PM Test Center

While planning your budget, you decide to categorize your types of costs. Labor, the biggest cost on the project, is best categorized as a(n):

A. Fixed cost
B. Variable cost
C. Direct cost
D. Indirect cost

Answer: C. Direct cost
Direct costs are those that attribute directly to a particular project. Conversely, indirect costs typically benefit multiple projects, such as overhead costs. One way to look at fixed costs vs. variable costs is that the former do not change as production changes.

Part of your project includes building one hundred widgets. You know that it will take longer and be more costly to do the first widget as opposed to the one-hundredth widget because of improved efficiency. This is known as:

A. Historical information
B. Bottom up estimating
C. Learning curve
D. PERT estimating

Answer: C. Learning curve
A learning curve will lead to improved efficiency since your team will be more experienced as they build the widgets. This is a form a parametric estimating.

During the project selection stage, you learn that the value of Project A is $100,000 and the value of Project B is $75,000. Ultimately, Project A was chosen. As a result, the opportunity cost of that decision is:

A. $100,000
B. $75,000
C. $25,000
D. $175,000

Answer: B. $75,000
The opportunity cost is simply the value of the project not chosen. There is no math involved.

The PERT formula is typically calculated as:

A. (O+M+P)/6
B. (O+4M+P)/6
C. (O+M+P)/3
D. (O+4M+P)/3

Answer: B. (O+4M+P)/6
PERT is a weighted average, typically with emphasis on the most likely (M). PERT is a weighted average, typically with emphasis on the most likely (M). So if you are going to calculate 1x optimistic plus 4x most likely plus 1x pessimistic, then there are six variables. Therefore, you would divide by six to get a weighted estimate.

Six months into a year-long project your CPI is 0.8. However, your SPI is 1.2. This means that the project is:

A. Ahead of schedule and under budget
B. Ahead of schedule and over budget
C. Behind schedule and under budget
D. Behind schedule and over budget

Answer: B. Ahead of schedule and over budget
For both Cost Performance Index (CPI) and Schedule Performance Index (SPI), 1.0 is exactly as planned, over 1.0 is good and under 1.0 is bad. So in this case, the CPI is bad and SPI is good. In this example, the CPI means you are getting $0.80 of value out of every $1 spent (see CPI — what is it trying to tell me?) while the SPI means you are progressing at 120% (i.e. 20% better than planned) of the baseline.

As the project manager with a cost conscience sponsor, you have been monitoring earned value throughout the year long project. At the halfway point, you report that the CPI is 0.8. This means that the project is:

A. Ahead of schedule
B. Under budget
C. Behind schedule
D. Over budget

Answer: D. Over budget
The Cost Performance Index (CPI) determines how much value you are earning per $1 spent. A CPI of 1.0 means you are on target and means that for every $1 you are putting into the project, you are getting $1 of value in return. Therefore, a CPI of 1.5 means that you are getting $1.50 for every $1 you put in, which is a good thing. Conversely, a CPI of 0.8 represents only getting $0.80 per $1, not so good. In short, over 1.0 is good, under 1.0 is bad.

If EV = 25,000, PV = 30,000, and AC = 29,000, what is the CPI?

A. 0.83
B. 0.86
C. 1.16
D. 1.20

Answer: B. 0.86
CPI (Cost Performance Index) is calculated by EV (Earned Value)/AC (Actual Cost). The 0.86 means that the project is getting 86 cents out of every dollar.

Which of the following estimating types takes the most amount of time to prepare?

A. Bottom up
B. Analogous
C. Parametric
D. Top down

Answer: A. Bottom up
Bottom up, also known as engineering, grass roots or definitive estimating, takes a substantial amount of time since it involves estimating each work package. The estimates are then rolled up to sub-project and overall project levels.

You are halfway through your project and your sponsor would like to know how much more the project is expected to cost from now until the end. What earned value metric should you use?

A. CV
B. AC
C. EAC
D. ETC

Answer: D. ETC
ETC (Estimate to Complete) tells you that the project is expected to cost x dollars to complete. This is derived from how much the project is expected to cost currently (EAC) and how much was already spent (AC).

Which of the following estimating types provides the least accuracy?

A. Analogous
B. Engineering
C. Bottom-up
D. Grass roots

Answer: A. Analogous
Analogous is a top-down estimate. It usually only takes a short period of time to estimate since it is based on historical information and expert judgment. As a result, it generally produces less accurate outputs when compared to the others on the list, which provide estimates at the greatest level of detail.