Project Management Test 3.7

Front 1

Projects that produce waste and encourage slack management often do so because the project budget is __________.

Back 1

over funded

Front 2

In order for the project manager to accurately exercise budgetary control over the project, he or she must be able to first understand the __________.

Back 2

organizational accounting system

Front 3

A fully costed work element would include __________ costs plus overhead and G&A charges.

Back 3

direct

Front 4

The two generic types of estimation error are __________.

Back 4

random and systematic

Front 5

__________ are those costs that include the cost of senior management, various staff functions, and other expenses not included in overhead.

Back 5

General and administrative costs

Front 6

__________ are those costs which vary with output.

Back 6

Direct costs

Front 7

__________ budgeting aggregates income and expenditures across projects.

Back 7

Project

Front 8

For projects that include repetitive tasks with significant human input, the __________ rate should be factored into the cost estimate.

Back 8

learning

Front 9

The pattern of __________ in a budget embodies organizational policy.

Back 9

constraints

Front 10

The learning rate suggests that each time the quantity of output __________, the worker hours per unit decrease to a fixed percentage of their previous value.

Back 10

doubles

Front 11

The budget is not an expression of organizational policy.

Back 11

False

Front 12

The traditional organizational budget is category-oriented or activity-oriented.

Back 12

True

Front 13

Suppose that a person requires 48 minutes to complete a work element on the first attempt. On the second attempt, the work element is completed in 60 minutes. Therefore, the learning rate of this person is 80% for this work element

Back 13

False

Front 14

A method of evaluating risk in certain situations by modifying project parameters and evaluating the corresponding changes is called Monte Carlo simulation.

Back 14

True

Front 15

Risk analysis is the pattern of deviations in costs and usage used for exception reporting to management.

Back 15

False

Front 16

If a project budget is overfunded, it will often ________.

Back 16

Produce waste and encourage slack management

Front 17

If a project budget is underfunded, it will often ________.

Back 17

Inhibit accomplishment and frustrate committed stakeholders

Front 18

Identify the statement that is not correct regarding a project budget.

Back 18

The budget is not an expression of organizational policy

Front 19

The project’s budget should ________.

Back 19

Associate resource use with the achievement of organizational goals

Front 20

In order to develop a budget, the PM must forecast ________.

Back 20

Answer c plus the expected monetary value and relevant uncertainty

Front 21

A fully costed work element would include direct costs plus ________.

Back 21

Overhead and G&A charges

Front 22

The traditional organizational budget is ________.

Back 22

Category-oriented or activity-oriented

Front 23

________ budgeting aggregates income and expenditures across projects.

Back 23

Program-oriented

Front 24

The authors identify ________ estimation errors as the two types of generic estimation errors.

Back 24

Random and systematic

Front 25

The tracking signal, computed as TS = RSFE/MAD measures ________.

Back 25

The estimator’s bias

Front 26

If forecast errors are normally distributed, MAD is approximately ________% of a standard deviation.

Back 26

80 percent

Front 27

If the estimator's errors are truly random, the value of the running sum of forecast errors (RSFE) should approach ________.

Back 27

Zero

Front 28

If projects include repetitive tasks with significant human input, the ________ rate should be factored into the cost estimate.

Back 28

Learning

Front 29

The pattern of deviations in cost and usage used for exception reporting to management is called ________.

Back 29

Variances

Front 30

________ budgeting aggregates income and expenditures by project or program, often in addition to aggregation by organizational unit or activity.

Back 30

Program

Front 31

A ________ is a plan for allocating resources. The allocation of resources indicates the degree to which different activities of an organization are fully supported.

Back 31

budget

Front 32

The pattern of constraints in a budget embodies organizational ________.

Back 32

policy

Front 33

The ________ charge is composed of the costs of senior management, the various data functions, and any other expenses not included in overhead. Often, these charges are a fixed percentage of either the direct costs or the total of all direct and indirect costs.

Back 33

G&A (General and Administrative)

Front 34

Each time the output doubles, the worker hours per unit decrease to a fixed percentage of their previous value. That percentage is called the ________ rate.

Back 34

learning

Front 35

Given a project salary cost of $400,000 per year and forecasted wage increases of 5 percent per year, calculate the nondiscounted total salary cost over a three-year project lifecycle.

Back 35

$1,261,000

$1,261,000 = $400,000 + $420,000 + $441,000.

Front 36

The arithmetic average of the absolute values of differences between the forecast and observed results is called ________.

Back 36

mean absolute deviation (MAD).

Front 37

You have been asked to estimate the costs for a project to build an industrial power plant. Based on historical data, the steam turbine accounts for 30 percent of the total costs for the plant. If the steam turbine costs $300,000, the expected top-down estimated cost for this project would be ________?

Back 37

$1 million

$300,000 / 30% = $1 million.

Front 38

A work element in the project plan requires 50 hours of labor by four carpenters. The carpenters are paid $15 per hour and incur an overhead rate equal to 80 percent of their direct labor charges. Based on this data, the appropriate cost is ________.

Back 38

$5,400

(4 carpenters) * ($15 per hour) = $60 per hour for direct labor. ($60 per hour direct labor) * (50 hours) = $3,000 direct labor charges. ($3000 direct labor charges) * (80 percent overhead rate) = $2,400 overhead charge. The appropriate cost therefore equals $3,000 plus $2,400.

Front 39

Using the data from problem 23, the appropriate cost is ________ if the carpenters consume 10 percent of the workday performing personal activities.

Back 39

$5,940

$5,400 * 1.1 = $5,940.

Front 40

Suppose that a person requires 60 minutes to complete a work element on the first attempt. On the second attempt, the work element is completed in 48 minutes. The learning rate for this person is ________% for this work element.

Back 40

80

48 / 60 = 80 percent

Front 41

Suppose that a person requires eight hours to complete a work element on the first attempt. That person has a learning rate of 90 percent for this work element. This person should require ________ hours to complete this work element on the fourth attempt.

Back 41

6.48 hours

(8 hours) * (.9) * (.9) = 6.48 hours

Front 42

Assume that you are writing a computer software module having 50 lines of code. Each line of code is 99 percent reliable. If reliability cannot be improved, there is a ________% chance that this module will work correctly

Back 42

60.5

Raise .99 percent to the 50th power. In order to work correctly, each line in the program must work correctly.

Front 43

The tracking signal is analogous to the z-score because the tracking signal calculates the number of ________ in the running sum of forecast error.

Back 43

MADs

Front 44

Identify some of the common problems faced by the project budgeter.

Back 44

The project budgeter cannot depend on tradition. At project inception there may be no past budgets to use as a base. At other times, the budgeter may have budgets and all other reports for similar projects to serve as guides, but these are rough guides at best. Moreover, all projects are unique and all project budgets are based on forecasts of resource usage and associated cost. Therefore, budget estimates involve risk. A prudent estimator will incorporate the expected value of the resources being used in the project and provide a range of uncertainty around the expected monetary value. Moreover, as execution progresses, the authorized scope of work may change in a manner that alters resource usage. In addition, as the duration of a project lengthens, inflation and the time value of money become important factors in assessing the cost-benefit relationship of the project. Budgets also depend on accounting assumptions. These assumptions will include how to recognize and capture indirect costs during the project’s execution.

Front 45

Describe the top-down budgeting process.

Back 45

This process collects the judgments and experiences of top and middle managers as well as any appropriate analogies concerning similar activities. Sometimes referred to as analogous estimating, the overall project costs and the costs of the major subprojects that comprise it are determined. Then, these cost estimates are given to lower-level managers, who are expected to continue the breakdown into budget estimates for the specific tasks and work packages that comprise the subprojects. This process parallels the hierarchical planning process used to create the WBS.

Front 46

Describe the bottom-up budgeting process.

Back 46

Elemental tasks, their schedules, and their individual budgets are constructed using the WBS as a model. The people doing the work are consulted regarding times and budgets for the tasks to ensure the best level of accuracy. Initial estimates are made in terms of resources, such as labor hours and materials. These estimates are converted to dollar equivalents. Analytic tools such as the learning curve and work sampling are employed as appropriate to improve the estimates. Once differences of opinion have been resolved, the resulting task budgets are aggregated to give the total direct costs of the project. Then, indirect costs such as SG&A expenses are added along with contiguous the allowances and the desired profit.

Front 47

Explain why senior managers view the bottom-up budgeting process as being risky.

Back 47

Senior managers may not be particularly trusting of ambitious subordinates who may overstate resource requirements in an attempt to ensure success and build empires. Moreover, since the budget is an important tool for control of the organization, senior managers are reluctant to handover that control to subordinates whose experience and motives are questionable.

Front 48

Suggests some reasons why an organization would support projects that show a significant incremental profit over direct costs but are not profitable when fully costed.

Back 48

Reasons for undertaking this type of project would include: developing knowledge of the technology, getting the organization's foot in the door, obtaining the parts or service portion of the work, positioning for a follow-on contract, improving competitive position, broadening a product line or a line of business.