Module 3: Managing budgeting and procurement
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In this post, I provide complete, accurate, and detailed explanations for the answers to Module 3: Managing budgeting and procurement of Course 3: Project Planning: Putting It All Together – Google Project Management: Professional Certificate.
Whether you’re preparing for quizzes or brushing up on your knowledge, these insights will help you master the concepts effectively. Let’s dive into the correct answers and detailed explanations for each question!
Test your knowledge: Getting started with a project plan
Practice Assignment
1. Fill in the blank: Creating a _____ establishes a cost estimate for your project budget and ensures that you calculate the correct expenses for a set period of time.
- contingency budget
- cost of quality
- forecast ✅
- reserve analysis
Explanation:
A forecast involves estimating the costs for a project over a specific period. It helps predict expenses accurately and ensures your budget aligns with your project’s financial needs. Contingency budgets and reserve analyses are used to plan for risks, while the cost of quality pertains to maintaining standards, making them less relevant here.
2. As a project manager, you determine the cost for items such as software, tools, labor, and equipment. What budgeting term refers to these types of costs?
- Contingency budget
- Resource cost rates ✅
- Reserve analysis
- Cost of quality
Explanation:
Resource cost rates refer to the cost of materials, labor, tools, and equipment required to complete the project. These are essential components of a project’s budget. Other options like contingency budget and reserve analysis are used for managing unexpected risks or reserves, not the direct calculation of resources.
3. Which of the following strategies should you consider when creating your budget? Select all that apply.
- Time-phase your budget ✅
- Disregard historical data
- Document all costs ✅
- Baseline your budget ✅
Explanation:
- Time-phase your budget: This involves spreading your budget across specific time periods to track progress and expenditures effectively.
- Document all costs: Ensures transparency and accountability by recording all expected expenses.
- Baseline your budget: A baseline acts as a reference point to monitor and control project expenses.
Disregarding historical data is not a good practice, as historical information helps in making accurate estimations.
4. Which three of the following items are examples of direct costs for your project?
- Wages and salaries of employees and contractors ✅
- Utilities
- Materials costs ✅
- Staff training ✅
- General office equipment
Explanation:
Direct costs are expenses that can be directly traced to the project. These include employee wages, material costs, and training specific to the project. Utilities and general office equipment are examples of indirect costs since they are not tied to any single project and often benefit multiple projects or organizational activities.
Test your knowledge: Creating a project budget
Practice Quiz
5. As a project manager setting a budget, you factor in unexpected costs that may arise during the project. What budgeting strategy does this refer to?
- Bottom-up approach
- Setting a baseline
- Leveraging experts
- Adding a buffer and reserves ✅
Explanation:
Adding a buffer and reserves refers to setting aside extra funds to account for unexpected costs or risks during a project. This is a common budgeting strategy to ensure that unforeseen circumstances don’t derail the project. The other options (e.g., bottom-up approach, setting a baseline, leveraging experts) are useful strategies, but they do not specifically address managing unexpected costs.
6. As a project manager, what three things should you do to control costs and reduce changes to the budget? Select all that apply.
- Manage changes as they’re made. ✅
- Request stakeholder approval on additional costs only after they are incurred
- Establish a sign-off plan and inform stakeholders of any expense changes that occur. ✅
- Ensure budget changes are within scope. ✅
Explanation:
- Manage changes as they’re made: Keeping track of changes in real time helps avoid cost overruns.
- Establish a sign-off plan and inform stakeholders of any expense changes that occur: Ensures transparency and accountability.
- Ensure budget changes are within scope: Prevents unauthorized expenses and keeps the project aligned with original goals.
7. As a project manager, what does going under budget on a project indicate about your approach to budget management? Select all that apply.
- That your initial estimates were inaccurate ✅
- That you effectively conserved funds and will likely receive larger budgets for future projects
- That you could have spent more on the project to provide extra resources ✅
- That you accurately estimated the total cost of ownership (TCO)
Explanation:
- That you could have spent more on the project to provide extra resources: Going under budget can indicate missed opportunities to invest in higher-quality resources or deliverables that could have improved project outcomes.
- That your initial estimates were inaccurate: This reflects poor forecasting or underestimating the true potential cost, which could lead to reduced budgets for future projects due to perceived over-allocation.
8. What budgeting challenge arises when changes or growth cause additional work the project manager hadn’t planned for?
- Budget pre-allocation
- Scope creep ✅
- Inaccurate budget baseline
- Inaccurately accounting for total costs
Explanation:
Scope creep occurs when additional tasks or changes outside the initial scope arise, increasing costs and requiring more resources than planned. This is a common challenge in project management and emphasizes the importance of managing scope effectively.
Test your knowledge: Introduction to procurement
Practice Quiz
9. As a project manager, you’re interested in working with vendors in a way that is collaborative and places an emphasis on relationships. What procurement management process should you choose?
- Agile ✅
- Traditional
- Flexible
- Historical
Explanation:
The Agile procurement management process emphasizes collaboration, flexibility, and building strong relationships with vendors. It allows for adaptive changes and iterative workflows, making it a good fit for projects where vendor partnerships are critical. The other options are less suited to a collaborative approach:
- Traditional: Focuses more on rigid contracts and deliverables.
- Flexible: Is not a formal procurement process.
10. As a project manager, you host weekly meetings to periodically review vendor performance and work quality. Which procurement process step does this represent?
- Selecting
- Initiating
- Completing
- Controlling ✅
Explanation:
The Controlling step in procurement involves monitoring and managing vendor performance, ensuring that deliverables meet agreed-upon standards and timelines. Weekly meetings to review performance are a typical part of this process.
- Selecting: Refers to choosing a vendor.
- Initiating: Refers to starting the procurement process.
- Completing: Refers to finalizing contracts or project closure.
11. As a project manager selecting a vendor, you first need to outline the details and requirements of your project in order to solicit bids. Which procurement document helps with this task?
- A work breakdown structure (WBS)
- A request for proposal (RFP) ✅
- A Statement of Work (SOW)
- A non-disclosure agreement (NDA)
Explanation:
A request for proposal (RFP) is used to outline project details, requirements, and expectations when soliciting bids from vendors. It provides clarity to potential vendors about what is needed for the project.
- Work breakdown structure (WBS): Focuses on breaking the project into smaller tasks.
- Statement of Work (SOW): Specifies the deliverables and scope but is typically created after selecting a vendor.
- Non-disclosure agreement (NDA): Protects confidential information but is unrelated to bid solicitation.
12. As a project manager creating a statement of work (SOW), who do you ask for input and technical knowledge?
- Vendors
- Key stakeholders
- Subject matter expert (SME) ✅
- Project sponsor
Explanation:
A Subject Matter Expert (SME) provides specialized technical knowledge and expertise, ensuring that the statement of work (SOW) is accurate, comprehensive, and feasible.
- Vendors: Are not typically consulted at this stage.
- Key stakeholders: Provide general input but may lack the required technical expertise.
- Project sponsor: Focuses more on high-level goals and funding rather than detailed technical input.
Test your knowledge: Navigating procurement challenges
Practice Quiz
13. As a project manager, you are about to hire a new vendor; however, there are terms in the contract you are unfamiliar with. Who should you contact to better understand the contract?
- A member of the legal team ✅
- A subject matter expert (SME)
- Vendor consultant
- Another project manager
Explanation:
A legal team member has the expertise to explain unfamiliar terms in a contract and ensure you understand the legal implications.
- Subject matter expert (SME): SMEs specialize in technical knowledge, not legal contracts.
- Vendor consultant: They may assist with vendor-related issues but are not legal experts.
- Another project manager: They may not have the necessary legal knowledge.
14. Which of the following should a project manager do to ensure an ethical procurement?
- Alter vendor contracts based upon what you believe is most ethical for the company.
- Speak to the press if they inquire about product sourcing methods.
- Make sure that various stakeholders adhere to governmental policies and adequate corporate social responsibility. ✅
- Work with government officials as long as they seem trustworthy.
Explanation:
Ensuring adherence to governmental policies and corporate social responsibility (CSR) is a key part of ethical procurement. It ensures compliance with laws and supports sustainable, fair practices.
- Alter vendor contracts: Changing contracts unilaterally is unethical.
- Speak to the press: This violates confidentiality and professional conduct.
- Work with trustworthy government officials: Trust alone is not sufficient; compliance with formal policies is essential.
15. What are some potential ethical risks project managers need to be aware of? Select all that apply.
- Sole-supplier sourcing ✅
- Fraudulent checks
- Bribery or corruptio ✅
- Interaction with state owned entities ✅
Explanation:
Sole-supplier sourcing:
- This restricts competition and may result in favoritism or unethical practices. It’s a common ethical issue in procurement processes.
Bribery or corruption:
- Vendors or stakeholders might use unethical means, like bribery, to secure contracts or influence decisions. This compromises the integrity of the project.
Interaction with state-owned entities:
- Relationships with government entities can become unethical if they involve favoritism, hidden agendas, or actions that limit fair competition.
16. Once you sign a contract with a vendor, you audit each task, execute quality control, and approve invoices. These are examples of what project manager duty?
- Assurance ✅
- Relationship building
- Mentoring
- Trust-building
Explanation:
Assurance refers to activities that ensure tasks are performed correctly, quality standards are met, and financial accountability is maintained.
- Relationship building: Involves fostering trust and collaboration, not auditing tasks.
- Mentoring: Refers to guiding team members, not vendor oversight.
- Trust-building: Involves creating confidence in relationships, not managing contract execution.
Module 3 Challenge
Graded Quiz
17. Which three costs are examples of resource cost rates?
- The cost of a task buffer
- The cost of labor for a project team ✅
- The cost of software to help manage a project ✅
- The cost of materials when building a house ✅
18. Which scenario is an example of planned cost versus actual cost?
- When planning your project budget, you notice that you need to advertise several job positions. The cost to post the job descriptions to several online job boards is $300.
- When planning your project budget, you document the planned cost of labor. To do this, you use the estimated number of hours your team needs to complete the project. As your project progresses, you document the total hours your team works to determine the total cost of labor for your project. This number may be different from your original cost of labor. ✅
- When planning your project budget, you gather historical data on costs of materials, resources, and labor to determine how much each will cost. Once you begin procuring these items, you don’t update the actual cost.
- When planning your project budget, you need to factor in unexpected costs that may occur. You decide to reserve 5% of your overall budget as a buffer.
19. As a project manager creating a budget, you proactively identify factors that may impact expenses. You then take action to minimize the budgetary impact of these factors. What is this task called?
- Bottom-up approach
- Estimating cost
- Baselining the budget
- Cost control ✅
20. Which of the following are steps in the procurement process? Select all that apply.
- Initiating ✅
- Contract writing ✅
- Controlling ✅
- Analyzing
Explanation:
These are core steps in managing procurement from initiation to quality control.
21. After receiving multiple bids for your project, you select a vendor you’d like to work with. You’re ready to start the contracting process. Which procurement document do you fill out and send the vendor?
- Statement of work (SoW) ✅
- Request for proposal (RFP)
- Non-disclosure agreement (NDA)
- Scope of work (SoW)
22. Which of the following justifies sole-supplier sourcing?
- The company is cautious about exposing trade secrets. ✅
- The supplier provided material for the past three projects.
- The project sponsor asks to only use one particular supplier.
- The supplier is easy to work with and offers a discount.
23. Fill in the blank: A project manager needs to alter their budget after making changes to the project schedule and costs. This is necessary in order to _____.
- re-baseline the budget to track project progress of costs. ✅
- baseline the budget to track project progress of costs
- baseline the budget to track project progress of reserves
- re-baseline the budget to track project progress of tasks
24. At what phase in the procurement process would a project manager check a vendor’s reputation for delivering quality work, and make a site visit?
- Introducing
- Selecting ✅
- Controlling
- Completing
Explanation:
This is the phase where vendors are evaluated for their quality and reliability before finalizing contracts.
25. When budgeting a project, you should consider additional expenses such as warranties, supplies, add-ons, and upgrades. Which budgeting term refers to this concept?
- Bottom-up approach
- Top-down approach
- Baseline your project
- Total cost of ownership ✅
26. Fill in the blank: Typically, a project manager organizes a budget by _____. Then, the project manager lists tasks alongside each task’s associated costs.
- tools
- dependencies
- teammates
- milestones ✅
Explanation:
Budgets are often aligned with milestones to track task progress and associated costs effectively.
27. Imagine you are in charge of the budget for a project. You understand the stakeholder needs and have budgeted for surprise expenses. Which of the following is a budgeting task you need to do over the course of the project?
- Cancel planned expenses
- Review and reforecast ✅
- Rebudget and restart
- Procure additional funding
28. Which of the following is an example of using historical data to develop your project budget?
- Thinking about all the parts of your project from the beginning to the end and adding the costs together
- Getting quotes from potential vendors
- Reviewing past projects that are similar to yours to get an idea of what your budget could entail ✅
- Reaching out to project managers who worked on past projects at the company
29. As a project manager, the project sponsor gives you cost estimates with a set amount of money to spend. What challenge for effective budgeting does this represent?
- Pre-allocated budget ✅
- Insufficient cash flow
- Scope creep
- Lack of historical data
30. Procurement involves obtaining materials, services, and supplies for a project. Which of the following also needs to be procured for a project?
- Team leaders
- Employees
- Schedules
- Vendors ✅
31. At the beginning of your project, you solicit bids from vendors to select the one that is best for the project. Which procurement document should you prepare to fulfill this task?
- Statement of work (SoW)
- Non-disclosure agreement (NDA)
- Scope of work (SoW)
- Request for proposal (RFP) ✅
32. Which of the following may impact ethics in procurement? Select all that apply.
- Sole-supplier sourcing ✅
- Union contract negotiations
- Interaction with state-owned entities ✅
- Bribery or corruption ✅
Explanation:
These factors can compromise fairness, transparency, and compliance in procurement.
33. Which of the following do you consider an indirect cost in your budget?
- Training
- Equipment rental costs
- Security ✅
- Wages and salaries
34. At what phase in the procurement process would a project manager determine the success of the procurement process?
- Finishing
- Completing ✅
- Determination
- Controlling
35. Which of the following accurately describes total cost of ownership (TCO)?
- TCO is the dollar amount used to measure if a project is on track or not.
- TCO only factors in upfront expenses associated with a product or service.
- TCO is the additional room in the budget for unexpected costs.
- TCO factors in expenses associated with a product or service over its lifetime. ✅
36. A project manager predicts the cost of a project for the upcoming quarter. What is this prediction known as?
- Planned Expense
- Schedule
- Material Expense
- Forecast ✅
37. As a project manager, you notice that some of your inventory is arriving damaged, and it isn’t the vendor’s fault. What is this known as in budget planning?
- Surprise expense ✅
- Expected issues
- Low-quality product
- Reserve inventory
Explanation:
These are unplanned costs that arise due to unforeseen issues, not related to vendor responsibility.
38. Is it effective project management for a project to be under budget?
- Yes, this is a sign of excellent project management.
- Maybe, but only if the stakeholders change the schedule.
- No, this is a sign of unsatisfactory project management. ✅
39. In the procurement process, what step comes after initiating the process?
- Selecting ✅
- Initiating
- Contract writing
- Analyzing
40. Which section of the statement of work (SoW) includes details about what the service entails and may include major project activities?
- Scope✅
- Target audience
- Schedule overview
- Purpose
Explanation:
The scope defines what the project covers, including activities and deliverables.
41. Which activity ensures ethical procurement in the initiating phase of a project?
- Execute quality control
- Audit each task and cost
- Review government regulations and policies ✅
- Focus on the day-to-day relationships with vendors
42. To create a well-organized budget, a project manager includes different types of expenses. Which type of budget expense includes costs for day-to-day tasks within a company?
- Operating expenses (OPEX) ✅
- Capital expenses (CAPEX)
- Reserve expenses
- Fixed expenses
43. At what phase in the procurement process would a project manager determine the success of the procurement process?
- Controlling
- Finishing
- Completing ✅
- Determination
44. As a project manager creating a budget, you’re thinking about all the parts of a project from beginning to end—making a list of every material, resource, and contract worker. What do you call this type of budgeting?
- Contingency
- Bottom-up approach ✅
- Buffers and reserves
- Top-down approach
45. A document that keeps confidential information within the organization is known as what?
- Statement of work (SoW)
- Non-disclosure agreement (NDA) ✅
- Scope of work (SoW)
- Request for proposal (RFP)
46. “Honesty, responsibility, respect, and fairness are the values…” begins what type of saying of the Project Management Institute that serves as a guide to how they do procurement and other business?
- Requirements
- Slogan
- Code of ethics ✅
- Motto
47. At what phase in the procurement process would a project manager make payments, set up logistics, and ensure service agreements are being met?
- Selecting
- Initiating
- Controlling ✅
Completing
48. Time and materials contracts are usually paid monthly, based on hours worked. What is a fixed contract?
- A contract paid when certain milestones are reached ✅
- A contract paid to a specific vendor
- A contract paid for a certain amount of time
- A contract paid internally to team members
49. Which of the following statements is typically true regarding budgeting?
- It’s important to not go over or under budget. ✅
- It’s recommended to go either over or under budget.
- It’s important to not go over budget, but it’s recommended to go under budget.
- It’s important to not go under budget, but it’s recommended to go over budget.
50. A project manager creates a budget. They determine the amount of buffer funds the project likely needs for completion. What is this budget component?
- Expected estimation
- Reserve analysis ✅
- Risk funding
- Surprise expense
51. Imagine you are working on a project. It progresses as expected, but you would like to assess the budget to identify whether any budget items need to be revisited. When should you take this budgeting action?
- Project completion
- Project flow meeting
- Any project pause
- A project milestone ✅
Explanation:
Milestones provide natural checkpoints to evaluate progress and budget adherence.
52. As a project manager, you’re seeking a procurement approach that outlines clear workstreams, hard deadlines, and financially protects your project against unforeseen circumstances. Which procurement approach should you choose?
- Traditional ✅
- Protectionist
- Agile
- Robust
53. What is the first step when completing a reserve analysis?
- Develop a baseline budget
- Review all potential risks to your project ✅
- Categorize different types of costs
- Account for cost of quality
54. At what phase in the procurement process would a project manager decide what supplies and which vendors will be used on the project?
- Investigating
- Selecting ✅
- Controlling
- Assignment
55. Fill in the blank: In project management, the budget is considered a _____—it is a success metric.
- procurement
- dependency
- reserve
- deliverable ✅
56. When creating a budget, a project manager must do which of the following? Select all that apply.
- Review and reforecast throughout the project ✅
- Budget for surprise expenses ✅
- Approve budget increases
- Understand stakeholder needs ✅
57. It’s important to leverage the knowledge of other experts, particularly those who have worked on similar projects. When asking for advice from someone outside of the company, what is critical to do?
- Avoid sharing confidential information ✅
- Request internal documentation from the experts’ projects
- Set a timeline with the colleague
- Ask about their historical projects
Explanation:
Sharing confidential data is unethical and could lead to security or competitive risks.
58. As a project manager, you research and source for a specific service. You then have to manage that relationship. This is known as what type of procurement?
- Performance management
- Vendor management ✅
- Budget management
- Cost management
59. When assessing ethical versus unethical procurement, what is the first step you should take?
- Use your best judgment and do the required research ✅
- Review contracts with your legal team
- Discuss with a trusted friend
- Reach out to local government officials
60. At what phase in the procurement process would a project manager review a vendor’s performance and determine if they are meeting milestones?
- Completing
- Selecting
- Controlling ✅
- Investigating
61. Which of the following factors can lead to scope creep and negatively affect the budget? Select all that apply.
- Agreements about the project that aren’t officially documented ✅
- Attainable timeframes and deadlines
- Last-minute asks from priority stakeholders ✅
- A vague Statement of Work (SoW) ✅
62. As a project manager, you review your budget and notice one vendor is costing more than anticipated. You shift funds and recalibrate the budget to offset this increased vendor cost. What is the budgeting term for this task?
- Reforecasting ✅
- Reserve analysis
- Setting the baseline
- Cost of quality
63. To create a well-organized budget, a project manager includes different types of expenditures. Which type of budget expense creates a future benefit for a company?
- Historical expenses
- Capital expenses (CAPEX) ✅
- Indirect expenses
- Operating expenses (OPEX)
Explanation:
CAPEX refers to long-term investments, like infrastructure or equipment, that benefit future operations.
64. A project manager writes a budget for an upcoming project. They break down the project by important points in the schedule like the completion of a phase. What are these important points known as?
- Progressions
- Deliverables
- Dependencies
- Milestones ✅
65. Which scenario is an example of proactive budget management?
- While planning your project budget, you decide that you don’t need to add buffers for unexpected costs. Since you’ve completed several projects like this one in the past and have always come in under budget, you feel you don’t need to plan for any extra cost.
- During your project, the market experiences a shortage of a resource that’s crucial for your project’s success. Because of the shortage, the price of this resource increases. This is something you did not expect, nor plan for, and must now figure out how you can afford to complete your project.
- While planning your project budget, you gather historical data and consult with industry experts. You consider fixed costs, add relevant line items, and set aside a 5% reserve for unexpected costs. ✅
- You’re reviewing your budget and realize that it took much longer than you anticipated for a subject matter expert to complete a task. The labor cost associated with this task is now well over budget. You must now request a budget increase to cover the cost of the labor.
66. You are working with a vendor and ask them to sign an NDA. What does an NDA help to ensure?
- That the amount of promised work is clear to all parties
- That multiple vendors are able to submit bids for the project
- That confidential information is kept within the organization ✅
- That the the vendor and the team both understand the expected deliverables
67. The budgeting process usually takes place at the same time as what other process?
- Procurement
- Delivery
- Scheduling ✅
- Production
68. Which section of the statement of work (SoW) includes the desired outcomes of the entire project?
- Scope
- Deliverables
- Purpose ✅
- Major milestones
69. A vendor contract states that it will be paid upon the completion of a set milestone in the project. What type of contract is this?
- Completion contract
- Fixed contract
- Time and materials contract
- Milestone contract
Related contents:
Module 1: Beginning the planning phase
Module 2: Building a project plan
Module 4: Managing risks effectively
Module 5: Organizing communication and documentation
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Course 1: Foundations of Project Management
Course 2: Project Initiation: Starting a Successful Project
Course 4: Project Execution: Running the Project
Course 5: Agile Project Management
Course 6: Capstone: Applying Project Management in the Real World