PMP Practice Exam Question

You are managing a software development project with a budget of $200,000. As of today, you have spent $100,000, but the Earned Value of the work completed is $80,000. Based on this information, which of the following actions should you take to best manage the project's budget?

A) Request additional funding since the project is over budget.

B) Accelerate the remaining work to complete the project faster and reduce future spending.

C) Perform a variance analysis to understand the causes of the cost variance and develop a plan to bring project spending back in line with the budget.

D) Reduce the scope of the project to align with the work completed and the budget spent so far.

Looking for more practice exam questions like this? Enroll in our 42-hour online BEST SELLER PMP Exam Prep course, featuring approximately 1,600 practice questions. By doing so, you can supercharge your PMP Exam preparation and earn 42 Contact Hours, which is essential for your exam application. Enroll now for the ultimate exam readiness!

Best Answer: C) Perform a variance analysis to understand the causes of the cost variance and develop a plan to bring project spending back in line with the budget.

Explanation:

Performing a variance analysis is a systematic approach to identify the reasons behind the project's current cost variance (CV). CV is calculated as EV - AC, which in this case is $80,000 - $100,000 = -$20,000, indicating that the project is over budget. Understanding the root causes of this variance is essential for developing effective corrective actions.

Variance analysis provides the project manager with detailed insights into the factors contributing to the budget overrun. This could include inefficiencies, inaccurate estimations, increased costs, or scope changes. With this understanding, the project manager can make informed decisions about resource allocation, process adjustments, or other interventions needed to control costs and realign the project with its budget.

Based on the findings from the variance analysis, the project manager can develop a comprehensive plan to address the identified issues. This plan might involve renegotiating contracts, optimizing resource utilization, revising the project schedule, or implementing cost-saving measures. The goal is to mitigate the impact of the cost overrun and prevent further budget deviations.

Why Other Options Are Not the Best:

• Option A (Request additional funding): While requesting additional funds might seem like a straightforward solution to budget overruns, it does not address the underlying issues causing the variance. Without understanding and addressing these root causes, the project may continue to experience cost overruns, making this a potentially short-sighted and unsustainable approach.
• Option B (Accelerate the remaining work): Accelerating the work to complete the project faster might increase costs in the short term due to overtime, additional resources, or other factors associated with rushed work. Without first conducting a variance analysis, this approach risks exacerbating the project's budget issues rather than resolving them.
• Option D (Reduce the scope of the project): Reducing the project's scope might bring costs in line with the budget but could compromise the project's objectives and deliverables. This option should be considered carefully and typically as a last resort, as it may not align with stakeholder expectations or project goals. Without a variance analysis, there's a risk of making decisions that could negatively impact the project's value and outcomes.

In summary, Option C is the best choice because it focuses on understanding the root causes of the cost variance through a detailed analysis, enabling the project manager to take targeted and informed actions to address the budget overrun. This approach ensures that corrective measures are based on a thorough understanding of the project's financial performance, leading to more effective and sustainable project budget management.