PRINCE2F PRINCE2 Processes Practice Question
You are the project manager for a software development project following PRINCE2. The project is in its second stage, which has a budget tolerance of 10% above the planned cost of $200,000. The project board is composed of the executive, senior user, and senior supplier. The team has been working on a critical feature, but a key supplier has announced a 15% price increase for their services, effective immediately. This increase will push the stage costs to $230,000, exceeding the tolerance. The project manager must decide the best course of action. Which option should the project manager take?
⚠ Common exam trap
Many exam-takers think the project manager can handle the overrun internally (e.g., by negotiating or using contingency), but PRINCE2 strictly requires escalation via an Exception Report when stage tolerance is exceeded, regardless of the cause.
Answer choices
Why each option matters
Answer the question above first, then reveal the full breakdown to understand why each option is right or wrong.
Correct answer & explanation
✓
Raise an exception report to the project board, detailing the cost increase and seeking guidance.
PRINCE2 mandates that when a stage's forecast exceeds its tolerance (here, 10% above $200,000 = $220,000, and the new cost is $230,000), the project manager must raise an Exception Report to the project board. The board, comprising the executive, senior user, and senior supplier, then decides on corrective actions—such as approving additional budget, renegotiating scope, or stopping the project. The project manager cannot unilaterally approve the overrun or bypass the board.
Answer analysis
Option-by-option breakdown
For each option: why learners choose it and why it is or isn't the right answer here.
- ✗
Stop the project and close it prematurely.
Why it's wrong here
Closing the project discards a viable business case over a single stage-level cost breach. Premature closure is tempting as an escalation-avoidance move, but it would be correct only if the project were no longer viable, for example if the business case had failed or the board had withdrawn support.
- ✗
Negotiate with the supplier for a discount and continue the stage work without escalation.
Why it's wrong here
Negotiating does not remove the breach: the 15% increase still exceeds the 10% stage tolerance, and the project manager lacks authority to proceed regardless of the outcome. Negotiation would be correct only if the resulting cost stayed within the delegated tolerance, avoiding escalation.
- ✗
Approve the additional cost from the project's contingency budget without informing the board.
Why it's wrong here
A 15% overrun breaches the 10% stage tolerance, so the project manager cannot authorise it; tolerances define the limit of delegated authority, and exceeding them requires escalation to the project board. Using contingency without informing the board would be correct only within the delegated tolerance.
- ✓
Raise an exception report to the project board, detailing the cost increase and seeking guidance.
Why this is correct
The 15% supplier increase pushes stage costs to $230,000, breaching the 10% tolerance ($220,000 limit). Under PRINCE2, a forecast tolerance breach must be escalated to the project board via an exception report, since only the board can authorise an exception plan or revised stage boundary.
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Senior Network & Security Engineer · founder of Courseiva
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