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What is the opportunity cost of choosing to research the meaning of opportunity cost over riding my exercise bicycle, assuming I can't do both at the same time?

That and other intriguing questions that have been raised during the process of reviewing the article "What Is Opportunity Cost and Why Do You Need to Understand It" by Cornelius Fichtner have resulted in small windows of success, but also more unanswered questions.

Mathematically speaking, Opportunity Cost is easily calculated IF you know the value of your choice and the value of your second choice. The challenge comes in assigning cost ... or value, depending on how you look at it. After reading the article, I was struggling with exactly how this related to project management. The first stop in my search for the connection revealed that the term was introduced by Austrian economist Friedrich von Wieser in the early 1900s. Aha! My son is majoring in Economic with a focus on the Austrian School. I'll just call him and he will reveal the mystery and make all things clear. Fifteen minutes into the conversation and I'm still asking him, so how does this help me decide between two projects?

I'd like to say that I hung up the phone, decided to sleep on it and I was enlightened in a dream that answered all my questions. Didn't happen, but there is a wealth of information I discovered that subsequently did fill in some of the gaps. Opportunity Cost can help with your risk management plan, strategic planning and yes, choosing one project over another.

If your curiosity is piqued, read the article, but keep reading other sources and you'll gain deeper insight into a deceptively simple comparison.

With best regards.

Phillip Lichlyter

What is Opportunity Cost and Why Do You Need to Understand It

By Cornelius Fichtner, PMP, CSM - Simplifying PMP Exam Preparation

If you are in the middle of preparing to take the Project Management Professional (PMP)® Exam you have undoubtedly read through A Guide to the Project Management Body of Knowledge (PMBOK® Guide) – Fifth Edition at least once and possibly even more. If you are just starting to prepare to take the PMP Exam, then you should be planning to read through the PMBOK® Guide at least a couple of times. The PMBOK® Guide should be your primary resource when studying for the PMP Exam as it is the globally recognized standard and guide for the project management profession; however as you probably already know, it does not cover every possible topic that the PMP Exam may touch on.

One of those topics not covered by the PMBOK® Guide is Opportunity Cost. There is no guarantee that you will see it during your PMP Exam, but there is also no guarantee that you will not. Here we will explain why as a project manager you need to understand Opportunity Cost, beyond that it may be on the PMP Exam, and what exactly Opportunity Cost is. We will also go through a couple of examples of Opportunity Cost questions.

Why does a Project Manager need to understand Opportunity Cost? It is very possible as a Project Manager you will be charged with project selection at some point in your career. You will need to make sure you evaluate and select projects based on your organization’s goals and needs to ensure returns are maximized as well as opportunity costs are minimized. As part of the project selection process you will need to evaluate where to best utilize valuable resources such as specific skill sets, time, and of course money. Allocating these resources to a specific project prevents their use for other projects at the same time, after all an organization only has so many resources and needs to take on projects with the highest potential for success and the greatest return.

What is Opportunity Cost? Opportunity cost is the loss of potential future return from the second best unselected project. In other words, it is the opportunity (potential return) that will not be realized when one project is selected over another. For example if Project X has a potential return of $25,000 and Project Y has a potential return of $20,000, then selecting Project X for completion over Project Y will result in an opportunity cost of $20,000. That is the “loss” of not completing Project Y.

Let’s take a look at a couple of PMP Exam sample questions around Opportunity Cost:

PMP Exam Sample Question 1: “Which definition best fits Opportunity Cost?”
a) The sum of all of the potential returns of projects not selected.
b) The potential return of the second best project that was not selected.
c) The difference between the potential return of the project selected and the potential return of the second best option that was not selected.
d) The difference between the present value of cash inflows and the present value of cash outflows.

The correct answer is B. Opportunity Cost is the potential return of the second best option that was not selected. It is not the sum of all potential returns that were selected or the difference between the potential return of the project selected and the second best option. It is also not the difference between the present value of cash inflows and the present value of cash outflows as that is the definition of net present value.

PMP Exam Sample Question 2: “You are part of a project selection team evaluating three proposed projects and you need to select the project that would bring the best return for the organization. Project A has an NPV of $25,000 and an IRR of 1.5, Project B has a NPV of $30,000 and an IRR of 1.25, and Project C has an NPV of $15,000 and an IRR of 1.5. What would be the opportunity cost of selecting Project B over Project A?”
a) $15,000
b) $5,000
c) $25,000
d) $30,000

The correct answer is C. Opportunity Cost is the potential return of the project not selected. In this case we did not select Project A, so it is $25,000. There is extra unrelated information in this question; IRR is not relevant when evaluating opportunity cost. Once all of the unnecessary information is filtered out the questions is simply asking what is the dollar value associated with Project A.

Opportunity Cost simply comes down to the benefits or returns that are passed up when one project is selected over another. Understanding what Opportunity Cost is may or may not be necessary when taking the PMP Exam. Even if questions about Opportunity Cost are not on your PMP Exam it is still important for you as a Project Manager to understand Opportunity Cost as it is a method for selecting one project over another especially when valuable resources are limited.

Summary
One of the topics that may appear on your PMP Exam that is not covered by the PMBOK® Guide is Opportunity Cost. In this article we will explain why as a Project Manager you need to understand Opportunity Costs, what exactly Opportunity Cost is, and we will go through a couple of PMP Exam sample questions about Opportunity Cost.

How to Find a Great PMP Mock Exam Online

By Cornelius Fichtner, PMP, CSM

If you are working towards or just considering taking the Project Management Professional (PMP®) exam it is certain you have concerns about taking the exam itself. Concerns that can only be answered by practicing, or what types of questions are on the exam, or do I understand the material enough to pass, and can I answer 200 questions in four hours. You can discover the answers to these concerns and others like them through taking mock exams or answering mock online exam questions before you even register for an official exam date.

Online Mock PMP Exams are the way to go if you want to see where you are knowledge wise, to find out if you can answer 200 questions in four hours, or if you just want to kick a case of the nerves. Therefore, this article explains what a mock exam is, how an online mock test helps you, where you would find such a test, and how good these tests can actually be. My goal is to give you the information you need to both locate a free online mock PMP test and how to identify a quality exam that will help you to be on your way to become a certified PMP.

What are PMP Mock Tests?

A mock test is one that is taken prior to the official exam for practice. A mock test can be taken to help you learn the types of questions that may be on an exam, to test your knowledge, or to simply practice taking the test.
Knowing what kinds of questions may be on the exam, that you can answer 200 questions in four hours, and that you can pass a mock exam can help settle your nerves for the official exam. There are several quality full-length online mock PMP tests on the market, but you don’t always need a full-length exam to test your knowledge. There are also quality options for shorter mock practice tests and also single questions that can be used as part of your successful study plan.

How does a PMP Online Mock Test help me?

It helps, because it allows you to practice taking the PMP exam in the most realistic manner possible, which can be fundamental to you successfully passing the PMP exam.

A good full-length mock practice test will be very much like the official exam. It will consist of 200 questions, be limited to four hours, and will also have questions that are similar in difficulty, style and format as the official exam. It also covers the same topics. An online mock exam for the PMP exam is a good simulation of the actual exam process since the PMP exam is typically computerized. You should find a quiet location, block out four hours, log onto the mock test, and practice taking the exam in the most realistic way possible.

Shorter mock exams or single mock exam questions are also a good method for testing yourself. These questions will be similar in difficulty and in a similar format as the official exam and allow you to practice based on the time you have. If you have an hour or two maybe a shorter mock test is best for you. If you have ten minutes maybe a few practice questions are your best option. Many of the websites that offer single mock test questions offer a mobile option that can be used anywhere.

Where do I find a PMP Mock Exam Online Free?

Online mock tests that are both good and free are hard to come by. After all, you want to make sure you find quality free online practice exams and questions so your time is well spent.

The best one I know comes from Oliver Lehmann at www.oliverlehmann.com. Here you will find some of the most difficult questions around. Consider it a success if you can answer more than half correctly. This site offers questions in a variety of formats along with a free 90-minute, 75-question simulated exam. It is not a full-length exam, but it is definitely worth your time since it is so difficult. The website also has links to 4000 additional practice questions.

Another free online PMP mock test is the PM Exam Simulator located at http://free.pm-exam-simulator.com. This simulator provides several shorter exams and allows you to practice taking the PMP Exam in a manner that mimics the official exam. The questions are formatted using the same difficulty and style that are used for the actual exam. It also provides questions in the same process group proportions to best simulate the exam. It offers three modes to best fit your current learning needs: Learning Mode where you can receive hints and there is no time limit; Timed Mode where you can receive hints, but are held to the time limit; and Real Exam Mode where you can get the real PMP Exam experience.

The final recommended option for free mock PMP questions is at www.free-pm-exam-questions.com. Here you can sign up to have questions delivered directly to your inbox a well as the Weekly PMP Exam Tips Newsletter.

There are many good products on the market that may fit your needs. For some additional recommendations please read my article My Top Recommended Web Sites for Free PMP Exam Sample Questions. And in the interest of disclosure, the PM Exam Simulator and free mock PMP questions mailing list mentioned above are my own products.

How good can a PMP Mock Exam Free Actually be?

It depends! Sometimes you truly get what you pay for, but there are several, high-quality and free online PMP mock exams on the market.

One assumption that we can make is this: free mock exams provided by PMI Registered Education Provider will likely be quite good. Especially if this provider also offers their own online simulator. The reason for this is simple: The free questions they give you will be of a high quality because they want to showcase them to you in the hope that you like them and sign up for the paid products.

How do I spot a GREAT Online PMP Mock Test?

Consider both the source and also the questions themselves:

  • As we have just seen, it is a good sign if the provider of the free questions is a PMI Registered Education Provider because it is in their own interest to give you excellent free materials.
  • Then you have to consider the questions themselves. Here you have to primarily ensure that they are updated to the most recent PMBOK® Guide and that they follow the latest exam specifications.

Questions with explanations that reference the PMBOK Guide or other quality current project management reference materials are also a good sign of great PMP mock questions.

So if you would like to jump right into answering some great online PMP questions just go to www.free-pm-exam-questions.com to have questions delivered directly to you inbox or go to http://free.pm-exam-simulator.com to access a free exam simulator.

Summary

Are you considering taking the Project Management Professional (PMP®) exam? Are you wondering what types of questions are on the exam, if you understand the material enough to pass, or if you can answer 200 questions in four hours? You can discover the answers to these questions and other like them through taking mock exams or answering mock online exam questions before you even register for an official exam date. If you are wondering what is a mock exam, how would an online mock test help you, where you would find a mock PMP test, or how good could a free mock online exam actually be. Keep reading, here you will find the answer to those questions and get the information you will need to both locate a free online mock PMP test and how to identify a quality exam that will help you to be on your way to become a certified PMP.

While reading, How to Find a Great PMP Mock Exam Online by Cornelius Fichtner, the content that sticks in my mind the most after reading the article is that the exam is 200 questions and you have 4 hours to complete it. There are some gems in this article to point out:

With best regards,

Phillip Lichlyter

Please join members of UAB's Collat School of Business's MIS faculty and PMP professionals for a panel discussion on the PMP certification, its benefits, and how the online Information Systems degree curriculum can set you up with success towards achieving it. The webinar takes place on Wednesday, June 24, 2015 at 6:00 pm CT.

Click here to register for the webinar, click the Register button, provide the requested info, and click submit.

Participants will receive an email the morning of the event, by 10am CT, with the event link and password.

Secure your spot at this year's Symposium. Last day for regular registration is April 30, 2015. Space is limited and quickly filling-up. Don't miss the opportunity to participate in a great line-up of breakout sessions, stellar keynotes, and workshops that promise to give you valuable tools that will improve your stakeholder management and communication skills.

If you haven't signed up for this year's Symposium act now and reserve your spot! This year's Symposium is filling up fast, so be sure to reserve your spot. See below for additional details on the great speakers and breakout sessions for this year's PMI Central Alabama Chapter's 20th Anniversary Symposium:

Topic

Speaker

PM Foundational Concepts

John Morgan

PM Agile Concepts

Nat Thompson

Improving Project Outcomes Through Project Manager and Business Analyst Collaboration

April Bridges, Suzanna Rawlins, Tracee McCorvey, Hope Cochran, Matt Gwin and Tammy Cook

“Agile Does Not Mean No Analysis”

Faye Horton

“How to Consistently Influence & Impact Your Most Important Stakeholder to Drive Greater Project Results!”

Skip Weisman

PMI Extended “How to Consistently Influence & Impact Your Most Important Stakeholder to Drive Greater Project Results!”

Skip Weisman

“Leadership From a Cubicle”-

Dr. Dale Callahan

“It’s Not Bad Luck: 13 Ways to Ruin Requirements”-

Matt Jones

“IIBA and PMI Certfications- What’s the Difference?”-

IIBA Chapter President Mickey Ferreiro & PMICAC President Pamela Smith

 

Thank you so much for your support!

We are very excited about this year's collaboration with IIBA for the 2015 PMICAC Symposium, and will be offering a breakout session, "Improving Project Outcomes Through Project Manager and Business Analyst Collaboration."

Help ensure we address your questions and promote a productive dialogue! We want to know what's on your mind; send us your panelist questions to VPProjects@pmicac.org.

Deadline for questions is April 30, 2015.

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