TOPIC: Free PMP® Exam Sample Question

You are managing a renovation project of a house which is to be completed at a budget of $100,000. Earned value analysis shows that so far you have completed 40% of the work and spent $60,000.

How much more will it cost to complete the project if the cost performance remains unchanged?

A. $160,000
B. $149,254
C. $120,000
D. $89,254

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HINT: Determining how much more it will cost to finish the project is the ETC. Also, consider the cost performance, which will remain unchanged.

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Answer and Explanation:
The correct answer is D.

The total budget, or budget at completion (BAC), is $100,000. The cost so far, or actual cost (AC), is $60,000. You have completed 40% of the work which is the earned value (EV), i.e., EV = 40% x $100,000 = $40,000.

Understanding what exactly the question asks is the key to answering the question correctly. The last sentence of the question starts with "How much more will it cost to complete the project...", implying we are requested to find the estimate to complete (ETC). The ETC can be calculated as follows:

ETC = EAC - AC, where the EAC is the estimate to complete.

Selecting the correct formula for the EAC is another key to answering this question correctly. The last sentence of the question ends with "...if the cost performance remains unchanged?", implying that the formula for the EAC should consider the cost performance index (CPI), i.e.:
EAC = BAC / CPI

The CPI, in turn, can be calculated using the following formula:
CPI = EV / AC = 40,000 / 60,000 = 0.67

The rest of the calculations are shown below:
EAC = 100,000 / 0.67 = 149,254
ETC = 149,254 - 60,000 = 89,254

Therefore, the cost to complete the renovation if the cost performance remains unchanged is $89,254

Details for each option:

A. Incorrect. This answer choice does not represent a result of a specific formula used in the earned value analysis. We have obtained this number by adding $100,000, which is the budget at completion (BAC), to $60,000, which is the actual cost (AC).

B. Incorrect. The value in this answer choice represents the EAC which has been calculated using the formula: EAC = BAC / CPI, while the question is asking to determine the cost to complete the renovation or ETC.

C. Incorrect. The value in this answer choice represents the EAC which has been calculated using the formula: EAC = AC + BAC - EV, while the question is asking to determine the cost to complete the renovation or ETC.

D. Correct. The cost required to complete the project is $89,254. The value was derived using ETC = EAC - AC utilizing the formula EAC = BAC / CPI to calculate EAC.

Reference: A Guide to the Project Management Body of Knowledge (PMBOK^® Guide) – Sixth Edition, Project Management Institute Inc., 2017, Page(s) 267