What You Should Know About PMP Formulas

A guide from the Project Management Centre of Excellence

IPD/OUM(misilamani@yahoo.com)

For PMP Aspirants 2

Content of Presentation

Aims of PresentationWhat & Why of FormulasTypes and Classes of

formulasEarned Value

CalculationsPERT CalculationEstimation ClassesProject selection

CriteriaCommunication

Channels

Types and Classes of formulas-cont

ProbabilitiesProcurementDepreciationControl Limits

(Sigmas') Project Network

calculations Other Important

Formulas

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Aims of Presentation

To provide a ‘ONE STOP’ junction to view all formulas and more likely ones used for PMP Exam

To help PMP aspirants to acquire a clear understanding of the related formulas as an aid for a quick exam review

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What & Why of Formulas

A formula is an entity constructed using the symbols and formation rules of a given logical language

A formula is a concise way of expressing information symbolically

The informal use of the term formula in science refers to the general construct of a relationship between given quantities

In a general context, formulas are applied to provide a mathematical solution for real world problems.

Source: Wikipedia10/4/2013

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What & why of Formulas-cont.

Formulas are,the configuration of

concepts/theoriesSnap shot of concepts /theories

We need them to, Understand concepts/theories evaluate concepts/theories Apply concepts/theories

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Types and Classes of formulas

Earned ValueBasis of Estimate is the first tool used in

the field of project management whereby members of the project team (estimators, project managers, or cost analysts) usually apply to calculate the total cost of the project

Earned Value Management is a second tool within project management that allows for the tracking of progress throughout the life cycle of a project.

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Types and Classes of formulas

Earned Value Metrics- Earned Value Calculations

Earned Value Management (EVM), or Earned Value Project/Performance Management (EVPM) is a project management technique for measuring project performance and progress in an objective manner

The fundamental values that are focused on are,PV - Planned Value or Budgeted Cost of Work scheduled

(BCWS)AC - Actual Cost or Actual cost of work Performed

(ACWP)EV - Earned Value or Budged Cost of Work Performed

(BCWP)

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Types and Classes of formulas Earned Value Metrics- Earned Value Calculations-cont.

Earned Value Field Name

Description

BCWS (Planned Value)-PV

Budgeted Cost of Work Scheduled

BCWP (Earned Value)-EV

Budgeted Cost of Work Performed

ACWP (Actual Cost)-AC

Actual Cost of Work Performed/Produced

SV (EV-PV) Schedule Variance

CV (EV-AC) Cost Variance

SPI = EV / PV Schedule Performance Index-measures effectiveness

CPI = EV/AC Cost Performance Index-measures efficiency

EAC Estimate at Complete

BAC Budget at Complete

VAC Variance at Complete

TPCI To Complete Cost Index

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Types and Classes of formulas Earned Value Metrics- Earned Value Calculations-cont

CPI greater than 1 is good (under budget):< 1 means that the cost of completing the work is higher than

planned (bad);= 1 means that the cost of completing the work is right on plan

(good);> 1 means that the cost of completing the work is less than

plannedSPI greater than 1 is good (ahead of schedule)

< 1 is bad; the work is performed longer than planned (behind schedule) = 1 means that the work schedule or the work is right on plan

(good); > 1 is good; the work is performed shorter than planned (ahead

of schedule) The SV will be zero at project completion because then all of the

planned values will have been earned

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Project tracking with EVM

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Types and Classes of formulas

Earned Value Metrics- Earned Value Calculations-cont

CV = EV – AC (cost variance)

SV = EV – PV (schedule variance)

EAC (fundamentally Flawed) = BAC-AC

EAC (no variances) = BAC/CPI

EAC (Atypical) = AC + BAC – EV

EAC (Typical) = AC + [(BAC –EV)/CPI]

TCPI (To Complete Performance Index)

= (BAC – EV)/ (BAC -AC), based on BAC= (BAC - EV)/ (EAC – AC), based on EAC=(work Remaining/Fund Remaining)

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ETC (Atypical) = BAC – EV

ETC (Typical) = (ETC – EV)/CPI

ETC (Flawed) = New Estimate = EAC - AC

% Complete = EV/BAC *100%

% SPENT = AC/BAC *100%

VAC = BAC – EAC

BAC = VAC + EAC

EV = % Complete* BAC

CV% = EV/CV * 100%

SV% = EV/SV* 100%

SPI = EV / PV (schedule efficiency)

CPI = EV / AC (cost efficiency)

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Types and Classes of formulas

Earned Value Metrics- Earned Value Calculations-cont

Point of Total Assumption (PTA).Used in a fixed price incentive fee (FPIF) contract It is the point where buyer stops bearing costIn other words, it is the point up to where buyer

bears the cost. However, any cost above the PTA is not shared by

buyer and totally imbibed by the sellerThe Formulae: PTA

= [(Ceiling Price - Target Price)/Buyer's Share Ratio] + Target Cost

= {[Ceiling Price – ({Target Cost +Fixed Fee)]/ Buyer's Share Ratio} + Target Cost

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Types and Classes of formulas PERT & Critical Path Estimations

PROGRAM EVALUATION REVIEW TECHNIQUE

PERT 3-point estimate = [Pessimistic+(4*Most Likely)+Optimistic]/6

PERT Activity Variance = ((Pessimistic – Optimistic) / 6^2

PERT Variance of all activities = sum((Pessimistic – Optimistic) / 6^2

PERT Standard Deviation =6 = Square Root of 6^2

CRITICAL PATH METHOD Forward Pass

ES - EF of the predecessor nodeEF - ES plus Duration

Backward Pass

LF - LS of the Successor

LS - LF minus DurationSlack = LF - EF = LS - ESFree Float = ES(Successor) -

EF(Predecessor)Zero Float is on CPM Activity

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Types and Classes of formulas Activity Duration Estimates

• are the likely number of work periods required to complete an activity

• do not include leads and lags• may include range of possible results

e.g. a) 2weeks +/- 2days (i.e. 8 days to 12 days range for a target date of 10 days)

b) 15% probability of exceeding 2 weeks (i.e. 85% likely that the activity will take 2 weeks or less)

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Types and Classes of formulas Classes of Estimates

Order of Magnitude estimate = -25% to +75%

Preliminary estimate = - 15% to + 50%Budget estimate = - 10% to +25%Definitive estimate = - 5% to +10%Final estimate = 0%

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Types and Classes of formulas Project Selection Estimation Methods

PV = FV / (1+r)^nFV = PV * (1+r)^nNPV = Select biggest number. A discount methodROI = Select biggest number. A comparative methodIRR = Select biggest number. A comparative discount

methodPayback Period = Add up the projected cash inflow minus

expenses until you reach the initial investment. A non- discount method

BCR = Benefit / Cost RatioCBR = Cost / Benefit RatioOpportunity Cost = The value of the project not chosen.Expected Value = Probability(%) x Consequence($)

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Types and Classes of formulas Contract Incentives

Savings = Target Cost - Actual Cost

Bonus = Savings x Percentage

Contract Cost = Bonus + Fees

Total Cost = Actual Cost + Contract Cost

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Types and Classes of formulas Quality Management Methods

CoQ –Cost of Quality = ( Review + Test Efforts + Training Efforts + Rework Efforts + Efforts of Reinvention) ------------------------------------------------------x 100 % Total Efforts

P - O------- = Variance 6

PERT = O + 4ML +P --------------- 6

STANDARD DEVIATION of TASK = SQ Root of (P - O)/6 = VARIANCE^2

MEAN --> Average CP STD. DEV. = √ σ² + σ² + σ²

MODE --> The "most found" numberEfforts

COMMON CAUSE or RANDOM CAUSE- Chance cause, Non-assignable cause, Noise, Natural pattern

RANGE --> Largest – Smallest Measure. SPECIAL CAUSE - Assignable Cause, Signal, Unnatural pattern

MEDIUM --> Number in the Middle or average, e.g. of 2 Middle Numbers

INSPECTION is better than REWORK

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Types and Classes of formulas Control Limits using SIGMA

1 sigma = 68.26%2 sigma = 95.46%3 sigma = 99.73%6 sigma = 99.99%

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Types and Classes of formulas Depreciation Valuation Methods

Straight-line Depreciation:Depr. Expense = Asset Cost /

Useful LifeDepr. Rate = 100% / Useful

LifeDouble Declining Balance

Method:Depr. Rate = 2 * (100% / Useful Life)

Depr. Expense = Depreciation Rate * Book Value at Beginning of Year

Book Value = Book Value at beginning of year - Depreciation Expense

Sum-of-Years' Digits Method:Sum of digits = Useful Life + (Useful Life - 1) + (Useful Life - 2) + etc.

Depr. rate = fraction of years left and sum of the digits (e.g. 4/15th)

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Types and Classes of formulas Some Other Significant Measurements

Control Limits = 3 sigma from meanControl Specifications = Defined by

customer; less than the control limitsFloat on the critical path = 0 daysPareto Diagram = 80/20Time a PM spends communicating = 90%Crashing a project = Crash least expensive

tasks on critical path.Just In Time inventory = 0% (or very close to

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Types and Classes of formulas Some Other Significant Measurements-cont.

CommunicationsCommunication Channels = n * (n-1) / 2

ProbabilityEMV = Probability * Impact in currency

ProcurementPTA = ((Ceiling Price - Target Price) /

Buyer's Share Ratio) + Target Cost

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Congrats!

Pass the ‘formula’ test in your PMP 100%10/4/2013