PMP Formulas - PMBOK 6th Edition
Here are 27 PMP formulas that are required for the PMP Examination.
There are 13 Earned Value Analysis formulas, 7 financial measures formulas and 7 additional formulas.
There are 13 Earned Value Analysis formulas, 7 financial measures formulas and 7 additional formulas.
| Earned Value Analysis (PMBOK 6th edition, 7.4, p. 267) | |||||
| Abbreviation | Name | Lexicon Definition | How Used | Equation | Interpretation of Result |
| PV | Planned Value | The authorized budget assigned to scheduled work. | The value of the work planned to be completed to a point in time, usually the data date, or project completion | ||
| EV | Earned value | The measure of work performed expressed in terms of the budget authorized for that work. | The planned value of all the work completed (earned) to a point in time, usually the data date, without reference to actual costs. | EV = sum of the planned value of completed work | |
| AC | Actual Cost | The realized cost incurred for the work performed on an activity during a specific time period. | The actual cost of all the work completed to a point in time, usually the data date. | ||
| BAC | Budget At Completion | The sum of all budgets established for the work to be performed. | The value of total planned work, the project cost baseline. | ||
| CV | Cost Variance | The amount of budget deficit or surplus at a given point in time, expressed as the difference between the earned value and the actual cost. | The difference between the work completed to a point in time, usually the data date, and the work planned to be completed to the same point in time. | CV = EV - AC | Positive - Under planned cost Neutral - On planned cost Negative - Over planned cost |
| SV | Schedule Variance | The amount by which the project is ahead or behind the planned delivery date, at a given point in time, expressed as the difference between the earned value and the planned value. | The difference between the work completed to a point in time, usually the data date, and the work planned to be completed to the same point in time. | SV = EV - PV | Positive - Ahead of Schedule Neutral - On schedule Negative - Behind Schedule |
| VAC | Variance At Completion | A projection of the amount of budget deficit or surplus, expressed as the difference between the budget at completion and the estimate at completion. | The estimated difference in cost at the completion of the project. | VAC = BAC - EAC | Positive - Under planned cost Neutral - On planned cost Negative - Over planned cost |
| CPI | Cost Performance Index | A measure of the cost efficiency of budgeted resources expressed as the ratio of earned value to actual cost. | A CPI of 1.0 means the project is exactly on budget, that the work actually done so far is exactly the same asa the cost so far. Other values show the percentage of how much costs are over or under the budgeted amount for work accomplished. | CPI = EV/AC | Greater than 1.0 - Under planned cost Exactly 1.0 - On planned cost Less than 1.0 - Over planned cost |
| SPI | Schedule Performance Index | A measure of schedule efficiency expressed as the ratio of earned value to planned value. | An SPI of 1.0 means that the project is exactly on schedule, that the work actually done so far is exactly the same as the work planned to be done so far. other values show the percentage of how much costs are over or under the budgeted amount for work planned. | SPI = EV/PV | Greater than 1.0 - Ahead of schedule Exactly 1.0 - On schedule Less than 1.0 - Behind schedule |
| EAC | Estimate At Completion | The expected total cost of completing all work expressed as the sum of the actual cost to date and the estimate to complete. | If the CPI is expected to be the same for the remainder of the project, EAC can be calculated using (a) If future work will be accomplished at the planned rate, use (b) If the initial plan is no longer valid, use: (c) If both the CPI and SPI influence the remaining work, use (d) |
(a) EAC = BAC/CPI (b)EAC = AC + BAC - EV (c)EAC = AC + Bottom-up ETC (d)EAC = AC + [(BAC - EV)/(CPI x SPI)] |
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| ETC | Estimate To Complete | The expected cost to finish all the remaining project work. | Assuming work is proceeding on plan, the cost of completing the remaining authorized work can be calculated using (a) Reestimate the remaining work from the bottom up.(b) |
(a)ETC = EAC - AC (b)ETC = Reestimate |
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| TCPI | To Complete Performance Index | A measure of the cost performance that must be achieved with the remaining resources in order to meet a specified management goal, expressed as the ratio of the cost to finish the outstading work to the budget available. | The efficiency that must be maintained in order to complete on plan. (a) The efficiency that must be maintained in order to complete the current EAC.(b) |
(a)TCPI = (BAC-EV)/(BAC-AC) (b)TCPI = (BAC-EV)/(EAC - AC) |
(a)Greater than 1.0 = Harder to complete Exactly 1.0 = Same to complete Less than 1.0 = Easier to complete (b)Greater than 1.0 = Harder to complete Exactly 1.0 = Same to complete Less than 1.0 = Easier to complete |
| Financial measures (PMBOK 6th edition, 1.2, p. 34) | |||||
| Abbreviation | Name | Explanation | Equation | ||
|---|---|---|---|---|---|
| NPV | Net Present Value | NPV is Present Value FV is Future Value r is the interest rate (as a decimal, so 0.05, not 5%) n is the number of years |
NPV = FV / (1+r)n-Initial Investment | ||
| NPV (Even Cashflows) | Net Present Value (Even Cashflows) | ** This formula is probably beyond what one would be expected to see for the PMP Exam | C is the net cash inflow expected to be received each period r is the required rate of return per period (or interest rate over the period) n are the number of periods during which the project is expected to operate and generate cash inflows | NPV = C x ((1 - (1 + r)-n)/ r ) - Initial Investment | |
| NPV (Uneven Cashflows) | Net Present Value (Uneven Cashflows) | ** This formula is probably beyond what one would be expected to see for the PMP Exam | r is the target rate of return per period (or interest rate per period); C1 is the net cash inflow during the first period; C2 is the net cash inflow during the second period; C3 is the net cash inflow during the third period, and so on.... | NPV = C1 / (1 + r)1 + C2 / (1 + r)2 + C3 / (1 + r)3 + ... -Initial Investment | ROI | Return on Investment | Return on Investment = Net profit / Capital Invested | ROI > 1 - Project is profitable ROI = 1 - Project breaks even ROI < 1 - Project loses money |
IRR | Internal rate of return |
IRR is the interest rate at which the cash inflow and cash outflow of the project equals zero **This will not be asked of you to calculate on the exam for obvious reasons. |
Essentially, the calculation would look at reversing which of the 3 NPV formulas above apply to the situation at hand and setting NPV to 0 and then find r(or IRR). | The larger the Internal Rate of Return (IRR), the more favorable the project is financially to the organization. | PBP | Payback Period | PBP = Total Investment / Cash inflow (per period(months/years)) | The shorter the Payback Period, the more favourable the project financially to the organization | BCR | Benefit-cost ratio | BCR = Benefits / Costs | BCR > 1 - the project is profitable, higher the BCR the better BCR = 1 - the project will break even BCR < 1 - the project will lose money |
| Additional formulas | |||||
| Abbreviation | Name | Equation | How Used | Interpretation of Result/Reference | |
| Number of potential communication channels or paths | n x (n-1) /2 | where n = number of stakeholders | (PMBOK 6th edition, 10.1, p. 370) | ||
| Three-point estimating(Triangular distribution) | cE = (cO + cM +cP) / 3 | Most likely (cM). This estimate is the most likely case Optimistic (cO). Best-case scenario Pessimistic (cP). Worst-case scenario |
Triangular distribution is used when there is insufficient historical data or when using judgmental data. | (PMBOK 6th edition, 6.4, p. 201(Schedule), PMBOK 6th edition, 7.2, p. 245(Cost) |
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| Three-point estimating(Beta Distribution or PERT) PERT (Program Evaluation and Review Technique) |
cE = (cO + 4cM + cP) / 6 | Most likely (cM). This estimate is the most likely case Optimistic (cO). Best-case scenario Pessimistic (cP). Worst-case scenario |
(PMBOK 6th edition, 7.2, p. 245) | ||
| Standard Deviation | (P - O) / 6 | P = Pessimistic Estimate O = Optimistic Estimate |
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| Float/Slack | Float/Slack = LS - ES Float/Slack = LF - EF |
LS = Late start ES = Early start LF = Late finish EF = Early finish |
Positive - Ahead of schedule Zero - On schedule Negative - Behind schedule (PMBOK 6th edition, 6.5, p. 210) |
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| Expected Monetary Value (EMV) | EMV = P x I | P = Probability I = Impact |
Decision Tree Analysis (PMBOK 6th edition, 11.4, p. 435) |
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| Point of Total Assumption(PTA) PTA is the point on the cost line where seller effectively bears all the costs of a cost overrun |
PTA = (Ceiling price - Target Price)/Buyer's share ratio + Target Cost | Relates only to Fixed Price Incentive Fee(FPIF) contracts Additionally, Target Price is usually the sum of Target Cost and Target Profit(Fee) |
https://en.wikipedia.org/wiki/Point_of_total_assumption | ||
References:
PMI. (2017, September) PMBOK® Guide - Sixth Edition + Agile Practice Guide. New Town Square, Pennsylvania: Project Management Institute, Inc.