Key Concept and Formulas for PMP Exam

Key Concept and Formulas for PMP Exam

Earn Value Formulas

Project Selection Financials

PV (Planned Value) = BCWS (Budgeted Cost of Work Scheduled EV (Earned Value) = BCWP (Budgeted Cost of Work Performed) AC (Actual Cost) = ACWP (Actual Cost of Work Performed) SV = EV – PV (minus is behind schedule) CV = EV – AC (minus is over budget) SPI = EV/PV (Less than 1 is behind schedule) CPI = EV/AC (Less than 1 is over budget) EAC = AC + (BAC-EV) Use when variances are atypical EAC = AC + [(BAC-EV)/CPI] Use when variances are typical (Note: This is the same as EAC = BAC/CPI) VAC = BAC – EAC ETC = BAC – EV Use when variances are atypical ETC = (BAC – EV)/CPI Use when variances are typical ETC = EAC – AC Use when original estimates were flawed

NPV (Net Present Value) = FV/(1+r)n FV= Future Value, r= interest rate, n= no. of time periods Higher NPV is better IRR (Internal Rate of Return) = Solve the NPV equation for “r” Also called Hurdle Rate Higher IRR percentage is better BCR (Benefit/Cost Ratio) Higher BCR is better. Beware, exam can call it CBR, where lower is better ROI (Return on Investment) = Earnings/Investment Higher ROI is better Payback Period = Time to recover cost of the project Lower payback period is better Cash Flow = Cash In – Cash Out

Network Diagram

Calculating Stackor Float

Precedence Diagramming Method (PDM)

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Also called Activity on Node (AON): Activities are in boxes Most commonly used today Has 4 relationships: F-S, S-S, F-F, S-F No “dummies” (zero duration dependencies) allowed Can analyze using either Three-Point Estimates or CPM

Arrow Diagramming Method (ADM)

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Also called Activity on Arrow (AOA) Only 1 relationship: F-S Can have “dummies” Can analyze using either Three-Point Estimates or CPM

Total Float (also called Slack, Float, or Project Float) is the total amount of time an activity can be delayed without delaying the project finish date. Free Float/Slack is the amount of time an activity can be delayed without delaying its successor (following activity).

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LS – ES: LF – EF:

Calculates slack with forward pass Calculates slack with backwards pass

Lag Time: Inserted wait time between activities Lead Time: Overlapping activities, also called paralleling or fast tracking. “Lead In; Lag Out”

Graphical Evaluation and Review Technique (GERT)

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Allows loops and repetitive activities

Three Point Estimates, or PERT

PERT = PROGRAM Evaluation and Review Technique Holds schedule and lets cost float 3 estimates for each task: Optimistic, Pessimistic, and Most Likely Mean Estimate = (O + 4*ML + P)/6 Standard Deviation (s) = (P – O)/6

Accuracy of Estimates Order of Magnitude:-25% to +75% Budget Estimate:-10% to +25% Definitive Estimate:-5% to +10%

Variance = s2 , or [(P – O)/6]2 Standard deviation of tasks on CP =

Sum of variances

Conflict Resolution (Best to Worst) Powers of a Project Manager 1. Expert: Best, earned on your own 2. Reward: Next best. Based on PM position 3. Formal: Power, based on PM position 4. Referent: Referring to positions of others 5. Penalty: Worst. Based on PM position

1.Problem Solving: Also called Confronting 2. Compromising: Solutions satisfy both parties 3. Withdrawal: Postponing a decision 4. Smoothing: Emphasis on agreement 5. Forcing: One viewpoint at expense of another.

Sources of Conflict (Order of Priority)

Herzberg’s Motivators

1. Schedules 2. Project Priorities 3. Resources 4. Technical Opinions 5. Administrative Procedures 6. Cost 7. Personality

1. Achievement 2. Recognition 3. Challenge of the work itself 4. Responsibility 5. Advancement 6. Growth

Channels of Communication

Closing

Between Team Members = N(N-1)/2

Project is closed when administrative closure is complete. Administrative closure is done at end of each Project Phase and at the end of the Project. Contract closure: verification that deliverables were acceptable; it is done once at the end of the contract. Contract Closure Procedure is produced under “Close Project”

Formulas to memorize for PMP.

Terms Used

EV = %Complete*BAC

Planned Value (PV)

AC = %Spent*BAC

Actual Cost (AC)

CV = EV–AC (>0 Good)

Earned Value (EV)

SV = EV–PV (>0 Good)

Budget At Completion (BAC)

CPI = EV/AC (>1 Good)

Cost Variance (CV)

SPI = EV/PV (>1 Good)

Schedule Variance (SV)

EAC = AC+Bottom up ETC – Best however team has to stop working and spend time

Cost Performance Index (CPI)

EAC = AC+BAC–EV – Remaining work to be performed at budgeted rate

Schedule Performance Index (SPI) Estimate at Completion (EAC)

EAC = BAC/Cumulative CPI – Remaining work to be performed at present CPI EAC = AC+(BAC–EV)/(Cumulative CPI*Cumulative SPI) – Remaining work to be performed at present rate involving both SPI and CPI

Estimate to Complete (ETC) Variance At Completion (VAC) Probability (P) Impact (I)

ETC = EAC–AC or Re-estimate Expected Monetary Value (EMV) VAC = BAC–EAC Expected Activity Duration (EAD) TCPI = (BAC-EV)/(BAC-AC ) or (EAC–AC) – EAC will be used once it is determined BAC is no longer achievable, less then 1 is good PV = FV/(1+r)

n

Standard Deviation (SD) Late Start, Early Start, Late Finish, Early Finish (LS, ES, LF, EF)

Communication Channels = n(n-1)/2

Point of Total Assumption (PTA)

EMV = P*I

To Complete Performance Index [TCPI]

PERT EAD = (O+4M+P)/6 PERT Project Duration = Sum of PERT EADs SD = (P-O)/6 Variance of Activity = [SD]2 = [(P-O)/6]2 SD of Project = Square Root of Var1 + var2 + …… Range of activity duration = EAD +/- SD Total Float/Slack = LS-ES or LF-EF – zero on critical path BCR/IRR/NPV – Bigger is better Mean – Average

Median – Center number/value or average of center values Mode – The most frequent number Contract Incentives Savings = Target Cost – Actual Cost Bonus = Savings x Percentage Contract Cost = Bonus + Fees Total Cost = Actual Cost + Contract Cost PTA = (Ceiling Price – Target Price)/Buyer’s Share ratio +Target Cost