Key Concept and Formulas for PMP Exam

Earn Value Formulas Project Selection Financials

PV (Planned Value) = BCWS (Budgeted Cost of Work NPV (Net Present Value) = FV/(1+r)n
Scheduled FV= Future Value, r= interest rate, n= no. of time periods
EV (Earned Value) = BCWP (Budgeted Cost of Work Higher NPV is better
Performed) IRR (Internal Rate of Return) = Solve the NPV equation for
AC (Actual Cost) = ACWP (Actual Cost of Work Performed) “r”
SV = EV – PV (minus is behind schedule) Also called Hurdle Rate
CV = EV – AC (minus is over budget) Higher IRR percentage is better
SPI = EV/PV (Less than 1 is behind schedule) BCR (Benefit/Cost Ratio)
CPI = EV/AC (Less than 1 is over budget) Higher BCR is better.
EAC = AC + (BAC-EV) Use when variances are atypical Beware, exam can call it CBR, where lower is better
EAC = AC + [(BAC-EV)/CPI] Use when variances are ROI (Return on Investment) = Earnings/Investment
typical Higher ROI is better
(Note: This is the same as EAC = BAC/CPI) Payback Period = Time to recover cost of the project
VAC = BAC – EAC Lower payback period is better
ETC = BAC – EV Use when variances are atypical Cash Flow = Cash In – Cash Out
ETC = (BAC – EV)/CPI Use when variances are typical
ETC = EAC – AC Use when original estimates were flawed

Network Diagram Calculating Stackor Float

Precedence Diagramming Method (PDM)

• 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)
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).
• LS – ES: Calculates slack with forward pass
• LF – EF: Calculates slack with backwards pass

Lag Time: Inserted wait time between activities

• Also called Activity on Arrow (AOA)
• Only 1 relationship: F-S
Lead Time: Overlapping activities, also called paralleling or
• Can have “dummies”
fast tracking.
• Can analyze using either Three-Point Estimates or
CPM
“Lead In; Lag Out”
Graphical Evaluation and Review Technique (GERT)

• Allows loops and repetitive activities

Three Point Estimates, or PERT Accuracy of Estimates

Order of Magnitude:-25% to +75%

Budget Estimate:-10% to +25%
PERT = PROGRAM Evaluation and Review Technique Definitive Estimate:-5% to +10%
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
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 1. Achievement
3. Resources 2. Recognition
4. Technical Opinions 3. Challenge of the work itself
5. Administrative Procedures 4. Responsibility
6. Cost 5. Advancement
7. Personality 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 Cost Performance Index (CPI)

team has to stop working and spend time
EAC = AC+BAC–EV – Remaining work to be
performed at budgeted rate
EAC = BAC/Cumulative CPI – Remaining
work to be performed at present CPI
Schedule Performance Index (SPI)
Estimate at Completion (EAC)
Estimate to Complete (ETC)

EAC = AC+(BAC–EV)/(Cumulative Variance At Completion (VAC)

CPI*Cumulative SPI) – Remaining work to be
performed at present rate involving both SPI Probability (P)
and CPI
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 Standard Deviation (SD)
is no longer achievable, less then 1 is good
Late Start, Early Start, Late Finish, Early
n
PV = FV/(1+r) 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