Project Finance Management

Correct Answer: Earned Value Management (EVM)

Earned Value Management (EVM) is the most effective technique for identifying cost variances and potential overruns in project management. Here's why:

EVM is a powerful project management technique that combines scope, schedule, and cost data to provide a comprehensive view of project performance. It allows project managers to:

1. Measure project progress in terms of cost and schedule
2. Compare actual performance against planned performance
3. Identify variances and trends
4. Forecast future project performance and costs

EVM uses metrics such as Cost Performance Index (CPI) and Schedule Performance Index (SPI) to quantify project performance, making it easier to detect cost overruns and schedule delays early in the project lifecycle.

The other options are less suitable for this specific task:

Cost-Benefit Analysis (CBA) is primarily used to evaluate the feasibility of a project or compare different project alternatives. It doesn't provide ongoing monitoring of project costs.

Return on Investment (ROI) calculation is used to assess the profitability of a project or investment. It's not designed for continuous cost monitoring or identifying variances during project execution.

Activity-Based Costing (ABC) is a costing method that assigns overhead and indirect costs to specific activities. While it can provide detailed cost information, it's not as effective as EVM for ongoing project cost control and identifying variances in real-time.

In conclusion, Earned Value Management is the most suitable technique for a CAPM to implement effective cost control measures and identify cost variances and potential overruns in a project.

Correct Answer: Update the risk register and devise a risk response strategy.

The correct answer is 'Update the risk register and devise a risk response strategy.' This is the most appropriate way to handle a newly discovered risk. By updating the risk register, you are formally documenting the risk, and by creating a risk response strategy, you are actively addressing it. This ensures a structured and organized approach to managing the risk. The other answers are incorrect for the following reasons: 'Ignore the risk if it's not going to occur in the immediate future' is not good practice, as risks should be addressed as soon as they are identified, regardless of when they may manifest. 'Add extra funds to the budget without analyzing the risk' does not effectively address the root cause of the risk, and can lead to further mishandling of project resources. 'Cancel the project to avoid the risk' is a severe and premature action. Risks are inherent in all projects, and proper risk management, rather than abandonment, is the key to successful project completion.

Correct Answer: Make use of the reserved management reserve fund to tackle unexpected costs.

The best action to take as a CAPM faced with low probability risks that could negatively impact the costs during the execution phase of a project, would be to 'Make use of the reserved management reserve fund to tackle unexpected costs.' This is because the management reserve fund exists precisely for situations like this - to address unforeseen issues or risks that might rise during the project lifecycle. The other answers are not best practices in project management: ignoring the risks because they have a low probability of occurrence could lead to major problems if they do indeed occur. Adding additional activities to increase the project value doesn't necessarily offset costs, and could even exacerbate the risks. Passing on the cost increases to the client immediately may be seen as unprofessional, as project managers are expected to manage such issues with the allocated budget in most cases.