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True/False Indicate whether the statement is true or false. F F T T F F T F F F T T F T T T F F F T F T T F T F 1. Although information technology projects have a poor track record in meeting project goals, they have a good track record in meeting budget goals. 2. Preparing cost estimates is a job for accountants. 3. Any new technology or business process is untested and has inherent risks. 4. Many projects that are started never finish because of cost management problems. 5. When justifying investments in new information systems and technology, the focus should only be on revenues or expenses. 6. Organizations have a history of spending too much money in the early phases of information technology projects. 7. Project managers must conduct cash flow analysis to determine net present value. 8. Direct costs cannot be directly attributed to a certain project. 9. When deciding what projects to invest in or continue, you should include sunk costs. 10. Learning curve theory does not apply to the amount of time it takes to complete some tasks. 11. If a project manager gets sick for two weeks or an important supplier goes out of business, management reserve could be set aside to cover the resulting costs. 12. ROM estimates can be referred to as a ballpark estimate, a guesstimate, a swag, or a broad gauge. 13. A definitive estimate should be the least accurate of the three types of estimates. 14. Estimates are usually done at various stages of a project and should become more accurate as time progresses. 15. The cost management plan is part of the overall project management plan. 16. A large percentage of total project costs are often labor costs. 17. Parametric models are least reliable when historical information was used to create the model. 18. When developing an estimate for a large software project, estimates cannot be made before clear system requirements have been produced. 19. The people who develop software cost estimates often have a great deal of experience with cost estimation. 20. Every cost estimate is unique. 21. The WBS is not a required input when developing a cost estimate. 22. Most organizations have a well-established process for preparing budgets. 23. Cost budgeting provides information for project funding requirements. 24. There does not need to be a change control system to define procedures for changing the cost baseline. 25. The formulas for variances and indexes start with EV, the earned value. 26. If cost variance is a positive number, it means that performing the work cost more than planned.

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27. If the cost performance index is less than one or less than 100 percent, the project is under budget. 28. In an earned value chart, when the actual cost line is right on or above the earned value line, costs are less than or equal to planned. 29. Many projects, particularly information technology projects, do not have good planning information, so tracking performance against a plan might produce misleading information. 30. Databases are a common tool for cost estimating, cost budgeting, and cost control.

Multiple Choice Identify the choice that best completes the statement or answers the question. C 31. The Standish Groups CHAOS studies reported an average cost overrun for unsuccessful IT projects ranged from 180 percent in 1994 to ____ percent in 2004. a. 28 c. 56 b. 43 d. 73 32. Three separate surveys of software project cost overruns found that the average cost overrun for all of the projects in their survey samples (not just unsuccessful projects) were ____ percent. a. 1314 c. 3334 b. 2324 d. 4344 33. ____ includes the processes required to ensure that a project team completes a project within an approved budget. a. Cost budgeting c. Cost control b. Cost estimating d. Project cost management 34. ____ involves developing an approximation or estimate of the costs of the resources needed to complete a project. a. Determining the budget c. Controlling costs b. Consolidation of costs d. Estimating costs 35. ____ involves allocating the overall cost estimate to individual work items to establish a baseline for measuring performance. a. Determining the budget c. Controlling costs b. Consolidation of costs d. Estimating costs 36. ____ is the ratio of revenues to profits. a. Profit c. Cost structure b. Profit margin d. Cost margin 37. ____ helps you develop an accurate projection of a projects financial costs and benefits. a. Profit cycle costing c. Life cycle costing b. Financial costing d. Profit margin costing 38. ____, with assistance from financial experts in their organizations, should create estimates of the costs and benefits of the project for its entire life cycle. a. Financial managers c. Budget managers b. Project managers d. System managers 39. Since organizations depend on reliable information technology, there are also huge costs associated with ____. a. work time c. uptime b. technical planning d. downtime 40. ____ is a method for determining the estimated annual costs and benefits for a project and the resulting annual cash flow. a. Life cycle costing c. Cost estimating b. Profit margin analysis d. Cash flow analysis

41. ____ are those costs that an organization can easily measure in dollars. a. Intangible costs c. Tangible costs b. Direct costs d. Indirect costs 42. Project managers should focus on ____, since they can control them. a. sunk costs c. direct costs b. indirect costs d. intangible costs 43. ____ are costs that are not directly related to the products or services of the project, but are indirectly related to performing the project. a. Intangible costs c. Direct costs b. Tangible costs d. Indirect costs 44. ____ should be forgotten. a. Sunk costs c. Direct costs b. Indirect costs d. Intangible costs 45. ____ allow for future situations that may be partially planned for. a. Contingency reserves c. Unknown unknowns b. Management reserves d. Direct reserves 46. ____ allow for future situations that are unpredictable. a. Contingency reserves c. Known unknowns b. Management reserves d. Indirect reserves 47. A ____ provides an estimate of what a project will cost. a. budgetary estimate c. rough order of magnitude estimate b. definitive estimate d. final estimate 48. A ____ is done very early in a project or even before a project is officially started. a. budgetary estimate c. rough order of magnitude estimate b. definitive estimate d. final estimate 49. A ____ is used to allocate money into an organizations budget. a. budgetary estimate c. rough order of magnitude estimate b. definitive estimate d. final estimate 50. A ____ is used for making many purchasing decisions for which accurate estimates are required and for estimating final project costs. a. budgetary estimate c. rough order of magnitude estimate b. definitive estimate d. final estimate 51. ____ use the actual cost of a previous, similar project as the basis for estimating the cost of the current project. a. Actual estimates c. Bottom-up estimates b. Parametric estimates d. Analogous estimates 52. ____ involve estimating individual work items or activities and summing them to get a project total. a. Actual estimates c. Bottom-up estimates b. Parametric estimates d. Analogous estimates 53. A(n) ____ might provide an estimate of $50 per line of code for a software development project based on the programming language the project is using, the level of expertise of the programmers, the size and complexity of the data involved, and so on. a. analogous cost estimate c. bottom-up estimate b. parametric model d. reserve analysis 54. Tom DeMarco, a well-known author on software development, suggests ____ reasons for the inaccuracies of many information technology project cost estimates and some ways to overcome them. a. three c. five b. four d. six

55. If the cost estimate will be the basis for contract awards and performance reporting, it should be a ____ and as accurate as possible. a. budgetary estimate c. rough order of magnitude estimate b. definitive estimate d. final estimate 56. The main goal of the ____ process is to produce a cost baseline for measuring project performance and project funding requirements. a. cost budgeting c. cost control b. cost consolidation d. cost estimating 57. A ____ is a time-phased budget that project managers use to measure and monitor cost performance. a. budget baseline c. cost baseline b. ledger d. cost line 58. The project management plan, project funding requirements, work performance data, and organizational process assets are inputs for the process of ____. a. controlling costs c. consolidating costs b. budgeting costs d. estimating costs 59. ____ is a project performance measurement technique that integrates scope, time, and cost data. a. Cost baseline c. Constructive cost modeling b. Earned value management d. Parametric modeling 60. The ____ is that portion of the approved total cost estimate planned to be spent on an activity during a given period. a. AC c. RP b. EV d. PV 61. The ____ is the ratio of actual work completed to the percentage of work planned to have been completed at any given time during the life of the project or activity. a. AC c. RP b. EV d. PV 62. The ____ is an estimate of the value of the physical work actually completed. a. AC c. RP b. EV d. PV 63. The ____ is the total direct and indirect costs incurred in accomplishing work on an activity during a given period. a. AC c. RP b. EV d. PV 64. Variances are calculated by subtracting the actual cost or planned value from ____. a. EV c. PV b. AC d. RP 65. ____ is the earned value minus the actual cost. a. SV c. CPI b. CV d. SPI 66. ____ is the earned value minus the planned value. a. SV c. CPI b. CV d. SPI 67. The ____ is the ratio of earned value to actual cost and can be used to estimate the projected cost of completing the project. a. SV c. CPI b. CV d. SPI 68. The ____ is the ratio of earned value to planned value and can be used to estimate the projected time to complete the project.

a. SV c. CPI b. CV d. SPI 69. The ____ is an estimate of what it will cost to complete the project based on performance to date. a. CPI c. EAC b. SV d. SPI 70. Using simplified percentage complete amounts for a one-year project with weekly reporting and an average task or work packet size of one week, you can expect about a(n) ____ percent error rate. a. 1 c. 11 b. 5 d. 15

Completion Complete each statement. 71. Using good __________cost management_______________ can change the false perception that costs grow and failures are to be expected. 72. The main outputs of the _________cost estimating___________ process are activity cost estimates, basis of estimates, and project document updates. 73. The main outputs of the __________cost budgeting__________ process are a cost performance baseline, project funding requirements, and project document updates. 74. The main outputs of the __________cost control__________ process are work performance measurements, budget forecasts, organizational process asset updates, change requests, project management plan updates, and project document updates. 75. Information technology project managers need to be able to present and discuss project information in ________financial____________ terms as well as in technical terms. 76. _________Profits___________ are revenues minus expenditures. 77. ________Life cycle costing____________ allows you to see a big-picture view of the cost of a project throughout its life cycle. 78. __________Life cycle costing__________ considers the total cost of ownership, or development plus support costs, for a project. 79. _________Intangible___________ costs or benefits are costs or benefits that are difficult to measure in monetary terms. 80. _________Sunk___________ cost is money that has been spent in the past. 81. _________Learning curve theory___________ states that when many items are produced repetitively, the unit cost of those items decreases in a regular pattern as more units are produced. 82. A(n) ______cost management plan______________ is a document that describes how the organization will manage cost variances on the project. 83. _________Labor___________ costs are often much higher for contractors. 84. _________Parametric modeling___________ uses project characteristics in a mathematical model to estimate project costs. 85. In practice, many people find that using a combination or hybrid approach involving analogous, bottom up, and/or parametric modeling provides the best ________cost estimates____________.

86. It is helpful to analyze the total dollar value as well as the percentage of the total amount for each major __________work breakdown structure (WBS)____________________ category. 87. Its important for the team to _________document___________ assumptions they made when developing the cost baseline and have several experts review it. 88. In addition to providing input for budgetary estimates, cost budgeting provides a(n) _______cost baseline_____________. 89. _________Microsoft Project 2007___________ has many cost management features to help you enter budgeted costs, set a baseline, enter actuals, calculate variances, and run various cost reports. 90. A(n) _________baseline___________ is the original project plan plus approved changes. 91. After you total the EV, AC, and PV data for all activities on a project, you can use the CPI and _______________schedule performance index (SPI)____________________ to project how much it will cost and how long it will take to finish the project based on performance to date. 92. In general, ________negative____________ numbers for cost and schedule variance indicate problems in those areas. 93. _____________Cost performance index (CPI)____________ and SPI less than one or less than 100 percent indicate problems. 94. The cost performance index can be used to calculate the ________estimate at completion (EAC)______________________. 95. Many organizations now collect and control an entire suite of projects or investments as one set of interrelated activities in one place, called a(n) _________portfolio___________.