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CAPM Practice: Demonstrate an understanding of a project management plan schedule

Question 42 of 85 in Demonstrate an understanding of a project management plan schedule

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A project is running behind schedule with an SPI of 0.78. The sponsor asks for a recovery plan. The project manager evaluates crashing cost vs. fast tracking risk. Crashing would cost $80,000 but would bring the project back on track with certainty. Fast tracking would cost $0 but carries a 40% risk of requiring $120,000 in rework. What is the expected cost of fast tracking?

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Correct answer: $48,000

Explanation

Expected cost of fast tracking = 40% probability × $120,000 rework cost = $48,000. Comparing: Crashing: certain cost of $80,000. Fast tracking: expected cost of $48,000 (but with uncertainty). The expected cost of fast tracking is lower, but crashing provides certainty. The choice depends on the organization's risk tolerance and whether the 40% rework scenario would be catastrophic or manageable.

**Why not A:** The expected cost of fast tracking is not $0. While the direct cost is $0, there is a 40% probability of incurring $120,000 in rework. Expected monetary value (EMV) accounts for both the probability and the financial impact: 40% x $120,000 = $48,000.

**Why not C:** $120,000 represents the full rework cost if the risk materializes, not the expected cost. Since there is only a 40% chance of the rework occurring, the expected cost is 40% of $120,000 = $48,000. Using the full amount would overstate the expected financial impact.

**Why not D:** $80,000 is the cost of crashing, not the expected cost of fast tracking. The expected cost of fast tracking is calculated using EMV: 40% probability multiplied by the $120,000 rework cost equals $48,000, which is lower than the $80,000 crashing cost.

Key Concept

This question covers Demonstrate an understanding of a project management plan schedule under Demonstrate an understanding of a project management plan schedule (Predictive, Plan-Based Methodologies).

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