Essential Formulas for The PMP Exam

Essential Formulas for The PMP Exam

You finish high school and college and think finally, the days of agonizing test prep and exams are over. And then you decide to become a project management professional and you find yourself prepping for yet another test.

The PMP exam is perhaps a dreaded step, but certainly a necessary one, to becoming a certified PMP. Much like the major exams you took in school, the PMP exam requires meticulous study before test day comes. The most important focus should be on PMP formulas. These formulas are essentially practical applications of basic math problems. Keep these in mind, and the context in which you might see them, and your PMP exam will be no problem.

Communication Channel

PMPs are constantly in the middle. On one side, the partners and shareholders who make up the business. On the other, the customers who support the business. For things to run smoothly, there has to be strong communication, and with the PMP in the middle, facilitating communication often falls to them.

The formula for communication channels is:

n(n – 1) ÷ 2 = communication channel. Here, “n” represents shareholders. If you have 6 shareholders, the communication channel would be: 6(6 – 1) ÷ 2 = 15.

Earned Value and Cost Variance

Earned value (EV) helps you track the success of a project, and cost variance (CV) helps evaluate how well the project is sticking to budget. In order to measure CV, you need to know the value of EV.

The formula to determine EV is

% complete x Budget at completion (BAC) = EV. For instance, say you’ve finished 75 of a 150 hour project that has a budget of $20,000. Thus, you would multiply 50% (or .5) by the budget to end up with an EV of $10,000.

From there, you can figure out CV.

EV – Actual cost of the project (AC) = CV. Here, CV of 0 would indicate staying perfectly on budget. A positive value would mean that you’re under budget, while a negative value would mean you’re over budget.

Schedule Performance Index

Schedule performance index (SPI) measures the expectation of value against the reality as the project moves along. It is calculated with EV ÷ Planned value (PV) = SPI.

If your EV is equal to what was planned by this point of the project, your SPI will be 1, which means that your project is right on schedule. If EV is greater than PV, your SPI will be greater than 1, which puts you ahead of schedule. Conversely, if EV is less than PV and your SPI is less than 1, this indicates that your project is behind schedule.

You can also figure out schedule variance by calculating EV – PV = SV. A negative value tells you that you’re behind schedule, while a positive value indicates being ahead of schedule.

Cost Performance Index

Any PMP knows how important it is to justify the cost efficiency of a project to shareholders. This formula allows you to do just that. CPI is found by dividing EV by AC. A value of 1 means you’re earning $1 for every $1 spent. A value above $1 indicates a profit, while a value below than $1 indicates the project costs more than the earnings.

Estimate at Completion

A project manager should always be thinking ahead. EAC helps you to have an idea of the value at the time of the project’s completion. There are not one but four ways to determine EAC.

  • EAC = BAC ÷ CPI. If your CPI is 1, then your EAC = BAC, which puts you right on track. The project won’t bring in a profit, but it won’t cost your company anything, either. You’ll earn as much as you spent.
  • EAC = AC + Bottom-up estimate to complete (ETC). When the original estimate didn’t quite live up to reality, this is the formula used to determine EAC. Focus on the actual cost of the project and determine an estimate from there.
  • EAC = AC + (BAC – EV). If you’re over budget, this formula will help you determine the EAC by reworking the budget for the remaining work. Add the actual cost with the remaining budget.
  • EAC = AC + [(BAC – EV) / (CPI × SPI)]. This is the formula to figure out EAC if you find yourself behind schedule. Figuring out your remaining budget and your performance index will help you to readjust so that you can finish the project on schedule.

When the time comes to take your PMP exam, just go into it with a clear head, knowing that you’ve prepared. Read each question carefully, especially when it comes to EAC, to determine the right formula to use. And remember that, as a PMP, these aren’t just moot numbers. These numbers represent the success of your project, and in fact the business.

About the author:

Christineis an assistant for EdWel Programs, a leading provider for PMP Exam Prep and risk management training since 2002.