factors in project execution."
  4. D) Activity based costing shouldn't be used in a project of this scale."

Answer:  B

Diff: 1

Section:  8.4 Developing Budget Contingencies

LO:  8.8: Recognize the appropriateness of applying contingency funds for cost estimation.

Classification:  Application

AACSB:  Application of Knowledge

 

 

97) A disadvantage of contingency funds is:

  1. A) A recognition that the future contains both knowns and unknowns and the problems that might arise will impact the budget.
  2. B) It is difficult to ascertain across what project activities contingency funds should be applied.
  3. C) That application to the contingency fund gives an early warning signal of a potential overdrawn budget.
  4. D) That provision is made in the company plans for an increase in project cost.

Answer:  B

Diff: 2

Section:  8.4 Developing Budget Contingencies

LO:  8.8: Recognize the appropriateness of applying contingency funds for cost estimation.

Classification:  Application

AACSB:  Application of Knowledge

98) A contingency rate of 10% on a building project budgeted at $20 million means the project organization is hoping to bring the project in for around:

  1. A) $22 million.
  2. B) $2 million.
  3. C) $18 million.
  4. D) $200 million.

Answer:  C

Diff: 2

Section:  8.4 Developing Budget Contingencies

LO:  8.8: Recognize the appropriateness of applying contingency funds for cost estimation.

Classification:  Application

AACSB:  Analytical Thinking

 

99) An early warning signal for the potential of an overdrawn budget is created when:

  1. A) Activity-based costing cannot identify drivers.
  2. B) A bottom-up budget never makes it up the chain of command.
  3. C) Contingency funds are applied for.
  4. D) A top-down process moves too quickly down to the functional managers.

Answer:  C

Diff: 2

Section:  8.4 Developing Budget Contingencies

LO:  8.8: Recognize the appropriateness of applying contingency funds for cost estimation.

Classification:  Application

AACSB:  Application of Knowledge

 

 

100) A budget contingency of $1 million on a $10 million project means that the project will be planned for a cost of $10 million, but the project organization receives an extra $1 million to guard against unforeseen cost overruns.

Answer:  FALSE

Diff: 1

Section:  8.4 Developing Budget Contingencies

LO:  8.8: Recognize the appropriateness of applying contingency funds for cost estimation.

Classification:  Concept

AACSB:  Analytical Thinking

101) What is a budget contingency and what are three reasons it might be useful?

Answer:  A budget contingency is the allocation of extra funds to cover uncertainties and improve the chances that the project can be completed within the timeframe originally specified. Contingency money is added to the project's budget following the identification of all project costs. The author identifies four reasons why it might make sense to include contingency funding in project cost estimates:

Project scope is subject to change — as the project moves through its development cycle, external events or internal forces can require or call for a change in scope beyond what was initially planned for.

Murphy's Law is always present — if something can go wrong, it will, and this unfortunate circumstance necessitates additional funds to fix the problem.

Cost estimation may not have anticipated interaction costs — one event or work package interacts with another that requires more work from the first. This iteration can be accommodated with contingency funds.

Normal conditions are rarely encountered — projects are planned for a "normal" set of operating conditions and quite often, the abnormal occurs.

Diff: 2

Section:  8.4 Developing Budget Contingencies

LO:  8.8: Recognize the appropriateness of applying contingency funds for cost estimation.

Classification:  Application

AACSB:  Application of Knowledge

 

102) What are three benefits to the use of contingency funds?

Answer:  Use of contingency funds is at first glance not a cause for celebration; however the author identifies three benefits derived from the use of these funds. The first benefit is that their use recognizes that the future contains unknowns and the problems that arise are likely to have a direct effect on the project budget. The project has a cushion of contingency to combat the time and money variance. The second benefit is that the company has already made provision for extra expense and as these funds are used, it opens management's eyes to the possibility of a significant budget increase on the horizon. Finally, application to the contingency funds gives an early warning signal of potential overdrawn budget so management can take a close look at the project and begin formulating additional plans in case the negative trend continues.

Diff: 2

Section:  8.4 Developing Budget Contingencies

LO:  8.8: Recognize the appropriateness of applying contingency funds for cost estimation.

Classification:  Application

AACSB:  Application of Knowledge

 

 

 

 

------

Free Online PROJECT MANAGEMENT

Learning marterial and resources for courses in:

 

1. See full list of videos: LINK

 

2. Free Marketing - 2016 Ebooks (free download)

Project Management: Achieving Competitive Advantage, 4th Edition, 2016, Jeffrey K. Pinto - LINK DOWNLOAD

Project Management: Achieving Competitive Advantage, 3rd Edition, 2013, Jeffrey K. Pinto - LINK DOWNLOAD

MS Project 2010 - Step by Step guides - link download

MS Project 2010 - In Depth - link download

Microsoft Project 2010 - Missing Manual - link download

Using Microsoft Project 2010 - link download

Using Microsoft Project 2010 in 16 minutes - link download

------

Project Management: Processes, Methodologies, and Economics, 3rd Edition, 2017, Avraham Shtub, Moshe Rosenwein

Your Office: Getting Started with Project Management Using Microsoft Project 2016, 2017, Amy S. Kinser, Kristyn A. Jacobson

Project Management Analytics: A Data-Driven Approach to Making Rational and Effective Project Decisions, 2016, Harjit Singh

Agile Project Management with Kanban, 2015, Eric Brechner

Project Management for Construction, 2015, David L. Goetsch, Oskaloosa-Walton

Project Management for Engineering and Technology, 2015, David L. Goetsch, Oskaloosa-Walton

Mastering Project Time Management, Cost Control, and Quality Management, 2015, Randal Wilson

 

MBA Simulation Games 2017 - Excel file for Sales Forecast

EXCEL FILE

FOR SALES FORECAST

AND PRODUCTION

CALCULATION

NOW IT IS FREE !

DOWNLOAD HERE

Also

Free Personal Support for

ROUND 1

ROUND 2

Email: 

winmbasim@gmail.com

MBA Simulation Games 2018 - Ebook - All Winning Guides and Tips

THE E-BOOK

IS NOW FREE

ALL WINNING GUIDES AND TIPS

WIN ALL 8 ROUNDS

Update 2018

New Stratetgies

Download here - LINK

And Free Personal Support

for Round 1 and Round 2

Email: 

winmbasim@gmail.com