Chapter 7 Industrial Management Study Guide

File: ch07, Chapter 7: 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.
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
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 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. A fully costed work element would include direct costs plus ________.
a) Overhead
b) G&A charges
c) G&A charges and profit
d)