A guide from the Project Management Centre of Excellence IPD/OUM (misilamani@yahoo.

com)

Content of Presentation
Aims of Presentation What & Why of Formulas Types and Classes of Types and Classes of

formulas Earned Value Calculations PERT Calculation Estimation Classes Project selection Criteria Communication Channels
For PMP Aspirants

formulas-cont Probabilities Procurement Depreciation Control Limits (Sigmas') Project Network calculations Other Important Formulas

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Aims of Presentation
To provide a ONE STOP junction to view all

formulas and more likely ones used for PMP Exam To help PMP aspirants to acquire a clear understanding of the related formulas as an aid for a quick exam review

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For PMP Aspirants

What & Why of Formulas

A formula is an entity constructed using the

symbols and formation rules of a given logical language A formula is a concise way of expressing information symbolically The informal use of the term formula in science refers to the general construct of a relationship between given quantities In a general context, formulas are applied to provide a mathematical solution for real world problems.
Source: Wikipedia
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What & why of Formulas-cont.

Formulas are,

the configuration of concepts/theories Snap shot of concepts /theories Understand concepts/theories evaluate concepts/theories Apply concepts/theories
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We need them to,

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Types and Classes of formulas

Earned Value Basis of Estimate is the first tool used in the field of project management whereby members of the project team (estimators, project managers, or cost analysts) usually apply to calculate the total cost of the project Earned Value Management is a second tool within project management that allows for the tracking of progress throughout the life cycle of a project.
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Types and Classes of formulas

Earned Value Metrics- Earned Value Calculations

Earned Value Management (EVM), or Earned Value

Project/Performance Management (EVPM) is a project management technique for measuring project performance and progress in an objective manner The fundamental values focused on are,
PV - Planned Value or Budgeted Cost of Work scheduled

(BCWS) AC - Actual Cost or Actual cost of work Performed (ACWP) EV - Earned Value or Budged Cost of Work Performed (BCWP)

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Types and Classes of formulas

Earned Value Metrics- Earned Value Calculations-cont.

Earned Value Field Name BCWS (Planned Value)-PV BCWP (Earned Value)-EV ACWP (Actual Cost)-AC SV (EV-PV) CV (EV-AC) SPI = EV / PV CPI = EV/AC EAC BAC VAC TCPI
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Description Budgeted Cost of Work Scheduled Budgeted Cost of Work Performed Actual Cost of Work Performed/Produced Schedule Variance Cost Variance Schedule Performance Index-measures effectiveness Cost Performance Index-measures efficiency Estimate at Complete Budget at Complete Variance at Complete To Complete Performance Index

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Types and Classes of formulas

Earned Value Metrics- Earned Value Calculations-cont

CPI
> 1 is good (under budget); the cost of completing the work is less

than planned
< 1 bad (over budget); the cost of completing the work is higher than

planned; = 1 means that the cost of completing the work is right on plan (good);

SPI
> 1 is good (ahead of schedule) the work is performed

shorter(earlier) than planned;

< 1 is bad; the work is performed later than planned (behind schedule)

= 1 means that the work schedule or the work is right on plan

(good);SV will be zero at project completion because then all of the

planned values will have been earned
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Project tracking with EVM

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Types and Classes of formulas

Earned Value Metrics- Earned Value Calculations-cont

ETC (Typical) = (ETC EV)/CPI ETC (Atypical) = BAC EV ETC (Flawed) = New Estimate = EAC - AC

% Complete = EV/BAC *100%

% SPENT = AC/BAC *100% VAC = BAC EAC BAC = VAC + EAC

EV = % Complete* BAC
CV% = EV/CV * 100% SV% = EV/SV* 100% SPI = EV / PV (schedule efficiency) CPI = EV / AC (cost efficiency)
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Types and Classes of formulas

Earned Value Metrics- Earned Value Calculations-cont

CV = EV AC (cost variance) SV = EV PV (schedule variance) EAC = AC + (BAC EV)/CPI = BAC/CPI
EAC (fundamentally Flawed) = BAC-AC EAC (no variances) = BAC/CPI, typical , i.e. when it is expected to recur or continue EAC (Atypical) = AC + BAC EV EAC (Typical) = AC + [(BAC EV)/CPI] Most Accurate Estimate at Completion (EAC) = AC + Bottom up ETC(is the complete recalculation of ETC) EAC(with poor cost performance & need to hit a firm completion date) = AC + [( BAC-EV)/(CPI x SPI)] TCPI (To Complete Performance Index) = (BAC EV)/ (BAC -AC), based on BAC ; = (BAC - EV)/ (EAC AC), based on EAC =(work Remaining/Fund Remaining)
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Types and Classes of formulas

Earned Value Metrics- Earned Value Calculations-cont

Point of Total Assumption (PTA). Used in a fixed price incentive fee (FPIF) contract It is the point where buyer stops bearing cost In other words, it is the point up to where buyer bears the cost. However, any cost above the PTA is not shared by buyer and totally imbibed by the seller The Formulae: PTA = [(Ceiling Price - Target Price)/Buyer's Share Ratio] + Target Cost = {[Ceiling Price ({Target Cost +Fixed Fee)]/ Buyer's Share Ratio} + Target Cost
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Types and Classes of formulas

PERT & Critical Path Estimations

PROGRAM EVALUATION REVIEW TECHNIQUE CRITICAL PATH METHOD

PERT 3-point estimate (Mean)

Forward Pass

= [Pessimistic+(4*Most

Likely)+Optimistic]/6

PERT Activity Variance =

[(Pessimistic Optimistic)/6]^2 = [(P-O)/6]^2 SUM[(Pessimistic Optimistic)/ 6^]2 = SUM of all [(P-O)/6]^2 = (P-O)/6 = Square Root of Variance = Calculate (Best + Worst)/2

ES - EF of the predecessor node EF - ES plus Duration

Backward Pass

PERT Variance of all activities =

LF - LS of the Successor node

LS - LF minus Duration Slack = LF - EF = LS - ES
Free Float

PERT Activity Standard Deviation

Two Point Delphi Estimate

= ES(Successor) EF(Predecessor) Zero Float is on CPM Activity

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Types and Classes of formulas

Activity Duration Estimates

are the likely number of work periods required to complete an

activity do not include leads and lags may include range of possible results

e.g. a) 2weeks +/- 2days (i.e. 8 days to 12 days range for a target date of 10 days) b) 15% probability of exceeding 2 weeks (i.e. 85% likely that the activity will take 2 weeks or less) Range of Activity duration = EAD-SD

EAD is Estimated Activity Duration SD is Standard Deviation

e.g. EAD=20, SD=4; The Range of variable x is 20 +/- 4 or 16 < x < 24

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Types and Classes of formulas

Classes of Estimates
Order of Magnitude estimate = -25% to +75% Preliminary estimate = - 15% to + 50%

Budget estimate = - 10% to +25%

Definitive estimate = - 5% to +10% Final estimate = 0%

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Types and Classes of formulas

Project Selection Estimation Methods

PV = FV / (1+r)^n FV = PV * (1+r)^n NPV = Select biggest number. A discount method ROI = Select biggest number. A comparative method IRR = Select biggest number. A comparative discount method Payback Period = Add up the projected cash inflow minus expenses until you reach the initial investment. A nondiscount method BCR = Benefit / Cost Ratio CBR = Cost / Benefit Ratio Opportunity Cost = The value of the project not chosen. Expected Value = Probability(%) x Consequence($)
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Types and Classes of formulas

Contract Incentives
Savings = Target Cost - Actual Cost

Bonus = Savings x Percentage

Contract Cost = Bonus + Fees Total Cost = Actual Cost + Contract Cost

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Types and Classes of formulas

Quality Management Methods

CoQ Cost of Quality = ( Review + Test Efforts +Training Efforts + Rework Efforts + Efforts of Reinvention) ------------------------------------------------------x 100 % Total Efforts PERT = O + 4ML +P --------------6 P-O ------- = Variance 6
STANDARD DEVIATION of TASK = SQ Root of (P - O)/6 = VARIANCE^2

MEAN --> Average

MODE --> The "most found" number

CP STD. DEV. = + +
COMMON CAUSE or RANDOM CAUSE-

Chance cause, Non-assignable cause, Noise, Natural pattern

MEDIAN --> Number in the Middle or Average, e.g. of 2 Middle Numbers RANGE --> Largest Smallest Measure.
SPECIAL CAUSE - Assignable Cause,

Signal, Unnatural pattern

INSPECTION

is better than REWORK

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Types and Classes of formulas

Control Limits using SIGMA

1 sigma = 68.26% 2 sigma = 95.46% 3 sigma = 99.73% 6 sigma = 99.99%

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Types and Classes of formulas

Depreciation Valuation Methods

Straight-line Depreciation:
2. Sum-of-Years' Digits Method:

-Depreciation Expense = Asset Cost / Useful Life -Depreciation Rate = 100% / Useful Life
Accelerated depreciation: 1. Double Declining Balance Method:

-Depreciation Rate = 2 * (100% / Useful Life) -Depreciation Expense = Depreciation Rate * Book Value at Beginning of Year
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Sum of digits = Useful Life + (Useful Life - 1) + (Useful Life - 2) + etc. Depreciation rate = fraction of years left and sum of the digits (e.g. 4/15th)
Book Value

= Value of Asset at Beginning of Year - Depreciation Expense

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Types and Classes of formulas

Depreciation Valuation Methods cont.

Type
Straight Line Accelerated Depreciation

Description of Formula (Purchase Value Salvage Value)/No of Useful Years 1. SUM OF THE YEARS DIGITS METHOD Depreciation Rate = Sum of the Years of Useful life , Divided into the Remaining Value of the Asset, (BOOK VALUE) each year; Taken From the Highest Value to the Lowest, Calculated Yearly Over the Useful Life of the Asset. In the Last Year the Full Amount Remaining is Charged. 2. DOUBLE DECLINING BALANCE METHOD The Percent of Depreciation is Applied on the Depreciation Value of the Item Remaining Each Year. The last year or two values are rounded off to End the Calculation. The Usual Depreciation Rate applied is 50%.
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Types and Classes of formulas

Some Other Significant Measurements

Control Limits = 3 sigma from mean Control Specifications = Defined by customer;

less than the control limits Float on the critical path = 0 days Pareto Diagram = 80/20 Time a PM spends communicating = 90% Crashing a project = Crash least expensive tasks on critical path. Just In Time inventory = 0% (or very close to 0%.)
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Types and Classes of formulas

Some Other Significant Measurements-cont.

Communications
Communication Channels = n * (n-1) / 2

Probability
EMV = Probability * Impact in currency

Procurement
PTA = ((Ceiling Price - Target Price) / Buyer's

Share Ratio) + Target Cost

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Types and Classes of formulas

Some Other Significant Measurements-cont.

Probabilities of Risk Assessment:
Level HIGH MEDIUM LOW Range > 70 % probability > 30 < 70 % probability < 30 % probability Description with a potential to greatly impact cost, schedule & performance with a potential to slightly impact cost, schedule & performance With relatively little impact on cost, schedule & performance

Should be done by Project Manager with inputs from

the Project Team

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Congrats!

Pass the formula test in your PMP

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