TOPIC: Free CAPM® Exam Sample Question

Which of the following should be included as part of the cost baseline? (Choose three)

A. Management reserves
B. Contingency reserves
C. Work package cost estimates
D. Project budget
E. Activity cost estimates
F. Duration estimates

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HINT: The project budget is made up of the cost baseline and management reserves.

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Answer and Explanation:
The correct answers are B, C, and E.

The cost baseline is the approved version of the time-phased project budget, excluding any management reserves, which can be changed only through formal change control procedures and is used as a basis for comparison to actual results. The cost baseline can include contingency reserves, work package cost estimates, and activity cost estimates. The management reserves are held outside of the cost baseline and included as part of the project budget.

Details for each option:

A. Incorrect. The management reserve is the amount of the project budget that is held outside of the cost baseline for management control purposes. Management reserves are allocated to address unforeseen work that is within the scope of the project.

B. Correct. As it applies to cost management, contingency reserves represent money allocated in the cost baseline for known risks with active response strategies. Contingency reserves along with the work package cost estimates comprise control accounts.

C. Correct. Work packages are represented by the work defined at the lowest level of the work breakdown structure for which cost and duration are estimated and managed. Work package cost estimates would be included as part of the cost baseline.

D. Incorrect. The project budget is the total approved estimate for the project. The project budget includes management reserves, which are funds held outside of the cost baseline. In other words, it is the cost baseline that is included in the project budget rather than the project budget being part of the cost baseline.

E. Correct. The work package level of the work breakdown structure (WBS) can be further decomposed into activities. When cost estimates are made at the activity level, they are included as part of the cost baseline.

F. Incorrect. Duration estimates are an output of the Estimate Activity Durations process, which belongs to the Project Schedule Management Knowledge Area rather than the Project Cost Management Knowledge Area.

Reference: A Guide to the Project Management Body of Knowledge (PMBOK^® Guide) – Seventh Edition, Project Management Institute Inc., 2021
2.4.2.4 Budget
4.6.5 BASELINES

Process Groups: A Practice Guide, Project Management Institute Inc., 2023
5.13 Determine Budget
9 Inputs and Outputs