Important formulas in Project Management Professional (PMP) and the best ways to memorize them

by on October 18, 2012 in Course Preparation, Guests Column, PMP®, Project Management, Trainer Articles

Important formulas in Project Management Professional (PMP) and the best ways to memorize them

If you are going to appear in the PMP credential examination, this article can help you a lot. As you prepare for the examination, you need to know the frequent use of important formulas, where to use, how to use, how to compute, and most importantly, how to derive the values? I have seen so many PMP aspirants memorize formulas like they did for History lessons during their school days. It is not the standard way to memorize formulas. Incorrect methods of memorizing the formulas can give you the wrong result. And even you can’t memorize which formula to use when and where with this process. So you need to follow a standard process – How to memorize the important formulas pertaining to PMP examination?
There are more than 25 formulas that could be used in the examination. But there are some important, cost management related formulas which are very important and you can frequently see them during the examination. And I am sure; you can expect almost 70% of the calculation-based questions based on these formulas. So these are very important assets for the PMP examination.
Important Formulas from Cost Management Knowledge Area:

  1. 1.      Cost Variance (CV)  =  Earned Value (EV)  – Actual Cost (AC)          
  2. 2.      Schedule Variance (SV)  =  Earned Value (EV)  – Planned Value  (PV)
  3. 3.      Cost Performance Index (CPI)  =  EV / AC
  4. 4.      Schedule Performance Index (SPI)  =  EV / PV

See all the four formulas above and try to find out the commonalities in them. Not getting it yet?! Yes, the easiest part is Earned Value (EV) … It is appearing above in all the formulas or you can say you have to derive the values of cost variance, schedule variance, cost performance index, and schedule performance index keeping Earned Value in mind at first. Earned Value will be coming prior to any other value. And most importantly, if you are getting cost related questions; think about actual cost with Earned value and if question is about schedule; think about planned value along with earned value. If it is a matter of variance, you need to subtract actual cost and planned value from earned value depending on the situation. Very easy, try this!
Similarly, if it is a question of getting index values; actual cost and planned value will be divided from earned value. If it is a matter of cost performance index; actual cost will be divided from earned value and if it is schedule performance index; planned value will be divided from Earned Value.
So, in each and every circumstance, Earned Value playing a huge role hence in formula it is appearing at the top. Very easy to memorize these formulas and you can happily obtain 8-10 correct answers.

  1. 5.      EAC = AC + Bottom-up ETC

As you are going to derive the estimate at completion; you need to focus on the actual cost incurred. Only then can you obtain the future value you need for processing the project. See the above formula; this formula is used when original estimation is fundamentally crooked. It calculates actual plus new estimate for the remaining work.

  1. 6.      EAC = BAC/Cumulative CPI

If you were asked during the examination that you are a good project manager and you are working on the project as per planned i.e., are you able to maintain CPI and SPI both in positive value; in this case you can use the above mentioned formula. This formula is used when original estimation is met without any deviation.

  1. 7.      EAC = AC + (BAC – EV)

If you are in bad shape during project execution and have incurred more money on the project than expected or rather as planned; you may use above mentioned formula to obtain estimate at completion value. Again your actual cost will be used first.

  1. 8.      EAC = AC + [BAC - EV / (Cumulative CPI x Cumulative SPI)]

This formula is used to calculate actual to date plus the remaining budget changed based on the performance. It is simply used when we think that the current ratio is typical as planned. We have to meet the schedule as decided earlier and we calculate the EAC accordingly to meet that schedule.
These formulas are very easy to memorize. You need to clear your concept on the formulas and you need to understand the situation very quickly before picking any formula.
All PMP aspirants should read the questions very carefully mainly when you need to derive the estimate at completion value. You can get answers in the question itself. But for this you need to understand the concept of the questions and the situations in front of project manager correctly. Only then can you decide which formula to use, where.

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