CIA, CISA, Internal Audits

CISA/CIA EXAM PRACTICE QUESTION: PROJECT MANAGEMENT QUESTION 08/10/2017

As an Internal Auditor or an Information Systems Auditor, you will be constantly faced with project choices. In my career as an auditor, there are instances where I had to make critical choices on how to plan the team or to select the best route to take given the circumstances that I faced. Here is an example on critical path method (CPM) which may be tested in your CIA/CISA exam.

 

Ransom’s Question on 08/10/2017 – Project Management Question.

 

Company “ABC Machines” builds industrial machines and uses the critical path method (CPM) to monitor the construction of industrial machines. The company is currently 3 weeks behind schedule in the construction of a degerminator machine which is subject to a R250,000-per-week completion penalty. Path A-B-C-F-G-H-I has a normal completion time of 20 weeks, and critical path A-D-E-F-G-H-I has a normal completion time of 22 weeks. The following activities can be crashed:

 Activity Cost to Crash 1 week Cost to Crash 2 weeks
BC R150,000 R220,000
DE R250,000 R530,000
EF R100,000 R550,000

 

Company “ABC Machines” desires to reduce the normal completion time of the degerminator job and, at the same time, report the highest possible income for the year. ABC Machines should crash which activities?

Select an answer:

A – Activity BC 2 weeks.

B – Activity BC 1 week and activity EF 1 week.

C – Activity DE 1 week and activity EF 1 week.

D – Activity EF 2 weeks.

Let us apply the K-E-C approach in answering this question.

 

Please note that the K-E-C approach is as follows:

 

K = Keyword, phrase or stem of the question

 

= Eliminate two incorrect options

 

C = Choose the best answer for the remaining two options, linking the answer to the Key or K.

 

So let us approach this question.

 

K = Key – The key phrase here is “reduce completion time… highest income”. This question is about being able to determine the activities that can be crashed at the lowest possible costs while saving the highest amount of time.

 

E = Eliminate two options – Before we start by eliminating an option, it would be wise to sketch this in a manner that is easily understood.

Critical path

 

From the above process flow, we can easily note that activity BC does not form part of the critical path. We can no crash this activity as it has no impact on the critical path and the project.

Option A refers to crashing activity BC for 2 weeks. This option can be eliminated because activity BC does not form part of the critical path.

 

Option B refers to crashing activity BC for 1 week and activity EF for 1 week.  This option can also be eliminated since we can’t crash activity BC as it is not on the critical path.

 

C = Choose the correct answer that lines up with the KEY – We are thus left with options C and D to choose from.

 

Option D suggests that we should crash activity EF for 2 weeks. Let’s do the cost estimate of crashing activity EF for 2 weeks. From our table, this will cost us R550,000 to crash this activity for 2 weeks.

 

Option C requires us to crash activity DE for 1 week and EF for 1 week. Based on our table, if we crash activity DE for 1 week, it will cost us R250,000. If we crash activity EF for a further 1 week, it will cost us R100,000. The total cost of crashing both activities is R350,000.

Option C (R350,000) seems to be less costly than option D (R550,000). Option C will thus bring us the highest income.

 

The correct answer is thus C –  “crash DE for 1 week and EF 1 week”. It agrees with the Key “reduce completion time… highest income”.

 

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