PMP Cost Management: Practice Questions & Study Guide

Cost management on the PMP exam covers planning cost management, estimating costs, determining the budget, and controlling costs. You need to understand the cost baseline (authorized time-phased budget), management reserves (for unknown-unknowns), and contingency reserves (for known-unknowns).

Cost estimates can be analogous (top-down, rough), parametric (based on statistical relationships), bottom-up (detailed, most accurate), or three-point (optimistic, most likely, pessimistic). The budget aggregates estimates, adds contingency, and the project funding requirements add management reserves on top.

Earned value management (EVM) is a key tool for cost control: planned value (PV), earned value (EV), actual cost (AC), cost variance (CV = EV - AC), schedule variance (SV = EV - PV), cost performance index (CPI = EV / AC), and schedule performance index (SPI = EV / PV). Estimate at completion (EAC) formulas are frequently tested.

Common traps include confusing contingency reserves (within the cost baseline, managed by the PM) with management reserves (outside the cost baseline, held by management). Another trap is applying the wrong EAC formula—EAC = BAC / CPI assumes the current cost trend continues; other formulas apply in different scenarios.

Frequently Asked Questions

What is the cost baseline?
The cost baseline is the approved, time-phased budget for the project, excluding management reserves. It includes work package costs plus contingency reserves. It is used to measure and monitor cost performance.
What are contingency vs. management reserves?
Contingency reserves cover identified risks (known-unknowns) and are within the cost baseline, managed by the PM. Management reserves cover unforeseeable risks (unknown-unknowns), are outside the cost baseline, and typically require management approval to use.
What is CPI and how is it used?
CPI (Cost Performance Index) = EV / AC. A CPI of 1.0 means on budget; below 1.0 means over budget. CPI is used for forecasting: EAC = BAC / CPI estimates the total project cost if the current cost efficiency continues.
What cost estimating techniques do I need for the PMP?
Analogous (top-down, uses similar past projects), parametric (uses statistical relationships, e.g. cost per unit), bottom-up (detailed estimates rolled up—most accurate but time-consuming), and three-point (optimistic, most likely, pessimistic—PERT uses (O + 4M + P) / 6). The PMP tests when to use each and how they affect accuracy.
When do you use contingency reserve vs. management reserve?
Contingency reserve is for known risks (identified in risk analysis) and is part of the cost baseline; the PM typically can use it when the risk occurs. Management reserve is for unknown-unknowns and is outside the baseline; use usually requires management approval. Exam questions may describe a risk and ask which reserve applies.
How many cost management questions are on the PMP exam?
PMI does not publish topic-specific counts. Cost is part of the Process domain (41% of the active PMP Version 8 exam). Expect questions on the cost baseline, contingency vs. management reserve, estimating techniques, and earned value (EVM). EVM and cost control together often account for a noticeable portion of Process domain questions.