Industrial Management Study Guide

10 October 2016

Budgeting and Cost Estimation Multiple Choice 1. If a project budget is overfunded, 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 chapter 7, introduction. Level: easy 2. If a project budget is underfunded, it will often ________. a) Inhibit accomplishment b) Frustrate committed stakeholders c) Inhibit accomplishment and frustrate committed stakeholders d) Inhibit accomplishment, frustrate committed stakeholders, and reduce costs Ans: c Response: Refer to chapter 7, introduction.

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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 chapter 7, 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 ) Not reflect the timing of expenses associated with the use of resources d) Never be changed during project execution Ans: a Response: Refer to chapter 7, introduction Level: easy 5. In order to develop a budget, the PM must forecast ________. a) The type and quantities of resources required b) The labor rates and prices of resources required c) The type, quantities, prices/rates of resources and when they will be used d) Answer c plus the expected monetary value and relevant uncertainty Ans: d Response: Refer to section 7. 1. Level: intermediate 6.

Level: easy 33. 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. 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 section 7. 2. Level: easy

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