Essential Formulas for PMP Certification

The Project Management Professional (PMP) is a globally recognized certification that validates your skills and knowledge in project management. To pass the PMP Certification Exam, understanding and mastering the formulas associated with project management is critical.

In this article will discuss some of the essential formulas for PMP Certification exam, along with examples and explanations.

1. Earned Value Management (EVM)

EVM is a procedure for measuring project performance and progress objectively. It involves three key metrics:

• Planned Value (PV): This is the budgeted amount for the work scheduled to be done.
• Actual Cost (AC): This is the money spent on the work done.
• Earned Value (EV): This is the budgeted amount for the work actually done.

Formulas:

• Schedule Variance (SV) = EV – PV
• Cost Variance (CV) = EV – AC
• Schedule Performance Index (SPI) = EV / PV
• Cost Performance Index (CPI) = EV / AC
• Budget at Completion = BAC
  • BAC is determined during cost management activities, in Determine Budget Process, in a project. BAC includes contingency reserves for activities and defines how much money will be spent during project in total
• Estimate to Complete = ETC
• Estimate at Completion = EAC
• Variance at Completion = VAC
• To-Complete Performance Index = TCPI
  • TCPI can be calculated by two approaches. If there is not a new EAC value, 1st approach is used. If there is an EAC value, then 2nd approach is used.
    • Approach #1:

      • TCPI=𝐵𝐴𝐶−EVBAC−AC

    • Approach #2:

      • TCPI=𝐵𝐴𝐶−EVEAC−AC

2. Estimate at Completion (EAC)

EAC is an estimate of the total cost at the completion of the project. It considers the project performance. EAC value can be found by using EV, SPI and CPI values.

Formulas:

• EAC = AC + Bottom-up ETC
• EAC = BAC/CPI
  • Assumes that cost performance achieved till now is expected to continue in the future.
• EAC = AC + (BAC – EV)
  • Assumes that all future ETC work will be accomplished at the budgeted rate.
• EAC = AC + [(BAC – EV)/(CPI * SPI)]
  • Assumes that ETC work will be performed at an efficiency rate that considers both the cost and schedule performance indices.

3. Estimate to Complete (ETC)

ETC is an estimate of the remaining cost to complete the project.

ETC can be determined by re-estimation of the remaining works in a project or earned value (EV) of the accomplished activities can be subtracted from EAC to find ETC value.
ETC=Re-estimation of Remaining Works

Formula:

ETC = EAC - AC

4. Variance at Completion (VAC)

VAC is the variance in the budget of the total project at the completion of the project.

Formula:

VAC = BAC - EAC

5. PERT Estimation

Program Evaluation and Review Technique (PERT) is a statistical tool used in project management, designed to analyze and represent the tasks involved in completing a project.

Formula:

PERT Estimate = (Optimistic + 4*Most Likely + Pessimistic) / 6

6. Communication Channels

This formula is used to calculate the number of communication channels in a project. If there are N stakeholders in an environment, following formula will give total number of communication channels between stakeholders in this environment.

Formula:

Communication Channels = n(n-1)/2, where n is the number of stakeholders

7. Sigma Values

Sigma is a statistical term that measures the amount of variability or dispersion around an average.

Formulas:

• 1 Sigma = 68.27%
• 2 Sigma = 95.46%
• 3 Sigma = 99.73%
• 6 Sigma = 99.9999%

Understanding these formulas and knowing when to apply them is crucial for passing the PMP Exam. Practice using these formulas in different scenarios to become more comfortable and proficient with them. Good luck with your PMP Certification Exam preparation!

8. Point of Total Assumption

Point of Total Assumption (PTA) is applicable only in Fixed Price Incentive Fee (FPIF) Contracts. Costs above PTA level are considered to be due to mismanagement. PTA is calculated by following formula.

PTA=((Ceiling Price−Target Price)/Buyer′s Sharing Ratio))+𝑇𝑎𝑟𝑔𝑒𝑡 𝐶𝑜𝑠𝑡

9. Expected Monetary Value

Expected Monetary Value (EMV) of an opportunity or threat is calculated by following formula:

EMV = Probability x Impact

10. Activity & Project Duration Formulas

In order to calculate Estimated Activity Duration (EAD) of an activity, Optimistic (O), Most Likely (M) and Pessimistic (P) estimates for an activity are determined first.

• PERT Triangular Distribution
  • EAD= (𝑂+𝑀+𝑃) / 3
• PERT Beta Distribution
  • EAD= (𝑂+4𝑀+𝑃) / 6
• Standard Deviation (SD) of an Activity
  • SD= (𝑃−𝑂) / 6
• Variance of an Activity
  • Variance= ((𝑃−𝑂)/6))²
• Range of an Activity Duration
  • Range of an Activity Duration= EAD±𝑆𝐷

11. Present Value Formula

There is time value of money and value of a future cash flow is less today than its amount in future. This is calculated by Present Value (PV) formula. Abbreviations of terms:

• Present Value = PV
• Future Value = FV
• Interest rate = r
• Number of periods = n

PV=FV / (1+r)n

12. Float (Slack) Formulas

Float (Slack) of an activity determines how long an activity can be delayed without affecting the project end date. If an activity is on critical path, float (slack) of that activity will be zero.
In order to calculate Float (Slack) of an activity, Late Start (LS) and Early Start (ES) or Late Finish (LF) and Early Finish (EF) values of the activity are determined first.

Total Float = Late Start (LS) – Early Start (ES)
Total Float = Late Finish (LF) – Early Finish (EF)

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