Chapter 2. Project Initiation

Chapter 2. Project Initiation

    Exam Prep Questions

    Answers and Explanations

Exam Prep Questions


Susan is a well-paid global operations executive who also enjoys consulting and teaching. She is so popular that recently she received two offers in the same day to speak at conferences as a paid presenter. At one conference, she was offered $3,000 for her presentation on a topic that she is not fond of. She was offered $2,000 at another conference to speak on resource allocation, a topic that she enjoys. Because money is no object to Susan, she decides to speak about resource allocation for $2,000 and pass on the other conference. Susan must also use a day of vacation time with a value of $2,000 to take time off work to attend the conference. What is Susan's opportunity cost to speak at the conference?

  • A. $1,000

  • B. $2,000

  • C. $3,000

  • D. $4,000


The purpose of a project charter is all of the following except

  • A. To describe the business need(s) that the project will meet

  • B. To authorize the beginning of the project

  • C. To give the project manager the authority to go forward with the project

  • D. To give functional power to the project manager


Whenever a team becomes involved with a new project, it does analysis in order to determine what the best alternatives to begin the project are. Because projects should be aligned with the organization's strategic direction, the initiation phase is the

  • A. First step in the solicitation process

  • B. Second step in the project life cycle

  • C. Stakeholder's responsibility

  • D. First step in the scope management process


You have started your own company based upon PMI methodologies and have been contracted by the government to develop a new interface for one of its computer applications. You develop a solution and win the bid for the contract but encounter problems at the end of the project when the customer says that you did not fulfill their needs. You are thoroughly shocked. What is your conclusion of the situation?

  • A. There are always more customers available.

  • B. If the customer is not satisfied, the project is not successful.

  • C. Change control management was not effective.

  • D. The customer did not communicate very well.


Budiono is in the process of developing his project notebook and accumulating archive materials related to the project's work breakdown structure (WBS). The lowest level of a work breakdown structure branch is known as a _______.

  • A. Work package

  • B. Task

  • C. Deliverable

  • D. Work product


Which of the following work products must be included in the project charter?

  • A. Risk analysis

  • B. Budget estimates

  • C. Product description

  • D. Scope statement


During the project selection process for the new power plant infrastructure development, Roger learns about a project selection method that utilizes scoring models and a cost analysis to determine what projects he should work on and develop over time. This type of project selection method is an example of

  • A. Constrained optimization

  • B. Earned value

  • C. Standard deviation

  • D. Benefit measurement


Ralph's Cyber Café is starting an electronic PMO office and needs fresh ideas to help the business grow. For the initial phase, the PMO director has decided to roll out the use of project charters. As a project manager, why would you be encouraged by this plan?

  • A. The project charter enables you to establish the business need for the project.

  • B. The project charter ensures that a preliminary budget and schedule are developed.

  • C. The project charter authorizes you to use organizational resources to accomplish the objectives of the project.

  • D. The project charter enables you to get senior management buy-in for your Project Management approach.


One of the goals of management by objectives (MBO) is to ensure that objectives of one level within an organization are supportive of and aligned with the objectives of another level of the organization. This methodology has been popular within some organizations as they define their culture. Which of the following is not true about MBO?

  • A. It has a top-down orientation.

  • B. Corrective actions are not part of the process.

  • C. You need to establish clear and achievable objectives.

  • D. MBO is a natural fit for Project Management.


As a new program manager, Mary is still trying to determine her best sources of information for the not-for-profit organization that you work for. One resource is experts. Expert judgment is mentioned in the beginning of the PMBOK because project initiation is the first process that lists expert judgment as a primary tool or technique. Which of the following would likely not be a source of expert judgment for Mary?

  • A. Stakeholders

  • B. Industry groups

  • C. Government regulatory agencies

  • D. Utilities


Rebecca has created the project charter but cannot get it approved by senior management. Her manager and boss have asked her to begin the project anyway. Which of the following actions is the best thing to do?

  • A. Focus on other projects that have a signed charter.

  • B. Start work on critical path tasks.

  • C. Update the Project Risk Log.

  • D. Show the manager the impact of proceeding without approval.


Cost benefit analysis and constrained optimization are two general types of project selection methods that project managers utilize when they are evaluating projects. Although various industries have different priorities and agendas, the stakeholders need to be in agreement about the selection process for the project. What is the most important criterion when an organization chooses a project selection model?

  • A. Organizational fit

  • B. Flexibility

  • C. Cost

  • D. Capability


The payback period can become an important issue when a large scope project is developed over several years. Maureen has been assigned the responsibility of calculating the payback period for her project that is to be completed in 3 years. The internal rate of return (IRR) is 7% and the annual savings will be $800,000 per year. The total cost is $4,000,000 and the rate of return during this time period is 3%. What is the payback period of Maureen's project?

  • A. 3 years

  • B. 4 years

  • C. 5 years

  • D. 13.3 years


Another project selection method evaluates the present value of cash inflows minus the present value of cash outflows. When evaluating the net present value (NPV)

  • A. A positive NPV is unfavorable.

  • B. A negative NPV is unfavorable.

  • C. The lower the NPV, the better.

  • D. You subtract the IRR to get the future value.


The Acme Company is always trying to get the best return on its investment because its government funding was cut last year. If the current interest rate is 6% and the return on investment (ROI) is 1.73, the return that a company would earn if it invests in the project is the

  • A. IRR

  • B. Benefit cost ratio

  • C. Present value (PV)

  • D. Earned value


There are numerous reasons why initiation and planning activities get confused. While determining business needs and collecting historical data during the initiation phase, the project manager also

  • A. Selects team members

  • B. Determines deliverables and constraints

  • C. Develops a risk analysis

  • D. Prepares a communication plan


Management By Walking Around (MBWA) is a common term to refer to the interaction that a manager performs while working with his team. Daniel works for a toothpaste company and has found his company, Bright Teeth, is an ideal environment in which to apply the technique of MBWA because

  • A. Top management policy and goals should flow down through the management hierarchy.

  • B. Project Management involves setting organizational objectives.

  • C. All projects should be strongly oriented toward goals and objectives.

  • D. Projects are generally handled in a matrix management environment.


Sometimes project managers forget all of the expenses that they can incur on a project, such as capital resources and assets. This can have an impact upon their budgets and the economic return on the project. A cost that has been incurred and cannot be reversed is known as a

  • A. Fixed cost

  • B. Direct cost

  • C. Variable cost

  • D. Sunk cost


Ian works for a manufacturing company that has a global presence and utilizes outsourcing for many of its services. Because of the increasing cost of local resources, he must identify all of the potential options when analyzing his resource pool and determining which projects he wants to complete in the United States and which projects should be done in India. All of the following are examples of benefit-measurement methods of project selection except which one?

  • A. Scoring models

  • B. Multiobjective programming

  • C. Economic models

  • D. IS steering committee review


Straight-line depreciation is the simplest method of depreciating an asset and is frequently utilized on a project to determine its economic feasibility. Straight-line depreciation is

  • A. Only applicable for direct costs

  • B. Only applicable for costs that are indirectly traced to a specific product or service

  • C. A cost that can increase with the interest rate

  • D. A method that divides an asset's cost and its expected salvage value by its expected utilization period


Michelle is not an accountant and is frequently frustrated about why she needs to know financial information for her projects. Therefore, she has returned to college in order to enhance her accounting knowledge. Her company, Quikstart, is paying for her tuition if she maintains satisfactory grades. In her studies, she has found that current assets less current liabilities are equal to

  • A. Working capital

  • B. Standard deviation

  • C. Actual cost of work performed (ACWP)

  • D. Estimate at completion (EAC)


A project charter is one of the key deliverables to come from the initiation process. The project charter should by issued by

  • A. One or more functional managers

  • B. The head of the performing organization

  • C. A manager external to the project

  • D. The CFO


The direct cost to manufacture a replacement auto part for a 2001 vehicle is $24.97 and indirect costs (including utilities) is $4.50 per part, labor at $2,119 per month, and variable costs of $14.32. What is the wholesale cost to produce this auto part?

  • A. $24.97

  • B. Not enough information is provided

  • C. $43.79

  • D. $39.29


During the initiation of a project, numerous ideas will surface whenever you are discussing goals and objectives for the project. SMART objectives are much easier to assign to team members when they are involved in the initiation phase rather than when assignments are distributed in an autocratic manner. SMART objectives are

  • A. Aligned with the organization's strategic goals

  • B. Easily achievable

  • C. Specific, measurable, assignable, realistic, and time based

  • D. Used with the MBO management approach


Project Management is a relatively new profession. Frequently, the early project managers were looked upon as operations managers or some other title that did not adequately describe the work they were actually doing. Typically, the early project managers were selected by which organizational level?

  • A. Human resources

  • B. Computer sciences

  • C. Executive

  • D. Engineering


As an experienced project manager, you know there is an inherent amount of risk with any project. During what phase of the project life cycle is the highest level of risk and uncertainty?

  • A. Controlling

  • B. Executing

  • C. Planning

  • D. Initiating


A business analyst helps provide a beginning blueprint for the project to develop structure and encourages discussions about the needs of the project. Which document describes the business need, the quantifiable criteria that must be met by the project, and the key deliverables, as well as authorizes the project and the final product of the project?

  • A. Business requirements document

  • B. Executive summary

  • C. Project charter

  • D. Gantt chart


Norma is a new product development project manager who frequently has to deal with scope creep at her company due to the various silos within her company and competing demands at each of the profit centers. She frequently becomes frustrated because her projects seem to become "never ending." Which of the following is not a scope management process that Norma can utilize?

  • A. Scope planning

  • B. Scope reporting

  • C. Initiation

  • D. Scope verification


Jeffrey has been given the assignment to summarize his project and provide a status update for next week's steering committee meeting. As part of his presentation, he will present the scope document and associated deliverables. This scope statement provides a foundation of information to begin the project and gives the team an idea of what it is trying to accomplish. Which of the following statements is not true about a scope statement?

  • A. The scope statement does not include a description of project objectives, such as cost, schedule, and quality measures.

  • B. The scope statement provides a documented basis for preparing the work breakdown structure (WBS).

  • C. The scope statement is not developed by functional managers during the concept phase of a project.

  • D. The scope statement is not the basis for the contract between the buyer and seller.


Project authorization is one of the processes that is associated with the initiation phase of a project. Authorizations can come in many different forms, and projects are generally authorized by all of the following except

  • A. Technological advances

  • B. Customer request or market demand

  • C. Executive year-end bonuses

  • D. Business or social needs


There are some major differences between the project life cycle and the product life cycle. These differences can have a significant impact upon the Project Management requirements and approach utilized during the initiation process. Inputs into the initiation process include all of the following except

  • A. The product charter

  • B. The strategic plan

  • C. The project selection criteria

  • D. Historical information


Tools and techniques is a term that is frequently used in the PMBOK to describe the various options and actions that a project manager can take when faced with various situations or opportunities. The tools and techniques for the initiation processes include

  • A. The communication plan

  • B. Expert judgment

  • C. The project budget

  • D. The WBS


Subject matter experts (SMEs) are resources that are imperative to the success of a project. Many times, project managers are not experts in the areas they are managing and frequently must rely upon others' expertise. In which scope-management process are SMEs first used?

  • A. Scope planning

  • B. Scope definition

  • C. Initiation

  • D. Scope verification


Assumptions, constraints, and the project charter are three of the outputs from the initiation phase of a project. From the point of initiation, why should assumptions be documented for the team?

  • A. Assumptions limit the project team's options for decision making.

  • B. Assumptions might prove to be incorrect. The ability to identify these assumptions allows for baseline adjustments in case of project crisis.

  • C. Assumption analysis is a key technique of risk identification.

  • D. In case of schedule or budget overruns, the documentation of assumptions provides an accountability trail.


The assignment of a project manager to a project is one of the key outputs from the initiation process. In general, when should a project manager be assigned to a project?

  • A. Before the project plan execution phase

  • B. When the stakeholders choose him

  • C. After the project planning is done

  • D. This is decided in the WBS


One of the deliverables that comes from the initiation phase can come in the form of a signed contract or a formalized document. This deliverable should be prepared by someone who is external to the project and utilizes this as a catalyst for the project to move forward. This deliverable is known as the

  • A. Scope statement

  • B. Project charter

  • C. Change request

  • D. Status report


As a project manager, you are required to look at the attributes of a new hotel project in Las Vegas that will have a positive financial impact upon your organization. The cost benefit ratio is a project selection method and one way to determine whether the project is appropriate for your company. This ratio identifies the relationship between the financial cost and the benefits of a proposed project. If the cost benefit ratio for the new Las Vegas hotel project is .78,

  • A. The project should go forward.

  • B. The project manager will determine a plan to reduce the CR to zero.

  • C. The project will be successful.

  • D. It is unfavorable.


ABC Company project manager, Doug, is not an accountant but he must make several financial decisions for his new project for the company. In his research, he has found there are several accounting-related attributes he needs to consider before he talks with the steering committee about the new project. In his presentation, he needs to describe the interest rate that makes the net present value of all cash flows equal zero. This is known as

  • A. Prioritization of financial outcomes

  • B. Future value (FV)

  • C. IRR

  • D. Present value (PV)


Problems, opportunities, and business requirements are stimuli that management responds to by creating projects. Susan is working as a project manager for Big Chip Information Technologies and has developed several programming code changes that have revolutionized Big Chip and how it interacts with its customers. A technological advancement such as the development of the personal computer is

  • A. An advancement that the project manager should incorporate into her current projects

  • B. Scope creep

  • C. An advancement that the project manager should incorporate into her future projects

  • D. A reason to authorize a project


You are a project manager for the redevelopment of the Hoover Dam. Your team has been provided with the scope statement, but it lacks many description details. Your team is concerned because the project is in the initiation phase and it wants to postpone it until it has more information. As the project manager, you recommend that

  • A. The team should go forward, but be cautious about the lack of details and the impact upon the timeline for the project.

  • B. The project should not go forward until the stakeholders agree about the scope and purpose of the project.

  • C. The team should verify the scope and realize that more details will be available as more project characteristics are progressively elaborated.

  • D. The team should review the project selection criteria for the Hoover Dam project.


According to the PMBOK, the _______ documents the characteristics of the product or service that the project was undertaken to create.

  • A. project definition

  • B. product description

  • C. scope statement

  • D. strategic plan


Chuck is the project manager for a new point of sale (POS) implementation for a national grocery chain. At the beginning of the project, Chuck must rely upon input from numerous SMEs in order to make correct decisions. This tool is an example of

  • A. Stakeholder input

  • B. Team member expertise

  • C. Expert judgment

  • D. Consultant intuition


Scott is a government employee who is new to the Project Management world. He was just promoted to this role and wants to learn more about how he can advance within his organization. During the initiation phase of his first project, why should Scott document assumptions for the project?

  • A. Because the assumptions might be incorrect, the ability to identify these assumptions allows for baseline assumptions in case of a project problem.

  • B. Assumptions can limit the team's options for decision making.

  • C. In case of schedule or budget overruns, the documentation of assumptions provides a paper trail of responsibilities.

  • D. Assumption analysis is a technique for risk identification.


A good CFO will tell you that it is important to look at your bottom line and determine how to increase profits for the organization. Veronica, the new CFO at a local university, is taking that approach and applying it to new projects. Therefore, she wants to include costs from each phase of the project on a total expenditure line item in the annual budget. This total expenditure is known as

  • A. An opportunity cost

  • B. A sunk cost

  • C. NPV

  • D. A life cycle


Margaret works for an American textile manufacturer that outsources several parts of its operations to an organization in Ireland. At the beginning of the outsourcing project, a charter was developed. The appropriate person to develop this charter would be

  • A. A manager external to the project

  • B. The project manager

  • C. The functional managers in America and Ireland

  • D. The Irish Consulate


Thomas Company has purchased a new server for its IT department and expects to use it until it becomes obsolete. The server cost $4,500 and can be used for 10 years. It has a resale value of $2,000 after 5 years and a resale value of $1,000 after 7 years. It is obsolete in the 10th year. Using straight-line depreciation, calculate the expense per year for this piece of hardware:

  • A. $4,500

  • B. $3,500

  • C. $2,500

  • D. $450


Relocating 200 employees from one building to another is your new responsibility in a recent company reorganization. Because there is a large volume of people involved with this project, a multiphase approach will be used in order to minimize the impact upon the workflow of the company. Consequently, payments will need to be made on leases for both locations until all employees have been moved. A lease payment on the second building is an example of a

  • A. Project assumption

  • B. Direct cost

  • C. Variable cost

  • D. Fixed cost


Project budgets, resources, sustainability, and schedules are difficult issues to juggle. As a project manager, you are always trying to maintain a balance between all of these project aspects. These topics are known as

  • A. Milestones

  • B. Assumptions

  • C. Inputs

  • D. Constraints


Due to market demand of the new low-carb potato chips, Louie is working a lot of hours at the local factory. Because Louie recognizes that the product introduction and life cycle are the same as with a previous product he worked on that was very successful, he anticipates this product will be successful as well, based upon

  • A. Expert judgment

  • B. Historical information

  • C. Demographic studies

  • D. The strategic plan


The scope management process is challenging and many times can involve a project review board to make the final determination in order to minimize scope creep. During what scope management process are SMEs first utilized?

  • A. Scope verification

  • B. Scope planning

  • C. Scope definition

  • D. Initiation