The PMP Exam Made Easy: Your 24-Hour Study Guide to Passing

By Ron Ponce and Christopher Scordo, Copyright SSI Logic © 2012, Publisher: SSI Logic

Concept Formula Result Interpretation

Cost Variance (CV) CV = EV - AC Negative = over

Provides cost performance of the project. budget = bad

Helps determine if the project is proceeding as planned. Positive = under

budget = good

Cost Performance Index (CPI) CPI = EV / AC 1 = good. We are getting $1 for every $1 spent. Funds are used as planned.

Measure of cost efficiency on a project. >1 = good. We are getting >$1 for every $1 spent. Funds are used better than planned.

Ratio of earned value to actual cost. <1 = bad. We are getting <$1 for every $1 spent. Funds are not used as planned.

Schedule Variance (SV) SV = EV - PV Negative = behind

Provides schedule performance of the project. schedule = bad

Helps determine if the project work is proceeding as planned. Positive = ahead of

schedule = good

Schedule Performance Index (SPI) SPI = EV / PV 1 = good. We are progressing at the originally planned rate.

Measure of schedule efficiency on a project. Ratio of earned >1 = good. We are progressing at a faster rate than originally planned.
value to planned value.

Used to determine if a project is behind, on, or ahead of <1 = bad. We are progressing at a slower rate than originally planned.
schedule.

Can be used to help predict when a project will be

completed.

Estimate at Completion (EAC) EAC = BAC / CPI Original budget modified by the cost performance. The result is a monetary value.
 Original budget modified by the cost performance. The result is a monetary value.

Expected final and total cost of an activity or project based Assumption: use formula if current variances are thought to
on project performance. be typical in the future.

Helps determine an estimate of the total costs of a project This is the formula most often required on the exam.
based on actual costs to date.

There are several ways to calculate EAC depending on the

current project situation and how the actual work is
progressing as compared to the budget.

EAC = AC + ETC Actual Cost plus a new estimate for the remaining work. Result is a monetary value.
Look for certain keywords to determine what assumptions
were made.
Assumption: use formula if original estimate was
fundamentally flawed or conditions have changed and
invalidated original estimating assumptions.

EAC = AC + BAC - EV Actual cost to date (AC) plus

Assumption: use formula if current variances are thought to remaining budget (BAC - EV).
be atypical in the future and the original budget is more
reliable.

Result is a monetary value.

EAC = AC + ((BAC - EV) / (CPI * SPI)) Actual cost to date (AC) plus

Assumption: use formula if project is over budget but still remaining budget (BAC - EV) modified by both cost performance and schedule performance.
needs to meet a schedule deadline.

Result is a monetary value.

Estimate to Complete (ETC) ETC = EAC - AC Expected total cost minus actual cost to date.

Expected cost needed to complete all the remaining work for Inversion of the same formula from the EAC calculations. Result is a monetary value that will tell us how much more the project will cost.
a schedule activity, a group of activities or the project.

Helps predict what the final cost of the project will be upon
completion.
ETC = BAC - EV The planned budget minus the earned value.
There are many ways to calculate ETC depending on the
assumptions made.
Assumption: use formula if current variances are thought to Result is a monetary value that will tell us how much more the project will cost.
be atypical in the future.

ETC = (BAC - EV) / CPI The planned budget minus the earned value modified by project performance.

Assumption: use formula if current variances are thought to Result is a monetary value that will tell us how much more the project will cost.
be typical in the future.

ETC = We create a new estimate when it is thought that the This is not the result of a calculation or formula, but simply a new estimate of the remaining
original estimate was flawed. cost.
Percent Complete Percent Complete = EV / BAC * 100 The result is a percentage.

How much of the planned budget do we have completed? What is currently completed divided by the original budget times 100.

To-Complete Performance Index (TCPI) Based on BAC: The TCPI is compared to the cumulative CPI to determine if a target EAC is reasonable.

The calculated project of cost performance that must be TCPI = (BAC - EV) / (BAC -AC) A target EAC is assumed to be reasonable if the TCPI is within plus or minus 0.05 of the
achieved on the remaining work to meet a specific cumulative CPI EVM metric.
management goal (e.g. BAC or EAC).

It is the work remaining divided by the funds remaining. Based on EAC:

TCPI = (BAC - EV) / (EAC - AC)

Variance at Completion (VAC) VAC = BAC - EAC Result is a monetary value that estimates how much over or under

Anticipates the difference between the originally estimated budget (the variance) we will be at the end of the project.
BAC and a newly calculated EAC.

In other words, the cost we originally planned minus the cost <0 = over budget
that we now expect.

0 = on budget

>0 under budget

Earned Value (EV) EV = % complete * BAC The result is the EV, a monetary value.
 EV = % complete * BAC The result is the EV, a monetary value.

A quick formula for calculating the Earned Value on a project.

Program Evaluation and Review Technique (PERT) (Pessimistic + (4 * Most Likely) The result is the estimated duration of a schedule activity expressed as a weighted average.

Three point estimate for the expected duration of a schedule +

activity using pessimistic, optimistic and most likely
durations.

A probabilistic approach, using statistical estimates of Optimistic) / 6

durations.

PERT Standard Deviation (Single Activity) σ = (Pessimistic - Optimistic) / 6 The result is the standard deviation from the mean of a schedule activity.

The standard deviation (?) is a reflection of the uncertainty in For instance, the duration +/− 1 standard deviation will give you a 68.26% confidence that
the estimates. It is a good measure of the statistical you can meet the estimated duration.
variability of an activity.

PERT Activity Variance Variance = ((Pessimistic - Optimistic) /6)^2 The Activity Variance will give you the expected variance in the activity's duration.

Every activity has a variance, which is a statistical dispersion. For instance: +/- 3 days.
Here is an example: The PERT three point estimate gives a
15-day duration.

The variance formula tells you that you have a two-day

variance.

Therefore the activity duration is 15 days +/- 2 days.

PERT Standard Deviation (All Activities) Sum ((Pessimistic - Optimistic) / 6)^2 The result is one standard deviation (or variance) from the mean of the given series of
activities.
You may be required to calculate the duration of multiple (Add up the variances of all the activities and then take the
activities and give their standard deviation. square root.)

This is done by taking the square root of the total variance.

Activity Duration Duration = EF - ES + 1 Number of days this activity lasts.

Determines how long an activity lasts. Duration = LF - LS + 1

 Number of days this activity lasts.

There are two formulas both will give the same result.

Free Float Free Float = Earliest ES of Following Number of days this activity can be delayed without delaying the early start of the next
activity.

Determines how many days you can delay an activity without Activities - ES of Present
delaying the early start of the next activity.

On most sample PMP exam questions, the network diagrams Activity - Duration of Present Activity
are too small to show activities where free float and total
float are different. In most sample questions they will be the
same.
The PMP Exam Made Easy: Your 24-Hour Study Guide to Passing
By Ron Ponce and Christopher Scordo, Copyright SSI Logic © 2012, Publisher: SSI Logic

Note If the present activity has more than one following activities,
then use the Earliest ES of any of the following activities.

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Total Float Total Float = LS - ES Number of days this activity can be delayed without delaying the project.

Determines how many days you can delay an activity without Total Float = LF - EF
delaying the project.

There are two formulas both will give the same result.

Early Finish (EF) EF = (ES + duration) − 1

Determine when an activity will finish at the earliest.

Early Start (ES) ES = (EF of predecessor) + 1

Determine when an activity can start at the earliest.

Late Finish (LF) LF = (LS of successor) − 1

 LF = (LS of successor) − 1

Determine when an activity should finish at the latest.

Late Start (LS) LS = (LF - duration) + 1

Determine when an activity should start at the latest.

Present Value (PV) PV = FV / (1+r)^n The result is the amount of money you need to invest today (PV) for n years at r % interest
in order to end up with the target sum (FV).

Receiving money in the present (today) has a different value The higher the PV the better.
than receiving money in the future (in three years).

This formula calculates how much.

Also described as value today of future cash flows.

PV in this case should not be confused with the Planned

Value (PV).

Net Present Value (NPV) Positive NPV is good.

Method for financial evaluation of long-term projects. Negative NPV is bad.

Also described as Present value of cash inflow / benefits The project with the higher NPV is the "better" project.
minus present value of cash outflow / costs.

Return on Investment ROI) The project with the higher ROI is better and should be selected.

Ratio of money gained or lost on an investment relative to

the amount of money invested.

The amount of money gained or lost is often referred to as

interest, profit/loss, gain/loss, or net income/loss.

Internal Rate of Return (IRR) The project with the higher IRR is better and should be selected.

Interest rate at which the present value of the cash flows

equals the initial investment.

More precise and more conservative than NPV.

Payback period Add up the projected cash inflow minus expenses until you The project with the shorter payback period is better and should be selected.
reach the initial investment.
Rough tool to estimate the time it takes to recover the initial
investment by adding up the future cash inflows until they
are equal to the initial investment.

Benefit Cost Ratio (BCR) Benefit / Cost BCR < 1 is bad.

Ratio that describes the cost versus benefits of a project. BCR > 1 is good.

The project with the bigger BCR is the "better" one.

Cost Benefit Ratio (CBR) Cost / Benefit CBR > 1 is bad.

Ratio that describes the benefits versus cost of a project. CBR < 1 is good.

This is simply the reverse of the Benefit Cost Ratio The project with the lower CBR is the "better" one.

Opportunity Cost For the PMP exam the opportunity cost is usually a monetary value

Opportunity cost is the cost incurred by choosing one option Note that NO calculation is required.
over an alternative one.

Thus, opportunity cost is the cost of pursuing one choice

instead of another.

Communication Channels n * (n-1) / 2 Total number of communication channels among n people of a group

The number of communication channels on a team.

Expected Monetary Value (EMV) A monetary value that represents the expected gain or loss of an event should it come to
be.
Gain or loss that will result when an event occurs.

Takes probability into account. For instance:

If it rains we will lose $200. There is a 25% chance that it will

rain, therefore the EMV is: 0.25 * $200 = $50.
Point of Total Assumption (PTA) PTA = ((Ceiling Price - Target Price) / Buyer's Share Ratio) + The result is a monetary value.
Target Cost
The point of total assumption (PTA) is a price determined by When reached then the seller covers all of the cost risk beyond.
a fixed price plus incentive fee contract (FPIF) above which
the seller pays the cost overrun. In addition, once the costs
on an FPIF contract reach PTA, the maximum amount the
buyer will pay is the ceiling price.

Straight-line Depreciation Depreciation Expense = Asset Cost / Useful Life The result is either the Depreciation Expense (the yearly depreciation amount: $200) or the
Depreciation Rate (the yearly depreciation percentage: 5%).

A method that depreciates the same amount (or percent) Depreciation Expense = (Asset Cost – Scrap Value) / Useful If a Scrap Value is given then this can also be factored in by subtracting it.
each year by dividing the asset's cost by the number of years Life
it is expected to be in service.

The simplest of the depreciation methods. Depreciation Rate = 100% / Useful Life

Double Declining Balance Depreciation Rate = 2 * (100% / Useful Life) The Depreciation Rate stays the same over the years, but the Depreciation Expense gets
smaller each year because it is calculated from a smaller book value each year.
Most common depreciation method that provides for a Depreciation Expense = Depreciation Rate * Book Value at
higher depreciation charge in the first year of an asset's life Beginning of Year
and gradually decreasing charges in subsequent years.

It does this by depreciating twice the straight-line Book Value = Book Value at beginning of year - Depreciation
depreciation rate from an assets book value at the beginning Expense
of the year.

Sum-of-Years' Digits Method

Sum-of-Years' Digits is a depreciation method that results in a

more accelerated write-off than straight line, but less than
declining-balance method.

Under this method annual depreciation is determined by

multiplying the Depreciable Cost by a schedule of fraction
based on the useful life of the asset.
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