PMP Formulas1

 
2019
PMP Formulas
EXAMSPM
1
Table of Contents
PMP formulas .......................................................................................................... 9
How will the formulas be used in exam questions? ..............................................................9
How in-depth can I expect the questions to be? ................................................................10
Final word: How to approach formula questions during the exam ..........................................10
Section 1: Critical Path Method ................................................................................... 11
PERT Triangular Distribution Formula ..........................................................................11
▶ Description: ................................................................................................11
▶ When to use?.................................................................................................11
▶ Which variables are needed? .............................................................................11
▶ Formula: ......................................................................................................11
▶ Benefit ........................................................................................................11
PERT Beta Distribution Formula ................................................................................ 11
▶ Description: ................................................................................................11
▶ When to use?.................................................................................................11
▶ Formula: ......................................................................................................11
▶ Benefit ........................................................................................................11
Standard Deviation (SD) of an Activity.........................................................................12
▶ Description: ................................................................................................12
▶ When to use?.................................................................................................12
▶ Formula: ......................................................................................................12
▶ What do the results mean? ................................................................................ 12
The Variance of an Activity ...................................................................................... 12
▶ Description: ................................................................................................12
▶ When to use?.................................................................................................12
▶ Formula: ......................................................................................................12
The Range of an Activity Duration .............................................................................13
▶ Description: ................................................................................................13
▶ When to use?.................................................................................................13
▶ Formula: ......................................................................................................13
Number of Communication Channels ..........................................................................13
▶ Description: ................................................................................................13
2
▶ When to use?.................................................................................................13
▶ Formula: ......................................................................................................13
▶ Example Calculation: ....................................................................................... 13
Float (Slack) Formulas ...........................................................................................14
▶ Description: ................................................................................................14
▶ When to use?.................................................................................................14
▶ Formula: ......................................................................................................14
Section 2: Earned Value Management Formulas ...............................................................15
Budget at Completion (BAC) .................................................................................... 15
▶ Description: ................................................................................................15
▶ When to use?.................................................................................................15
▶ Formula: ......................................................................................................15
Earned Value (EV) ................................................................................................15
▶ Description: ................................................................................................15
▶ When to use?.................................................................................................15
▶ Formula: ......................................................................................................15
Planned Value (PV) ...............................................................................................16
▶ Description: ................................................................................................16
▶ When to use?.................................................................................................16
▶ Formula: ......................................................................................................16
Section 3: Variance Formulas ..................................................................................... 17
Cost Variance (CV) (Variances).................................................................................. 17
▶ Description: ................................................................................................17
▶ When to use?.................................................................................................17
▶ Formula: ......................................................................................................17
3
Schedule Variance (SV) ..........................................................................................18
▶ Description: ................................................................................................18
▶ When to use?.................................................................................................18
▶ Formula: ......................................................................................................18
Section 4: Index formulas .........................................................................................19
Cost Performance Index (CPI) .................................................................................. 19
▶ Description: ................................................................................................19
▶ When to use?.................................................................................................19
▶ Formula: ......................................................................................................19
Schedule Performance Index (SPI) .............................................................................20
▶ Description: ................................................................................................20
▶ When to use?.................................................................................................20
▶ Formula: ......................................................................................................20
Section 5: Forecasting tools....................................................................................... 21
Estimate to Complete (ETC) .................................................................................... 21
▶ Description: ................................................................................................21
▶ When to use?.................................................................................................21
▶ Formula: ......................................................................................................21
Estimate at Completion (EAC) ................................................................................. 22
▶ Description: ................................................................................................22
EAC Approach #1: BAC remains the same ...................................................................22
▶ When to use?.................................................................................................22
▶ Formula: ......................................................................................................22
EAC Approach #2: CPI remains the same .....................................................................22
▶ When to use?.................................................................................................22
▶ Formula: ......................................................................................................22
4
EAC Approach #3: Original Estimate is flawed...............................................................23
▶ When to use?.................................................................................................23
▶ Formula: ......................................................................................................23
EAC Approach #4: Substandard Performance continues ....................................................23
▶ When to use?.................................................................................................23
▶ Formula: ......................................................................................................23
Variance at Completion (VAC) .................................................................................. 24
▶ Description: ................................................................................................24
▶ When to use?.................................................................................................24
▶ Formula: ......................................................................................................24
To-Complete Performance Index (TCPI) ......................................................................24
▶ Description: ................................................................................................24
▶ Helpful to know: ............................................................................................24
TCPI Approach #1 .................................................................................................25
▶ When to use?.................................................................................................25
▶ Formula: ......................................................................................................25
TCPI Approach #2 .................................................................................................25
▶ When to use?.................................................................................................25
▶ Formula: ......................................................................................................25
Section 6: Project Selection Tools................................................................................ 27
Present Value (PV) ...............................................................................................27
▶ Description: ................................................................................................27
▶ When to use? ................................................................................................27
▶ Formula: ......................................................................................................27
5
▶ Sample calculation:.........................................................................................27
Future Value (FV) ................................................................................................28
▶ Description: ................................................................................................28
▶ When to use?.................................................................................................28
▶ Formula: ......................................................................................................28
▶ Sample calculation:.........................................................................................28
Section 7: Risk and Probability formulas ........................................................................29
Expected Monetary Value (EMV) ...............................................................................29
▶ Description: ................................................................................................29
▶ When to use?.................................................................................................29
▶ Formula: ......................................................................................................29
Return on Investment ............................................................................................30
▶ Description: ................................................................................................30
▶ When to use?.................................................................................................30
▶ Formula: ......................................................................................................30
Payback Period ....................................................................................................30
▶ Description: ................................................................................................30
▶ When to use?.................................................................................................30
▶ Formula: ......................................................................................................30
Benefit-Cost Ratio (BCR) .........................................................................................31
▶ Description: ................................................................................................31
▶ When to use?.................................................................................................31
▶ Formula: ......................................................................................................31
6
Risk Priority Number (RPN) ..................................................................................... 32
▶ Description: .................................................................................................32
▶ When to use?.................................................................................................32
▶ Formula: ......................................................................................................32
Section 8: Formulas related to Contracts/Agreements/Procurement ......................................33
Target Price ........................................................................................................33
▶ Description: ................................................................................................33
▶ When to use?.................................................................................................33
▶ Formula: ......................................................................................................33
Cost Plus Percentage of Cost (CPPC) ...........................................................................33
▶ Description: ................................................................................................33
▶ When to use?.................................................................................................33
▶ Formula: ......................................................................................................33
Cost Plus Fixed Fee (CPFF) ...................................................................................... 34
▶ Description: ................................................................................................34
▶ When to use?.................................................................................................34
▶ Formula: ......................................................................................................34
Cost Plus Award Fee (CPAF) ..................................................................................... 34
▶ Description: ................................................................................................34
▶ When to use?.................................................................................................34
▶ Formula: ......................................................................................................34
Cost Plus Incentive Fee (CPIF) .................................................................................. 34
▶ Description: ................................................................................................34
▶ When to use?.................................................................................................34
▶ Formula: ......................................................................................................34
Point of Total Assumption (PTA) ................................................................................ 35
▶ Description: ................................................................................................35
▶ When to use?.................................................................................................35
▶ Formula: ......................................................................................................35
▶ Example Calculation ........................................................................................35
7
Appendix .............................................................................................................. 36
Failure Mode and Effect Analysis (FMEA). ..................................................................36
8
PMP formulas
You are well on your way to passing the PMP exam! By now, you have probably set the time and date for your
exam, and are reading through the PMBOK to learn all the exam concepts.
Often student wonder how they will learn all the PMP formulas that they need for the exam.
Although the PMP formulas constitute about 5-10% of the PMP exam, they can make a big difference to passing
the exam.
Answering the formulas questions correctly will give you easy wins. You can easily score well on these questions
if you understand the underlying formulas.
Why does this matter? It’s only about 20 questions, right? Well, since the PMP exam is generating questions
based on how you are answering previous questions, it is in your best interest to be as successful as possible on
questions you can easily do well on. This will put you closer to guaranteeing a passing grade!
This guide has all the formulas you could encounter on the PMP exam compiled into 8 sections. Each section
breaks down the formulas through associated themes.
The themes are:
- Critical Path Method

- Earned Value Management Formulas
- Variance Formulas
- Index formulas
- Forecasting tools
- Project Selection Tools
- Risk and Probability formulas
- Formulas related to Contracts/Agreements/Procurement
When learning these formulas, try and learn them so that you can quickly do a “brain dump”. Challenge yourself
to write down as many formulas as you can remember, in under 2 minutes.
How will the formulas be used in exam questions?

You may encounter questions on the exam where several formulas are needed to solve a question. Or you may be
asked which formula would be most appropriate for the information given.
The best approach with formula questions is to first look at which answers are available, and then read through the
question. You can quickly rule out some “impossible” answers this way!
Generally, there are six types of questions on the PMP exam that will require you to flex your formulas muscles.
These are:
Type of Question Approach

Which is the correct First read through the list of formulas available. Then, read through the given scenario
formula? information. Determine which formula best fits the information given, by ruling out
which formulas are not possible with the given information.
9
Interpret the results Given the result, explain what this result means for the project.
Scenario-based Identify the keywords in the question, and then determine which formula is best. Think
keyword questions about what stage the project is at, and then apply the correct formula.
Calculate a value The question will provide values, and ask to calculate a value. These questions require
using one formula using only one formula to calculate the value.
Invert a formula Rather than asking “5+6=?”, the question is asking “5+?=11”. With these questions,
rewrite the formula to solve for the unknown variable.
Calculate a value These questions can be the trickiest. At first, it appears that all the information is given,
using two formulas but as you begin to calculate you realise you are missing information that is used in
another formula. The best approach here is to identify all the variables given, and then
determine which two formulas are needed to solve for the unknown value.
How in-depth can I expect the questions to be?

Although the PMP exam does not require elaborate calculations, the last thing you want to feel is
unprepared. Having a good knowledge of the formulas, why they are used, when to use them, and what
the results mean will put you in good stead to passing the PMP exam.
The PMP is a timed exam, so consider how much time you will spend per question. If you find you are
performing a complicated calculation, and can’t find the solution, re-read the question. You may have
missed some information.
Final word: How to approach formula questions during the exam

Students often want to rush through a read a question quickly, but this is not the best approach for a
formula questions.
Read the available answers first.
Then read the information the question gives.
Take note of any keywords.
Understand what the question is really asking. Does it require me to perform a calculation? Do I need
to interpret what the result means? Do I need to choose the appropriate formula?
When in doubt, read the question again.
Good luck! 
10
Section 1: Critical Path Method
PERT Triangular Distribution Formula
► Description:
A variation on three-point estimation that helps to calculate duration, cost and resource estimates.
► When to use?
Use PERT Triangular Distribution formula to Estimate the Activity Duration (EAD).
► Which variables are needed?

Determine the activity Optimistic (O), Most Likely (M) and Pessimistic (P) estimates.
O = Optimistic estimate 
M = Most Likely estimate 
P = Pessimistic estimate
► Formula:
Estimate the Activity Duration (EAD) = (Optimistic estimate + Most Likely estimate + Pessimistic estimate) / 3
EAD = (𝑂 + 𝑀 + 𝑃) / 3
► Benefit
Using three estimations to reach the final estimation reduces risks and improves estimation accuracy.
PERT Beta Distribution Formula

► Description:
A variation using the weighted average which is four times of the weight of the most likely estimation.
► When to use?
Use PERT Beta Distribution formula to Estimate the Activity Duration (EAD).

Determine the activity Optimistic (O), Most Likely (M) and Pessimistic (P) estimates.
M = Most Likely estimate 
► Formula:
Estimate Activity Duration (EAD) = (Optimistic estimate + 4*Most Likely estimate + Pessimistic estimate) / 6
EAD = (𝑂 + 4𝑀 + 𝑃) / 6
► Benefit
Using three estimations to reach the final estimation reduces risks and improves estimation accuracy.
11
Standard Deviation (SD) of an Activity
► Description:
Standard Deviation (SD) is represented by sigma (σ). SD, or σ, measures how much variation there is from the
mean. Mathematically, sigma (σ) is the difference of distribution values on any end and in middle.
► When to use?
Standard Deviation (SD) measures the Variation from the average or mean.

Determine the activity Optimistic (O), and Pessimistic (P) estimates.
► Formula:
Standard Deviation (σ) = (Pessimistic – Optimistic) / 6
Standard Deviation (σ) = (𝑃 − 𝑂) / 6
► What do the results mean?

A high value of SD indicates that the data points are spread over a large range.
A low value of SD indicates that the data points are close to the mean or average.
The Variance of an Activity

► Description:
The variance is an indicator to the activity risk level. Notice that the formula is SD2.
► When to use?
To calculate the project duration estimate range. When needing to determine the course of action to take.

Determine the activity Optimistic (O), and Pessimistic (P) estimates.
► Formula:
Variance = ((𝑃 − 𝑂) / 6) ^ 2
12
The Range of an Activity Duration
► Description:
The range of an Activity Duration serves the same purpose of Standard Deviation (SD) and Variance.
► When to use?
Used to calculate the end of the activity range, or, to calculate the start of the activity range.

EAD = Estimated Activity Duration
SD = Standard Deviation
► Formula:
The range of an Activity Duration = EAD ± 𝑆𝐷
To calculate the end of the range, add SD + EAD. To calculate the start of the range, subtract SD - EAD.
Number of Communication Channels

► Description:
A communication channel is a way by which information flows within an organization. The Number of
Communication Channels provides the total number of communication channels between n stakeholders in an
environment. A stakeholder is any individual, group, or organization affected by the project, decision, or
associated activities.
► When to use?
We use this formula to decide on the complexity of project communication.

n = number of members in the team (n should include the project manager)
► Formula:
Number of Communication Channels = n * (n − 1) / 2

A project manager acts as a link between the stakeholders and the customers. The direction of information flow in
the communication channel can be upward, downward or sideways depending upon the position of project
manager.
► Example Calculation:
If there are 4 stakeholders (n=4), the Number of Communication Channels = 4 (4-1) / 2 = 6.
However, if the number of stakeholders increases from 4 (n=4) to 5 (n=5), then this increase changes the Number
of Communication Channels to: 5(5-1)/2 – 4(4-1)/2 = 4
13
Float (Slack) Formulas
► Description:
The Float (Slack) of an activity determines how long the activity can be delayed without affecting the project end
date.
► When to use?
Use when needing to determine if the activity is on the critical path, or, is behind schedule.

Determine the Late Start (LS), Late Finish (LF), Early Start (ES), and Early Finish (EF) values of the activity.
LS = Late start 
ES = Early start
LF = Late finish 
EF = Early finish
► Formula:
Total Float = Late Start (LS) – Early Start (ES)
Total Float = Late Finish (LF) – Early Finish (EF)

If the Total Float is equal to zero, the activity is on the critical path.
If the Total Float is less than zero, the activity is behind schedule.
=0 On critical path 
<0 Behind schedule
14
Section 2: Earned Value Management Formulas
Budget at Completion (BAC)
► Description:
The Budget at Completion (BAC) is the sum of all values previously budgeted for the project work or
components. Each specific item of a project is assigned a completion cost amount. BAC is typically calculated in
the Determine Budget Process of a project.
► When to use?
Determining whether the project is over-budget (and determining what may need to be cut), or, if the project is
over-budget (and if anything needs to be added).

Add up each item completion cost (Total activity cost estimates + Total contingency cost reserves), and compare
the result to the pre-determined budget for the project.
Total activity cost estimates
Total contingency cost reserves
► Formula:
Total Budget = Total activity cost estimates + Total contingency cost reserves
Earned Value (EV)

► Description:
Earned Value (EV) is a method of monitoring the project plan, actual work, and completed work to check how the
project is proceeding.
► When to use?
EV helps to calculate whether the project is winning, drawing or losing, and by how much.

BAC = Budget at Completion
► Formula:
Earned Value (EV) = % of work completed * Budget at Completion (BAC)
EV = % work completed * BAC
100 labour-hours completed. 400 labour-hours required to complete the project.
% Complete = 100/400 × 100 = 25%
If the Budget at Completion (BAC) is $40,000, then,
EV = 25 × $40,000 = $10,000
15
Planned Value (PV)
► Description:
Planned Value (PV) is the approved value of the work to be completed, the value expected to be earned, in a given
time.
► When to use?
Determine PV before starting any work. PV serves as a baseline for the project, with the total PV determining the
Budget at Completion (BAC).

BAC = Budget at Completion
► Formula:
Planned Value (PV) = Planned % work completed * Budget at Completion (BAC)
PV = planned % work completed * BAC
Project cost (BAC) is $100,000, and six months have passed on a 12-month project.
% Complete = 12/6 × 100 = 50%
then,
Planned Value (PV) = 50% × $100,000 = $50,000
16
Section 3: Variance Formulas
Cost Variance (CV) (Variances)
► Description:
Cost Variance (CV) is the amount of budget deficit or surplus at any given point in time during the project.
► When to use?
When calculating a project’s financial performance. CV compares the initial project budget to the actual spent.

EV = Earned Value 
AC = Actual Cost
► Formula:
Cost Variance (CV) = Earned Value (EV) – Actual Cost (AC)
CV = EV − AC

If the CV is negative (less than zero), the project is over budget. If CV is equal to zero, the project is on budget.
If the CV is positive (greater than zero), the project is within budget.
<0 Over budget 
=0 On budget 
> 0 Within budget
17
Schedule Variance (SV)
► Description:
Schedule Variance (SV) is the difference between the earned value and the planned value.
► When to use?
To check the project performance. SV compares the initial project budget to the planned spent.

PV = Planned Value
► Formula:
Schedule Variance (SV) = Earned Value (EV) – Planned value (PV)
SV = EV − PV

If the SV is negative (less than zero), the project is behind schedule. If SV is equal to zero, the project is on
schedule. If the SV is positive (greater than zero), the project is ahead of schedule.
<0 Behind schedule 
=0 On schedule 
> 0 Ahead of schedule
18
Section 4: Index formulas
Cost Performance Index (CPI)
► Description:
The Cost Performance Index (CPI) measures the cost efficiency of budgeted resources, expressed as a ratio of
earned value to actual cost. The term ‘cumulative CPI’ is the CPI up to a given moment.
► When to use?
To check cost performance.

AC = Actual Cost
► Formula:
Cost Performance Index (CPI) = Earned Value (EV) / Actual Cost (AC)
CPI = EV / AC

If the CPI is negative (less than zero), the project is over budget. If CPI is equal to zero, the project is on budget.
If the CPI is positive (greater than zero), the project is within budget.
<1 Over budget 
=1 On budget 
>1 Under budget
 
Another way to think of these results is:
If CPI = 1, you are getting $1 for every $1 spent.
If CPI > 1, you are getting more than $1 for every $1 spent.
If CPI < 1, you are getting less than $1 for every $1 spent.
19
Schedule Performance Index (SPI)
► Description:
The Schedule Performance Index (SPI) is a measure of schedule efficiency, represented as the ratio of Earned
Value (EV) to Planned Value (PV).
► When to use?
To measure how efficiently the project team is accomplishing the project work. To determine if the project is
running on schedule, behind schedule, or ahead of schedule.

PV = Planned Value
► Formula:
Schedule Performance Index (SPI) = Earned Value (EV) / Planned Value (PV)
SPI = EV / PV

If SPI equals 1, the project is on schedule. If SPI is positive (greater than zero), the project is ahead of schedule.
If SPI is negative (less than zero), the project is behind schedule.
<1 behind schedule 
=1 on schedule 
>1 ahead of schedule
20
Section 5: Forecasting tools
Estimate to Complete (ETC)
► Description:
Estimate to Complete (ETC) is the expected cost to finish the remaining project work, assuming the work is
proceeding as planned. ETC is either a re-estimation of the remaining works, or, the difference between Actual
cost (AC) of the accomplished activities and the Estimate at Completion (EAC).
► When to use?
To determine what amount to spend to complete the remaining part of the project.

EAC = Estimate at Completion 
AC = Actual Cost
► Formula:
ETC = Re-estimation of Remaining Works, or,
ETC = Estimate at Completion (EAC) – Actual Cost (AC)
ETC = EAC − AC
21
Estimate at Completion (EAC)
► Description:
The Estimate at Completion (EAC) is a forecasting technique that predicts future project performance. EAC is
the expected total cost of completing all work through forecasting the value of the project at completion and the
total amount that project will cost. EAC value can be calculated through 4 different approaches.
EAC Approach #1: BAC remains the same

► When to use?
Approach #1 assumes all future ETC work will be accomplished at the budgeted rate. The variance is caused by a
one-time event and is not likely to happen again.

AC = Actual Cost (Money spent to the date) 
BAC = Budget at completion 
EV = Earned Value
► Formula:
Estimate at Completion (EAC) = (Money spent to date) + (Budgeted cost for the remaining work)
EAC = AC + (BAC – EV)

An unexpected condition, or increased cost, could cause a deviation from the estimated budget. If the remaining
tasks can now be performed to plan, then the value of EAC in this formula represents the money spent to date (i.e.
AC) added to the budgeted cost for remaining project work.
EAC Approach #2: CPI remains the same

► When to use?
Approach #2 assumes that the achieved cost performance achieved up to now will continue into the future. The
original estimation is not accurate, and the CPI would remain the same until the end of the project.

CPI = Cost performance index
► Formula:
Estimate at Completion (EAC) =Budget at completion / Cost Performance Index
(EAC) = BAC / CPI

If CPI = 1, then the Estimate at Completion is same as that of the Budget at Completion (EAC = BAC). This
suggests that the project can be completed with the provided budget without any forecasting analysis.
22
EAC Approach #3: Original Estimate is flawed
► When to use?
Approach #3 is best used when the original estimate is based on bad data, wrong assumptions, or the
circumstances have changed.

AC = Actual Cost 
New ETC = New Estimate to Completion (Bottom-up ETC)
► Formula:
Estimate at Completion (EAC) = (Money spent to the date) + (Bottom-up Estimate to Completion)
EAC = AC + New ETC

When the original cost estimate was flawed, and a new cost estimate must be estimated for the remaining project
work, determine the cost of each activity and then add these individual costs to find the total cost of the remaining
work.
EAC Approach #4: Substandard Performance continues

► When to use?
Approach #4 assumes that ETC work is performed at an efficiency rate that considers both the cost and schedule
performance indices. Although this approach is infrequently used, when all values are provided on a question
(AC, BAC, EV, CPI and SPI), this is the best approach to use.

AC = Actual Cost (Money spent to the date) 
CPI = Cost Performance Index 
SPI = Schedule Performance Index
► Formula:
Estimate at Completion (EAC) = (Money spent to the date) + (Budgeted cost for the remaining work – Earned
Value) / (Cost Performance Index × Schedule Performance Index)
(EAC) = AC + [(BAC – EV) / (CPI × SPI)]

This approach considers both the project schedule and cost in circumstances where the project is behind schedule,
over budget, or the client requests the project be completed within a pre-set time.
23
Variance at Completion (VAC)
► Description:
Variance at Completion (VAC) is a projection of the budget deficit or surplus, and is the difference of Budget at
Completion (BAC) and Estimate at Completion (EAC).
► When to use?
The VAC is used as a status snapshot to determine how the project is performing to budget.

EAC = Estimate at Completion
► Formula:
Variance at Completion (VAC) = (Budget at completion) – (Estimate at Completion)
VAC = BAC – EAC

A zero value indicates that the project is on budget. A negative value (less than zero) suggests the project is over-
budget, while a positive value (greater than zero) indicates the project is under-budget.
<0 Over budget 
=0 On budget 
>0 Under budget
To-Complete Performance Index (TCPI)

► Description:
TCPI is a measure of the cost performance in order to achieve meeting a specified management goal with the
remaining resources. It represents the ratio of the cost to finish the outstanding work to the budget available.
There are two formulas to calculate TCPI depending upon BAC or EAC is given.
► Helpful to know:
Remaining Work = Budget at completion (BAC) – Earned Value (EV)
Remaining Funds = Budget at completion (BAC) – Actual Cost (AC)
or,
Remaining Funds = Estimate at completion (BAC) – Actual Cost (AC)
24
TCPI Approach #1
► When to use?
To determine project performance, when EAC is unknown.

EV = Earned value 
AC = Actual Cost
► Formula:
To-Complete Performance Index (TCPI) = Remaining Work / Remaining Funds
TCPI = (Budget at completion (BAC) – Earned Value (EV)) / (Budget at completion (BAC) – Actual Cost (AC))
TCPI = (𝐵𝐴𝐶 − EV) / (BAC − AC)

A TCPI value of 1 indicates that the project is on budget. A TCPI value over 1 suggests the project is over-budget,
while a TCPI value less than 1 indicates the project is under-budget.
<1 Under budget 
=1 On budget 
>1 Over budget
TCPI Approach #2
► When to use?
To determine project performance, when EAC is known.

BAC = Budget at completion
EAC = Estimate at Completion 
EV = Earned value 
AC = Actual Cost
► Formula:
To-Complete Performance Index (TCPI) = Remaining Work / Remaining Funds
TCPI = (Budget at completion (BAC) – Earned Value (EV)) /(Estimate at completion (BAC) – Actual Cost (AC))
TCPI = (𝐵𝐴𝐶 − EV) / (EAC − AC)

A TCPI value of 1 indicates that the project is on budget. A TCPI value over 1 suggests the project is over-budget,
while a TCPI value less than 1 indicates the project is under-budget.
<1 Under budget 
=1 On budget 
>1 Over budget
25
26
Section 6: Project Selection Tools
Present Value (PV)
► Description:
The Present Value (PV) formula focuses on the time value of money. It defines the present worth of a future lump
sum. The value of a future cash flow is worth less today than it is in the future.
► When to use?
It is used in the project selection process.

PV = Present Value
FV = Future Value
i = Interest rate (sometimes referred to as, r = interest Rate)
n = Number of periods
► Formula:
Present Value (PV) = Future Value (FV) / (1 + Interest Rate (i)) ^ Number of Periods (n)
PV = FV / (1 + i) ^ n

Generally, the value of a future cash flow is worth less today than it is in the future.
► Sample calculation:
An investment that earns 3% per year and is redeemed for $10,000 in 10 years has a present value of $ 7440.
PV = $10,000 / (1.03)^10
PV = $10,000 / 1.34
PV = $ 7440
27
Future Value (FV)
► Description:
The Future Value (FV) is the value of an investment, cash, or asset at a future date based on the assumed growth
rate.
► When to use?
It is used in the project selection process.

PV = Present Value
FV = Future Value
i = Interest rate (sometimes referred to as, r = interest Rate)
n = Number of periods
► Formula:
Future Value (FV) = Present Value (PV) / (1 + Interest Rate (i)) ^ Number of Periods (n)
FV = PV * (1 + i) ^ n

Generally, the value of a future cash flow is worth more in the future than it is today.
► Sample calculation:
An $500 investment that earns 3% per year will be worth $672.
FV = $500*(1.03)^10
FV = $500*(1.34)
FV = $ 672
28
Section 7: Risk and Probability formulas
Expected Monetary Value (EMV)
► Description:
Expected Monetary Value (EMV) calculates money expected to be made from a specific decision. It calculates
how much is required to manage identified risks, and helps to select which risk requires the least budget
resources.
► When to use?
Use the EMV to quantify the risk analysis of an opportunity or threat.

Probability
Impact
► Formula:
EMV = Probability * Impact

The results represent the possibility of occurring of outcomes and the monetary value assigned to each outcome.
When rolling dice, if there is a specific number you desire, this number represents one of six possibilities (since a
dice has six sides, and you want one possibility).
For the first event, let’s say you want to roll a 5. The chance of rolling a 5 is one out of six (or, 1/6).
For the second event, the chance of rolling any other numbers, either a 1, 2, 3, 4, or 6 is five out of six possibilities
(or, 5/6).
If you place a bet of $120 on rolling a 5, then, the Impact for the event = $120, with a Probability of 1/6.
EMV will be = $120 * 1/6 = $20
For the second event, the Impact is -$120 (because you will lose all your money on the bet), with a Probability of
5/6.
EMV will be = $120 * 5/6 = (-$100)
For calculating the EMV of multiple events, add together the EMF of all the separate events.
EMV = $20 + (-$100) = -$80
29
Return on Investment
► Description:
Return on Investment (ROI) is a percentage measuring the profit or loss gained through an investment, based on
the cost of the investment.
► When to use?
ROI helps to make financial decisions. It measures the efficiency and profitability of an investment, business, or
company.

Net Profit
Cost of Investment
► Formula:
ROI = (Net Profit / Cost of Investment) * 100

The greater the result, the more profitable and efficient the investment is. A negative result would suggest profits
were lost as a result of this investment.
Payback Period
► Description:
Payback period is the time period required to recover or earn back money invested in any business.
► When to use?
To determine how much time it will take to recover or earn back investment money.

Cost of investment
New cash flow
► Formula:
Payback Period = Initial Investment / Periodic Cash Flow

A smaller payback period is indicative of a better business with higher positive cash flow, whereas a larger
payback period is considered less favorable and indicative of a lower positive cash flow.
30
Benefit-Cost Ratio (BCR)
► Description:
The Benefit- Cost Ratio (BCR) uses the Net Present Value (NPV) to determine the profit to be received from an
investment based on the known initial or actual investment cost. Also known as Profitability Index.
► When to use?
Use BCR to identify the most efficient projects. Determine if a project, investment, or business is viable and
profitable, or losing money.

Benefits = value of Benefits
Costs = value of the Costs
► Formula:
Benefit-Cost Ratio (BCR) = (Benefits) / (Costs)

If BCR is greater than one, then the project is viable and profitable, the higher the BCR the better. If BCR equals
one, then the project will break even. If BCR is less than one, this indicates that the project is losing money and is
not considered a good investment.
>1 Profitable
=1 Break-even
<1 Losing money
A firm invests $10,000 into the production of a new product that will yield a revenue of $50,000 once the project
is complete.
BCR = Benefits / Costs
= $50,000/$10,000
=5
31
Risk Priority Number (RPN)
► Description:
The Risk Priority Number (RPN) assesses the risks in a process, or steps in a process, as part of the Failure Mode
and Effect Analysis (FMEA). See Appendix for more info.
► When to use?
RPN is helpful when sorting the risks. Each failure mode is assigned numeric values that quantify likelihood of
occurrence, detection, and severity of impact.

Detection: Ranked from 1 to 10. Represents the capability of detecting the failure, the likelihood that the failure
will not be detected.
Occurrence: (also known as time frame). Ranked from 1 to 10. Represents the potential of failure occurrence,
the likelihood that the failure will occur.
Severity: (also known as impact). Ranked from 1 to 10. Represents the severity of the failure mode, the amount
of harm or damage the failure mode may cause to a person or to equipment.
► Formula:
RPN = Detection * Occurrence * Severity

Low detection rank represents a high detection capability.
Low occurrence rank represents a low failure potential.
Highly severity rank represents a high effect and process severity.
See Appendix for more info.
32
Section 8: Formulas related to Contracts/Agreements/Procurement
Target Price
► Description:
The Target Price is the sum of the target cost and target fee.
► When to use?
Use the Target Price as either a buyer or a seller to establish a benchmark. It is also helpful for profit and cosh
sharing.

Target Cost
Target fee (also known as Profit of seller)
► Formula:
Target Price = Target Cost + Target fee

The Target Price is used in tandem with the profit sharing agreement, and the cost sharing agreement. If the final
project cost is less than the target price, profit is shared between seller and buyer. If the price is above the target
price, the cost is shared between seller and buyer.
Cost Plus Percentage of Cost (CPPC)

► Description:
The Cost Plus Percentage of Cost (CCPC) is specific contract where the buyer accepts all risk, with no risk to the
seller. Buyers pay all cost experienced by the seller, plus any additional fee.
► When to use?
As the costs increase, the profits also increase. Thus, some sellers may use this contract as it is their interests, as
any additional profit amount is a percentage of the reimbursement cost.
► Formula:
Contract = Cost plus percent of the cost as fee
33
Cost Plus Fixed Fee (CPFF)
► Description:
The Cost Plus Fixed Fee (CPFF) is a specific contract, where the buyer accepts all risk, but unlike the CPPC, the
project cost doesn’t increase the sellers profit. Profit doesn’t depend on the efficiency and performance of the
seller.
► When to use?
Usually the sellers profit is decided at the outset, and remains unchanged unless the project scope or requirements
change.
► Formula:
Contract = Cost plus fee of fixed amount
Cost Plus Award Fee (CPAF)

► Description:
The Cost Plus Award Fee (CPAF) is a specific contract, where risk is shared between the buyer and seller, with no
fixed additional fee.
► When to use?
Use when the contract outlines performance standards. The buyer reimburses the cost to the seller, with an
additional amount based on the buyer’s satisfaction of these performance standards.
► Formula:
Contract = Cost plus an award fee (some amount)
Cost Plus Incentive Fee (CPIF)

► Description:
The Cost Plus Incentive Fee (CPIF) is a specific contract where the buyer pays the cost of the project to the seller,
with additional incentives paid to the seller.
► When to use?
Use this when additional incentives are needed to ensure the seller achieves enhanced performance and keeps the
project costs as low as possible.
► Formula:
Contract= Cost Plus Incentive Fee
34
Point of Total Assumption (PTA)
► Description:
The Point of Total Assumption (PTA) is the monetary amount above which all the losses of extra cost overrun are
accepted by the seller.
► When to use?
PTA is applicable only for Fixed Price Incentive Fee (FPIF) Contracts.

Ceiling Price
Target Price
Target Cost
Buyer’s Share Ratio
► Formula:
PTA = [(Ceiling Price – Target Price) / Buyer’s Share Ratio] + Target Cost

The costs above PTA level are generally attributed to mismanagement.
► Example Calculation
If the target cost is $100,000, the target profit for the seller is $20,000, and the maximum price the buyer will pay
(the Ceiling Price) is $140,000, then:
Target Price = Target Cost + Profit of seller
= $100,000 + $20,000
= $120,000
If the Share Ratio is 80%,
PTA = ((140,000 – 120,000) / 0.80) + 100,000
PTA = $125,000
35
Appendix
Failure Mode and Effect Analysis (FMEA).
36
$
37

PMP Formulas1

Hochgeladen von

Dokumentinformationen

Copyright

Verfügbare Formate

Dieses Dokument teilen

Dokument teilen oder einbetten

Freigabeoptionen

Stufen Sie dieses Dokument als nützlich ein?

Sind diese Inhalte unangemessen?

Copyright:

Verfügbare Formate

PMP Formulas1

Hochgeladen von

Copyright:

Verfügbare Formate

- Critical Path Method

How will the formulas be used in exam questions?

Type of Question Approach

How in-depth can I expect the questions to be?

Final word: How to approach formula questions during the exam

Read the available answers first.

Then read the information the question gives.

Take note of any keywords.

When in doubt, read the question again.

► Which variables are needed?

PERT Beta Distribution Formula

► Which variables are needed?

► Which variables are needed?

► What do the results mean?

The Variance of an Activity

► Which variables are needed?

► Which variables are needed?

Number of Communication Channels

► Which variables are needed?

► What do the results mean?

► Which variables are needed?

► What do the results mean?

► Which variables are needed?

Earned Value (EV)

► Which variables are needed?

► Which variables are needed?

► Which variables are needed?

► What do the results mean?

► Which variables are needed?

► What do the results mean?

► Which variables are needed?

► What do the results mean?

► Which variables are needed?

► What do the results mean?

► Which variables are needed?

EAC Approach #1: BAC remains the same

► Which variables are needed?

► What do the results mean?

EAC Approach #2: CPI remains the same

► Which variables are needed?

► What do the results mean?

► Which variables are needed?

► What do the results mean?

EAC Approach #4: Substandard Performance continues

► Which variables are needed?

► What do the results mean?

► Which variables are needed?

► What do the results mean?

To-Complete Performance Index (TCPI)

► Which variables are needed?

► What do the results mean?

► Which variables are needed?

► What do the results mean?

► Which variables are needed?

► What do the results mean?

► Which variables are needed?

► What do the results mean?

► Which variables are needed?

► What do the results mean?

► Which variables are needed?

► What do the results mean?

► Which variables are needed?

► What do the results mean?

► Which variables are needed?