Resource Costing

5 minutes 5 Questions

Resource Costing is the process of determining the cost of each resource used in a project. This includes labor, materials, equipment, and other resources needed to complete the project. It is important in project cost management to accurately estimate the cost of resources to ensure a realistic bu…

Resource Costing: A Comprehensive Guide for PMP Exams

Resource Costing is an essential aspect of cost management, as mentioned in the PMBOK Guide Seventh Edition.

Importance of Resource Costing:

It is vital because it helps project managers to estimate the cost of the resources required for a project. It enables effective budget allocation and cost control, thus reducing the potential for financial risk.

What is Resource Costing? :

Resource Costing is the process of forecasting the cost of resources (human resources, equipment, materials, etc.) needed to complete a project. It also includes cost adjustments and assessing impact of resource cost changes.

How it works? :

Resource Costing works by identifying all required resources, determining the unit cost of each, and estimating the quantities needed. The total resource costs are then added to get the total project cost.

Exam Tips: Answering Questions on Resource Costing :

Understand the concept of Resource Costing thoroughly. Know what factors are taken into account when calculating resource costs such as labor rates, material costs, equipment costs.

For calculation-based questions, carefully read the problem, extract the relevant information and apply the correct formulas.

In scenario-based questions, try to understand the context of the scenario, then apply the principles of Resource Costing to answer effectively.

Remember to regularly review and practice sample questions and mock tests to reinforce your understanding and speed.

Finally, maintaining a calm mind during the exam will help you concentrate better and answer efficiently.

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PMP - Resource Costing Example Questions

Test your knowledge of Resource Costing

Question 1

In resource costing, the ________ rate is the standard cost for a resource per unit of time.

Nominal Base Standard Burdened

Correct Answer: Burdened

The correct answer is 'Burdened' rate. In resource costing for project management, the burdened rate is the standard cost for a resource per unit of time. This rate includes not only the base salary or wage of the resource but also additional costs such as benefits, taxes, and overhead expenses. Here's why the other options are incorrect: 1. Standard rate: While this term is used in some contexts, it's not the specific term used for the comprehensive cost per unit of time in resource costing. 2. Base rate: This typically refers to the basic salary or wage rate before additional costs are added. It doesn't include the full spectrum of costs associated with a resource. 3. Nominal rate: This term is more commonly used in financial contexts, particularly with interest rates. It's not the appropriate term for resource costing in project management. The burdened rate is crucial for accurate project budgeting and cost estimation, as it provides a more complete picture of the true cost of resources over time.

Question 2

A project has a budget of $100,000 for equipment rentals. During the project, the cost of rentals increases unexpectedly. The project manager decides to purchase the equipment instead to save costs. What is the best course of action?

Request additional budget from the client for equipment rentals. Cancel the project due to increased costs. Immediately purchase the equipment regardless of cost. Perform a cost-benefit analysis to determine if purchasing equipment is more beneficial.

Correct Answer: Perform a cost-benefit analysis to determine if purchasing equipment is more beneficial.

The best course of action in this situation would be to perform a cost-benefit analysis to determine if purchasing equipment is more beneficial. This is the most prudent approach, as it would provide a factual basis for decision-making, and it would take into account any potential long-term savings. Immediately purchasing the equipment without assessing the costs could result in financial losses. Likewise, cancelling the project due to increased costs or requesting additional budget from the client may not be viable options, especially if the project is essential and the client is unable or unwilling to increase the budget. Therefore, performing a cost-benefit analysis is the best option here, as it would help to inform the project manager's decision and ensure the most effective use of resources.

Question 3

As a PMP, you observed that a particular resource cost is consistently going over budget. What is the most appropriate next step?

Replace the resource with a cheaper one Perform a variance analysis to identify the cause Ignore the overcost as it may balance out in the end Immediately cut the budget of the resource

Correct Answer: Perform a variance analysis to identify the cause

The most appropriate next step would be to 'Perform a variance analysis to identify the cause'. This would help to identify why the resource cost is consistently going over budget. It could be due to several reasons such as changes in market rates, changes in project scope, or poor estimations. Understanding the root cause is crucial to come up with a corrective action. 'Immediately cutting the budget of the resource' without studying the cause may lead to compromising project quality and hampering its outcome. 'Replacing the resource with a cheaper one' may not always be feasible or may result in reduced output. 'Ignoring the overcost as it may balance out in the end' is not a proactive approach to project cost management, and it's not guaranteed that it will balance out eventually. Hence, these other options are not the best course of action.

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