Cost Management Practice Questions
Master Cost Management for the PMP exam with comprehensive practice questions, detailed explanations, and proven study strategies.
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What You'll Learn
Cost Management is a critical knowledge area for the PMP exam, as it covers the processes involved in planning, estimating, budgeting, financing, funding, managing, and controlling costs on a project. Effective cost management is essential to ensuring a project stays within its approved budget and delivers value to the organization. This topic tests a candidate's understanding of cost-related concepts, tools, and techniques required to successfully manage a project's financial aspects.
Key Concepts
Cost Management Plan
A component of the project management plan that describes how the project costs will be planned, structured, and controlled.
Cost Estimating
The process of developing an approximation of the monetary resources needed to complete project work.
Cost Budgeting
The process of aggregating the estimated costs of individual activities or work packages to establish a cost baseline for measuring project performance.
Cost Control
The process of monitoring the status of the project to update the project costs and managing changes to the cost baseline.
Earned Value Management (EVM)
A project performance measurement technique that integrates scope, schedule, and resource measurements to assess project performance and progress.
Cost of Quality (COQ)
The total cost incurred in ensuring quality and preventing poor quality, including the costs of appraisal, prevention, and failure.
Parametric Estimating
An estimating technique that uses statistical relationships between historical data and other variables to calculate an estimate for activity parameters, such as cost, budget, and duration.
Common Mistakes to Avoid
- Confusing cost estimating with cost budgeting, and not understanding the distinct purposes and processes of each.
- Failing to create a comprehensive Cost Management Plan that addresses all relevant cost-related processes and control measures.
- Overlooking the importance of tracking and controlling costs throughout the project lifecycle, rather than just during the planning phase.
- Misunderstanding the purpose and application of Earned Value Management (EVM) as a project performance measurement technique.
- Not considering the cost of quality and the impact of prevention, appraisal, and failure costs on the overall project budget.
Sample Cost Management Questions
Question 1
A project manager calculates the Cost Performance Index (CPI) and gets a result of 0.76. How should this value be interpreted?
The project is getting back about 76 cents out of every dollar that is put into it
(Correct)The project is ahead of schedule
The project is currently expected to be 76 percent over budget when completed
The project is progressing at 76 percent of the planned rate
Explanation:
Correct answer: The project is getting back about 76 cents out of every dollar that is put into it The Cost Performance Index (CPI) measures the cost efficiency of budgeted resources, shown as the ratio of earned value to actual cost. The CPI formula is CPI = EV / AC. CPI values > 1.0 indicate a pro...
Question 2
To arrive at the cost baseline during the aggregation process, what element is incorporated?
Contingency reserves
(Correct)Management reserves
Project reserves
Estimate reserves
Explanation:
Correct answer: Contingency reserves Contingency reserves are incorporated in the aggregation process to determine the cost baseline. The aggregation process entails the summation of work package costs to control account costs, and a subsequent summation to arrive at total project costs.
Question 3
Suppose Earned Value (EV) is $500, Actual Cost (AC) is $400, and Budget at Completion (BAC) is $1,000. Presuming future work aligns with the initial plan, what is the Variance at Completion (VAC)?
100
(Correct)900
500
600
Explanation:
Correct answer: 100 The Variance at Completion (VAC) is a projection of the amount of budget deficit or surplus, expressed as the difference between the budget at completion and the estimate at completion. VAC can be calculated with the following formula: VAC = BAC - EAC. Positive = Under planned co...
Study Tips for Cost Management
Thoroughly review the inputs, tools and techniques, and outputs of each cost management process in the PMBOK® Guide.
Practice calculating and interpreting key Earned Value Management (EVM) metrics, such as Cost Performance Index (CPI) and Schedule Performance Index (SPI).
Familiarize yourself with common cost estimating techniques, such as analogous, parametric, and bottom-up estimating, and understand when each is most appropriate.
Understand the role of the Cost Management Plan in integrating and coordinating all cost-related project management activities.
Review sample PMP exam questions related to cost management to identify and address any gaps in your knowledge.
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Frequently Asked Questions
How many Cost Management questions are on the PMP?
Cost Management is an important component of the PMP exam. Upsero includes hundreds of practice questions covering all aspects of this topic.
How do I study for Cost Management?
Start with understanding the key concepts, then practice with realistic exam questions. Upsero's ReadyScore tracks your mastery of Cost Management so you know when you're ready for the real exam.
Are the practice questions similar to the real PMP?
Yes! Our Cost Management questions are designed to match the exact format, difficulty, and style of the actual PMP exam. Many students say our questions are even harder than the real exam.
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