Project management a managerial approach 8th edition meredith test bank

Project Management A Managerial Approach 8th Edition Meredith Test Bank Visit to download the full and correct content document: https://testbankdeal.com/dow nload/project-management-a-managerial-approach-8th-edition-meredith-test-bank/

File: ch07, Chapter 7: Budgeting and Cost Estimation

Multiple Choice

1. If a project budget is over funded, it will often __________. a) produce waste b) encourage slack management c) improve morale d) produce waste and encourage slack management Ans: d Response: Refer to the section: Introduction.

Level: easy

2. If a project budget is under funded, it will often __________. a) stimulate increased performance b) improve utilization of resources c) frustrate committed stakeholders d) reduce costs Ans: c Response: Refer to the section: Introduction.

Level: easy

3. Identify the statement that is not correct regarding a project budget. a) The budget is included in a project plan. b) The budget is not an expression of organizational policy. c) The budget serves as a control mechanism for the project. d) The budget serves as a standard for comparison of planned and actual usage of resources.

Ans: b Response: Refer to the section: Introduction.

Level: intermediate

4. The project’s budget should __________.

a) associate resource use with the achievement of organizational goals b) allow funds to be spent without linkage to achievement c) not reflect the timing of expenses associated with the use of resources d) never be changed during project execution Ans: a Response: Refer to the section: Introduction.

Level: easy

5. In order to develop a budget, the PM must forecast __________. a) the resources required b) when resources will be needed c) the cost of resources d) All of the above Ans: d Response: Refer to the section: Estimating Project Budgets.

Level: intermediate

6. A work element whose cost is fully developed would __________. a) exclude the cost of labor and resources b) include only the profit and direct costs c) exclude the cost of special machinery and overheads d) include direct costs plus overhead and G&A charges Ans: d Response: Refer to the section: Estimating Project Budgets.

Level: intermediate

7. The traditional organizational budget is __________. a) category-oriented b) project-oriented c) program-oriented d) project-oriented or program-oriented Ans: a Response: Refer to the section: Estimating Project Budgets.

Level: intermediate

8. __________ budgeting allows income and expenditures to be aggregated across projects. a) Category-oriented b) Activity-oriented c) Project-oriented d) Expense-oriented Ans: c Response: Refer to the section: Estimating Project Budgets.

Level: intermediate

9. The authors identify __________ estimation errors as the two types of generic estimation errors. a) small and large b) random and planned c) certain and uncertain d) random and systematic Ans: d Response: Refer to the section: Improving the Process of Cost Estimating.

Level: easy

10. If projects include repetitive tasks with significant human input, the __________ rate should be factored into the cost estimate. a) inflation b) hurdle c) interest d) learning Ans: d Response: Refer to the section: Summary.

Level: easy

11. The pattern of deviations in cost and usage used for exception reporting to management is called __________. a) simulations b) assumptions c) variances d) summaries

Ans: c Response: Refer to the section: Glossary.

Level: easy

12. __________ budgeting aggregates income and expenditures by project or program, often in addition to aggregation by organizational unit or activity. a) Activity based b) Capital c) Operational d) Project Ans: d Response: Refer to the section: Glossary.

Level: easy

13. __________ costs vary with output. a) General and administrative b) Overhead c) Direct d) Indirect Ans: c Response: Refer to the section: Glossary.

Level: easy

14. ___________ costs are not associated with any specific product or class of products and are typically charged as a fixed percentage of some direct cost. a) General and administrative b) Overhead c) Direct d) Indirect Ans: b Response: Refer to the section: Glossary.

Level: easy

15. Unless the project manager is familiar with the firm’s __________ it will be very difficult to exercise budget control. a) accounting system b) budget plans c) marketing procedures d) cost accounting Ans: a Response: Refer to the section: Estimating Project Budgets.

Level: easy

16. Research suggests that lower level managers and project team members believe that senior managers have a strong bias towards __________ cost. a) over estimating b) justifying c) explaining d) under estimating Ans: d Response: Refer to the section: Estimating Project Budgets.

Level: easy

17. The __________ form of budgeting has the advantage of using individuals closer to the work to provide estimates of resource requirements. a) top-down budgeting b) work element costing c) bottom-up budgeting d) iterative budgeting Ans: c Feedback: Refer to the section: Estimating Project Budgets.

Level: easy

18. The budget process generally begins when the top management invites each division to submit a__________ for the upcoming year. a) budget request b) predictive budget c) budget estimate d) predictive request

Ans: a Feedback: Refer to the section: Estimating Project Budgets.Process Level: easy

19. A possible reason for the poor record of project cost overruns is __________. a) scope creep b) project managers use optimistic cost estimates c) project managers are unaware of some costs d) all of the above Ans: d Feedback: Refer to the section: Improving the Process of Cost Estimating.

Level: easy

20. An easy method of evaluating risk in certain situations by modifying project parameters and evaluating the corresponding changes is __________. a) Monte Carlo simulations b) risk mitigation c) project budgeting d) risk analysis Ans: a Feedback: Refer to the section: Risk Estimation.

Level: easy

Fill in the blanks

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

Ans: budget Response: Refer to the section: Introduction.

Level: easy

22. The pattern of constraints in a budget embodies organizational __________.

Ans: policy Response: Refer to the section: Introduction.

Level: easy

23. 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.

Ans: G&A (General and Administrative) Response: Refer to the section: Estimating Project Budgets.

Level: easy

24. 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.

Ans: learning Response: Refer to the section: Improving the Process of Cost Estimating.

Level: intermediate

25. 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.

Ans: $1,261,000 Response: Refer to the section: Improving the Process of Cost Estimating.

Level: intermediate

26. 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 __________.

Ans: $1 million Response: Refer to the section: Improving the Process of Cost Estimating. $300,000 / 30% = $1 million.

Level: easy

27. A work element in the project plan requires 50 hours of labor each 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 __________.

Ans: $5,400 Response: Refer to the section: Estimating Project Budgets. (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.

Level: easy

28. Using the data from problem 31, the appropriate cost is __________ if the carpenters consume 10 percent of the workday performing personal activities.

Ans: $5,940 Response: Refer to the section: Estimating Project Budgets. $5,400 * 1.1 = $5,940.

Level: intermediate

29. 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.

Ans: 80 Response: Refer to the section: Improving the Process of Cost Estimating.

48 / 60 = 80 percent Level: intermediate

30. 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.

Ans: 6.48 hours Response: Refer to the section: Improving the Process of Cost Estimating. (8 hours) * (.9) * (.9) = 6.48 hours Level: intermediate

31. __________ relies on well-known statistical correlations between various factors such as the total cost of a house relative to the square feet of living area.

Ans: Parametric estimating Response: Refer to the section: Estimating Project Budgets.

Level: intermediate

32. A budget strategy that is based on collecting the judgments and experiences of top and middle managers is referred to as the __________.

Ans: top-down budgeting Response: Refer to the section: Estimating Project Budgets.

Level: easy

33. __________ states that adding manpower to a late software project makes it later.

Ans: Brooks’ Law Response: Refer to the section: Improving the Process of Cost Estimating.

Level: intermediate

34. The determination of costs for a new process should utilize a __________, or operations sequence sheet which describes the operation in which the new process would be used.

Ans: route sheet Response: Refer to the section: Risk Estimation.

Level:

Essay

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

Ans: 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.

Response: Refer to the section: Estimating Project Budgets.

Level: easy

33. Describe the top-down budgeting process.

Ans: 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. Response: Refer to the section: Estimating Project Budgets.

Level: easy

34. Describe the bottom-up budgeting process.

Ans: 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.

Response: Refer to the section: Estimating Project Budgets.

Level: easy

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

Ans: 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.

Response: Refer to the section: Estimating Project Budgets.

Level: easy

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

Ans: 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.

Response: Refer to the section: Improving the Process of Cost Estimating.

Level: easy

37. Suggest some reasons why the authors insist that the project manager must be familiar with the organization’s accounting system.

Ans: Since each organization has its own unique way of managing its accounts, its own idiosyncrasies, it is very important that the project manager be in tune with how the firm pays its bills and acquires its resources. Without such knowledge the project manager can run into serious difficulties with functional managers, the finance department, purchasing, Human Resources and others. The project manager’s job is difficult enough without creating new problems.

Response: Refer to the section: Estimating Project Budgets.

Level: intermediate