The Top Formulas to Memorize Before Your PMP Exam | A step by step Guide
Last updated on 12th Jul 2020, Blog, GeneralPMP Formulas
Let’s move forward to learn the most common PMP formulas. We’ll discuss these formulas in detail but first, have a look at the quick PMP formula sheet. The below given PMP formula sheet represents the list of 25 PMP formulas to prepare for the PMP certification exam. We’ve put together a list of PMP formulas that you should know along with an explanation of how to use them. So, go through this PMP formula cheat sheet and take a step ahead for the preparation of the certification exam.1. Communication Channel
The communication channel can be defined as the number of ways by which information flows within the organization. A project manager acts as a link between the stakeholders and the customers. The direction of information flow in the communication channel can be upward, downward or sideways depending upon the position of the project manager.How to calculate communication channels?
The total number of communication channels can be calculated by using formula
Communication Channel = n (n – 1) / 2
(Remember that a stakeholder may be an individual, a group or an organization that is affected by the decision, activity or result of the project)
If there are 4 stakeholders then number of communication channel = 4 (4-1) / 2 = 6
2. Earned Value
It is a method of monitoring project plans, actual work, and completed work to check whether the project is going well or not. EV helps you to know if you are winning, drawing or losing and if so, by how much.
How to calculate earned value?
Earned value can be calculated as
Earned Value = % complete × Budget at Completion (BAC)
For example, if the project team has completed 150 man-hours of work and project required 600 man-hours of work to complete the project, then
% Complete = 150/600 × 100 = 25%
Budget at Completion = Total budget assigned for the project (let it be $40,000 in this case)
Then, EV = 25 × $40,000 = $10,000
3. Cost Variance
Cost Variance is one of the important PM formulas that is used for calculating the project’s financial performance. It compares the budget decided at the beginning of the project and actually spent.
How to calculate Cost Variance?
Mathematically, it is the difference between earned value and actual cost.
Cost Variance (CV) = Earned Value (EV) – Actual Cost (AC)
For example, If Earned Value (EV) and Actual Cost (AC) for a project are $20,000 and $20,000 respectively then
Cost Variance = $20,000 – $20,000 = $0, which is perfect as the project is exactly on budget.
The positive of Cost Variance shows the condition of under budget whereas the negative value of Cost Variance denotes the over budget.
4. Schedule Variance
A Schedule Variance is defined as the difference between the earned value and the planned value. It is one of the ways to check the project performance.
How to calculate Schedule Variance?
The formula for Schedule Variance is:
Schedule Variance = Earned Value (EV) – Planned value (PV)
(A negative value of SV refers that you are behind the Schedule and a positive value of SV refers that you are ahead of the Schedule)
For example, if EV for an app development project is $20,000 and PV is $30,000 then
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Schedule Variance = $20,000 – $30,000 = – $10,000 (which shows that project is running behind the schedule by $10,000 schedule variance)
5. Cost Performance Index
The Cost Performance Index measures the cost efficiency of an ongoing project. It is another way of checking cost performance. Being a ratio, CPI is self- explanatory.
How to calculate Cost Performance Index (CPI)?
It is the ratio of earned value to the actual cost.
Cost Performance Index (CPI) = EV / AC
CPI can have three values (=1, >1or <1)
If CPI = 1, then it means that you are getting $1 for every $1 spent.
If CPI > 1, then it means that you are getting more than $1 for every $1 spent.
If CPI < 1, then it means that you are getting less than $1 for every $1 spent.
6. Schedule Performance Index
It is a ratio of the earned value to the planned value. It is used to check whether the project is running at the expected rate or behind the schedule or ahead of schedule.
How to calculate the Schedule Performance Index (SPI)?
Schedule Performance Index = Earned Value (EV) / Planned Value (PV)
As it is also a ratio then it can have three values (=1, >1 or <1)
If SPI = 1, it indicates that the project is going at the same rate as expected.
If SPI > 1, it indicates that the project is going at a faster rate.
If SPI < 1, it indicates that the project is going at a slower rate.
7. Estimate at Completion (EAC)
It is a forecasting technique to predict future project performance. EAC gives the forecasted value of the project at completion and it is the total amount that project will cost.
How to calculate Estimate at Completion (EAC)?
There are four formulas to calculate EAC.
1st Formula for the EAC
Estimate at Completion (EAC) = BAC / CPI
If CPI = 1 then EAC = BAC which means that you are able to complete the project with the provided budget without any forecasting analysis. Even at the starting of the project, Estimate at Completion is the same as that of the Budget at Completion.
2nd Formula for the EAC
When you find out that cost estimate was flawed and you need to calculate the new cost estimate for the remaining project work. Then you need to move to the activity level in order to find the cost of every activity, and then add individual costs to get the total cost value of the remaining work/task. In this case, we use the following formula to find EAC
Estimate at Completion (EAC) = AC + Bottom-up ETC
3rd Formula for the EAC
If there has been a deviation from the estimated budget but now you can perform the remaining task as per plan. This may happen because of an unexpected condition or increased cost. Thus, to find the value of EAC in this formula, money spent to date (i.e. AC) is added to the budgeted cost for remaining project work.
Estimate at Completion = Money spent to date + Budgeted cost for the remaining work
Estimate at Completion (EAC) = AC + (BAC – EV)
4th Formula for the EAC
When you are behind schedule, over the budget or the client requests you to finish/complete the project within preset time, both the schedule and cost are required to be taken into account, then this formula is applied to find the value of EAC. It is given as
Estimate at Completion = Money spent to the date + (Budgeted cost for the remaining work – Earned Value) / (Cost Performance Index × Schedule Performance Index)
Estimate at Completion (EAC) = AC + [(BAC – EV) / (CPI × SPI)]
8. Variance at Completion (VAC)
VAC is an alternate Earned Value Management (EVM) formula. Mathematically, it can be defined as the difference of Budget at Completion (BAC) and Estimate at Completion (EAC).
How to calculate Variance at Completion (VAC)?
Variance at Completion (VAC) = BAC – EAC
Remember that a $0 value for VAC indicates that you will hit the budget. A value of less than $0 indicates that you will be over budget and value more than $0 indicates that you will be under budget.
9. Estimate to Complete (ETC)
ETC is the second forecasting technique in project management that shows which amount is to be spent on the remaining part of the project to complete. Mathematically, ETC is the difference between earned at completion and actual cost. It can be calculated as
How to calculate Estimate to Complete (ETC)?
Estimate to Complete (ETC) = EAC – AC
10. To Complete Performance Index
It is defined as the calculated cost performance projection that can be achieved on the remaining work to acquire the goal such as BAC or EAC. IT gives us additional information on project performance.
How to calculate TCPI?
Here are two formulas to calculate TCPI depending upon whether BAC or EAC is given.
TCPI = (BAC – EV) / (EAC – AC)
TCPI = (BAC – EV) / (BAC – AC)
SD measures how much is the variation from the mean. It is used to analyze data. It is represented by sigma (σ).
How to calculate Standard Deviation?
Mathematically, sigma is the difference of distribution values on any end and in middle.
σ = (Pessimistic – Optimistic) / 6
A low value of SD shows that the data points are close to mean or average and a high value of SD shows that data points are spread over a large range.
12. PERT Formula
PERT formula is a variation on three-point estimation and these three estimations are pessimistic (P), most likely (M) and optimistic (O).
How to calculate PERT?
PERT formula is based on Beta distribution.
Beta = (P + M + O) / 3
But PERT analysis uses the weighted average which is the four times of the weight of the most likely (M) estimation.
Beta = (P + 4M + O) / 6
As PERT uses three different estimations to reach final estimation, it reduces the possibilities of risks and also improves the estimation accuracy.
13. Expected Monetary Value (EMV)
The expected monetary value represents the expected money to be made from a specific decision.
To calculate the expected value, it considers the possibility of occurring outcomes and the dollars assigned to each outcome.
The formula for calculating EMV
EMV= Probability * Impact
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For example, if you roll a dice and bet $60 to receive a three. The possibility to get a three is 1/6 as there are possibilities to get from 1 to 6. The possibility to get some other is 5/6.
For the first case, the Impact for the event = $60
So, the EMV will be = $60 * 1/6 = $10
For the second case, the Impact for the event = -$60
So, the EMV will be = $60 * 5/6 = (-$50)
In the case of multiple events, the EMV of the events/risks is first calculated separately and then added. Now, the EMV for this scenario is calculated as below:
EMV = $10 – $50 = -$40
The calculation of EMV (Expected Monetary Value) helps to calculate the required amount for the management of identified risks and to select the choice that involves less budget for the risk management.
EMV is one of the PMP formulas from the Risk and Probability; you may find at least one question from risk and probability PMP formulas in your exam.
14. Risk Priority Number (RPN)
The Risk Priority Number (RPN) is all about assessing the risks in the Failure Mode and Effect Analysis (FMEA) and therefore helps in sorting the risks. To calculate RPN, detection, occurrence, and severity are taken into consideration, so let’s understand these terms first.
Detection: It is related to the capability of detecting the failure and is ranked from 1 to 10. Low rank of detection represents the high capability of detection.
Occurrence:It is related to the potential of failure occurrence and is ranked from 1 to 10. Low occurrence rank represents the low failure occurrence potential. The term occurrence is also known as the time frame.
Severity: It is related to the severity of the failure mode and is ranked from 1 to 10. Highly severed risks are given a higher severity. The term severity is also known as impact.
RPN is calculated by the multiplication of three scoring columns, Detection, Occurrence, and Severity. So, The formula for RPN is –
RPN = Detection * Occurrence * Severity
For example, if the detection score is 3, the occurrence score is 6, and severity score is 4, then the RPN will be –
RPN = 3 * 6 * 4
RPN = 72
RPN is another from Risk and Probability PMP formulas, so don’t miss and prepare with it with a few examples.15. Cost Plus Percentage of Cost (CPPC)
This is a particular type of contract where there is zero risk for the seller and it is the buyer that accepts it completely. From the buyer’s point of view, it is least likely a cost-reimbursement contract because buyers need to pay the whole cost experienced by the seller plus additional fee.
In this contract, there is nothing to lose for the seller. As an additional profit amount is a percentage of reimbursement cost, some unethical or insincere seller might not focus towards controlling cost because with an increase in cost, their profit increases.
Contract Cost plus percent of the cost as a fee