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TOPIC: Cost Management question

Cost Management question 1 year 2 months ago #6116

  • Nishant Desai
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Hi,

I found below question in book "Achieve PMP exam success-5th edition" in sample question under cost management.

The Project Budget should include all costs for:
(a) All resource that will be charged to the project
(b) The project and related project in the program
(c) Contingencies for unknown risks
(d) Ongoing operation and maintenance of the project's product

I eliminated answers B and D (D is talking about life cycle costs).

I chose answer C which talks about Management Reserves which is a Part of Project Budget , but not a part of Cost Baseline.

I would have chosen, answer A, if question has asked about cost baseline rather than budget.

Answer given in this book is A, which says that Management reserves are separate from project budget.

Can you please help me understanding this Q&A?

Thanks,
ND

Cost Management question 1 year 2 months ago #6118

  • Jonathan Emmons
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Hi Nishant -

I think this is just a poorly worded question. You are correct that if it had asked about the cost baseline, that you would be able to rule out option C, which references (albeit with confusing wording) the management reserves. Since it asked about the budget, however, both A and C would seem to be technically correct.

Based on the answer feedback, it would appear that whoever wrote the question is indeed confusing budget with baseline. So we can write this one off as a bad question. (And though I am not familiar with the book you referenced, I would have doubts about the quality of the information presented based on what you have shared.)

That being said, if this were a real exam question that you ran across and you had two answers that seemed to be correct, this is when you have to go with the "best option available" approach. In this case, answer choice A is clearly correct, since this is included in both the budget and cost baseline, whereas choice C is only correct in one of those two interpretations. So your best bet would be to go with A, since that is probably what the question author had in mind. (In practice, though, I doubt this particular question would have made it through the review process and onto the actual exam.)
Jonathan Emmons, PMP
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Cost Management question 1 year 2 months ago #6119

  • Michael DeCicco
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ND,
The question asks you what a project manager includes in the project budget. The answer is everything you as project manager will charge for the costs of running the project.

Project management doctrine described in PMBOK 5th Ed identifies management reserves as something outside the scope of a project manager's financial control. Any budget reserves for unknown risks would be retrieved from the management board's budget and not the project budget itself. As a project manager, you would account for risks through risk management and you will apply some budgeting to the cost of dealing with residual risks. You know these risks, but you don't know about the unknown risks and so when something like that happens, you have to go your management board for additional resources.
Yours Respectfully
Michael DeCicco, PMP
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Cost Management question 1 year 2 months ago #6120

  • Jonathan Emmons
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Actually, Michael, the PMBOK Guide does include management reserves as part of the budget (just not the cost baseline). See page 206:

Estimates may also be produced for the amount of management reserve to be funded for the project. Management reserves are an amount of the project budget withheld for management control purposes and are reserved for unforeseen work that is within the scope of the project [...] The management reserve is not included in the cost baseline but is part of the overall project budget and funding requirements ... (Emphasis mine.)

So Nishant is correct that if the question was asking about the cost baseline, the management reserve would not be included. But since it asked about the project budget, management reserves would be included.
Jonathan Emmons, PMP
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Last Edit: 1 year 2 months ago by Jonathan Emmons.

Cost Management question 1 year 2 months ago #6121

  • Jonathan Emmons
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But yes, totally agreed that actually accessing that reserve would require management approval, since this part of the budget isn't controlled by the PM. (It would also trigger a change request to the CCB to update the cost baseline.)
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