Cost Control

5 minutes 5 Questions

Cost control is the process of comparing the actual costs incurred on the project against the cost baseline and identifying variances, thereby allowing for corrective action. This process includes measuring cost performance, assessing variances, determining root causes, and implementing corrective …

Guide: Understanding Cost Control in Project Management

Importance:
Cost control in project management is an essential process that helps to ensure projects are completed within the approved budget. It involves closely monitoring project cost, avoiding unnecessary expenses, controlling variability of project cost from the project budget and early identification of issues related to the project cost.

What It is:
Cost Control, as a part of the Project Cost Management Knowledge Area, is the process where the project's incurred costs are measured, reviewed, and regulated against the project budget.

How it works:
Cost control involves the following steps:
1. Comparing estimated costs with actual costs in real-time.
2. Recognizing any discrepancies or variances.
3. Understanding the causes of these variances.
4. Implementing changes or corrective actions if needed.

Exam Tips: Answering Questions on Cost Control:
1. Understand the relationship between different components of cost management, including cost estimation, cost budgeting, and cost control.
2. Any given question may interrelate these topics. So, a careful reading of the question is important.
3. Understand key tools and techniques used for cost control, such as Earned Value Management (EVM), forecasting, to-complete performance index (TCPI), and performance reviews.
4. In many cases, simple numerical proficiency, such as being able to calculate variances and indices, may help a lot.
5. Understand that project cost control focuses not only on the cost of completing the remaining work but also on managing changes to the project scope or objectives and mitigating risks.

Test mode:

Exam (Timed)

Practice (With explanations)

Start practice test

PMP - Cost Control Example Questions

Test your knowledge of Cost Control

Question 1

You are nearing the final phase of a critical project and are tracking estimated costs with an Earned Value Management (EVM) system. Your CPI is 1.2 and SPI is 0.9. What should be your next step as a project manager?

Stop the project and reopen planning Ignore the SPI as CPI is favorable Identify reasons for schedule delays and take corrective action Spend more money on the project to meet the schedule

Correct Answer: Identify reasons for schedule delays and take corrective action

The question gives us two key pieces of information: the Cost Performance Index (CPI) is 1.2 and the Schedule Performance Index (SPI) is 0.9. A CPI greater than 1 indicates that the project is under budget, while an SPI less than 1 signifies that the project is behind schedule. Thus, as a project manager, the primary concern should be addressing the schedule delays. The answer 'Identify reasons for schedule delays and take corrective action' is therefore the most appropriate next step. It acknowledges the project's existing issues and proposes a solution for rectifying them. The other options are incorrect for the following reasons: 'Spend more money on the project to meet the schedule' ignores the fact that the project is currently under budget; 'Ignore the SPI as CPI is favorable' overlooks the project's scheduling issues, which is unsuitable from a project management perspective; 'Stop the project and reopen planning' may be an overreaction given that the project is merely behind schedule and not over budget, without considering other alternatives first.

Question 2

In a project, you find that the Cost Performance Index (CPI) is less than 1. What does this indicate?

The project is under budget The project is ahead of schedule The project is behind schedule The project is over budget

Correct Answer: The project is over budget

The Cost Performance Index (CPI) is a measure of the cost efficiency of budgeted resources, expressed as a ratio of earned value over actual cost. If CPI is less than 1, it means that the project is earning less value than the actual cost, indicating the project is over budget. This rules out the second option 'The project is under budget' because a low CPI means the project costs more than planned which is being over budget. Option 3 'The project is ahead of schedule' and Option 4 'The project is behind schedule' are incorrect as CPI is not a time-based measure, it's a cost-based measure.

Question 3

During a project, you notice that the Actual Cost (AC) is consistently higher than the Planned Value (PV) and Earned Value (EV). What cost control technique should you apply first?

Perform a root cause analysis Implement fast-tracking to reduce project duration Request additional funding from project sponsors Revise the cost baseline to reflect the current spending trend

Correct Answer: Perform a root cause analysis

The best answer is to perform a root cause analysis. When Actual Cost (AC) is consistently higher than both Planned Value (PV) and Earned Value (EV), it indicates a significant cost overrun in the project. Before taking any corrective actions, it's crucial to understand the underlying reasons for this discrepancy. Performing a root cause analysis allows the project manager to: 1. Identify the specific factors contributing to the cost overrun 2. Understand the extent and impact of each factor 3. Develop targeted solutions to address the root causes 4. Prevent similar issues from occurring in the future Other options are less appropriate as initial steps: Implementing fast-tracking might reduce project duration but doesn't address the root cause of the cost overrun and could potentially introduce new risks. Requesting additional funding from project sponsors should only be considered after understanding why the current budget is insufficient and exploring other options. Revising the cost baseline to reflect the current spending trend would be premature and potentially mask the underlying issues causing the cost overrun. By performing a root cause analysis first, the project manager can make informed decisions about the most effective cost control measures to implement, ensuring a more sustainable solution to the project's cost issues.

🎓 Unlock Premium Access

Project Management Professional + ALL Certifications

🎓 Access to ALL Certifications: Study for any certification on our platform with one subscription
Earn 35 PDUs needed for your PMP certification
10338 Superior-grade Project Management Professional practice questions
Unlimited practice tests across all certifications
Detailed explanations for every question
PMP: 5 full exams plus all other certification exams
100% Satisfaction Guaranteed: Full refund if unsatisfied
Risk-Free: 7-day free trial with all premium features!

Start Your Free 7-Day Trial