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PMP Practice: Analyze the consequences of noncompliance

Question 5 of 6 in Plan and Manage Project Compliance

Freya Johansson is managing a regulatory compliance upgrade project for Binary Chameleon Inc, a pharmaceutical company that must meet new FDA data integrity requirements by a fixed government deadline. The project has a total budget of $480,000 and is planned for 12 months. At the end of month 6, the following status is recorded: - Planned Value (PV): $240,000 - Earned Value (EV): $216,000 - Actual Cost (AC): $252,000 The compliance officer has requested a forecast of the total project cost assuming the team continues to perform at the current cost efficiency level for the remainder of the project. The CFO needs this forecast to determine whether additional funds must be allocated to ensure regulatory compliance is achieved on time. What is the Estimate at Completion (EAC) that Freya should report?
Show answer & explanation

Correct answer: $560,000

Explanation

When forecasting total project cost based on current cost performance, the project manager calculates the Cost Performance Index (CPI) first, then uses it to project the Estimate at Completion. The CPI is calculated as EV divided by AC: $216,000 / $252,000 = 0.857. This indicates the team is spending approximately $1.17 for every dollar of work completed. To forecast the final cost assuming this efficiency continues, divide the total Budget at Completion by the CPI: $480,000 / 0.857 = $560,000. This means if cost performance does not improve, the project will require an additional $80,000 beyond the original budget. Given the regulatory compliance requirement and fixed deadline, Freya needs to report this realistic forecast so leadership can secure additional funding or implement corrective actions to improve cost efficiency. This forecast method is appropriate when current cost variances are expected to continue throughout the project.

**Why not A:** This assumes no cost overrun will occur and represents the original Budget at Completion. However, the project is already showing a Cost Performance Index below 1.0, meaning costs are exceeding the value of work completed. Simply reporting the original budget ignores the current cost performance trend and would mislead stakeholders about the funding needed to complete the compliance project.

**Why not B:** This results from adding the current cost variance ($252,000 - $216,000 = $36,000) to the original budget and then applying a simple projection. This approach fails to properly use the Cost Performance Index to forecast remaining work and underestimates the total cost impact if current inefficiencies continue throughout the project lifecycle.

**Why not C:** This results from incorrectly calculating CPI as AC divided by EV ($252,000 / $216,000 = 1.167) and then dividing the budget by this inverted ratio. This mathematical error reverses the performance index calculation and produces an unrealistic forecast that does not reflect the actual cost overrun trend occurring in the project.

Key Concept

This question covers Analyze the consequences of noncompliance under Plan and Manage Project Compliance (Business Environment).

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