All the PMP Formulas and Calculations - PMBOK 6th Edition

hello and welcome everyone I'm so excited that you are all here in today's video you are going to learn all of the formulas you need to know for your upcoming PNP or cap hem exams so PMP stands for a project management professional this is a leading certification for anyone who is interested in the career in project management and if you haven't done so already be sure to sign up for a free course where we will teach you exactly how to get your certification in the next six weeks plus a lot of other really amazing tips and tricks that you need to know for your exam so make sure you sign up at exams PM comm - free now let's get right into the formulas that you need to know so the biggest chunk of formula seem to know are the current value management formulas for EVM there's a lot of formulas under this category so without further ado let's start taking a look at them okay the first term within IBM or earned value management is earned value what earned value is it is a present value of all the work that's completed on your project sometimes this value would just be given to you in the questions other times you had to calculate the earned value and the way that you calculate that earned value is with the following formula earn value equals percentage complete times the BAC the BAC stands for a budget at completion so let's say that you have a budget of $10,000 and you're 50% complete on the project so 50% times $10,000 is $5,000 so in this case your earned value would be $5,000 next let's take a look at cost variance the cost variance is the difference between the earned value and the actual cost so if the amount of work the present value of the amount of work is $5000 like in their past example and the actual cost they spent to complete this work as $4,000 that means you have a cost variance of $1000 so again earned value is the present value so how much the work they have already completed it's worth to your company the actual cost is how much you've actually spent so if the value that you have created it's more than the actual cost you spent then the cost variance would be positive which is a great thing here's the cost variance is negative then that means that you spend more money to acquire the value that you got through your project so the reason you want to calculate a cost variance is that it will tell you how efficient you are as spending your budget so not only do you have to know these formulas for your upcoming PMP exam you should also know how to interpret them as well so in this case when you calculate the cost variance when it is a positive number that is good when it's negative that is bad our next formula is the cost performance index or the CPI the way that we calculate the CPI is using our earned value and instead of subtracting like we're doing in the variance we're dividing by the actual cost and this will express in a index where a ratio term how efficient we are at realizing the value of our project through compared to how much we have actually spent to realize that value so let's go back to a previous example let's say that our earned value is $5,000 and our actual cost is 4000 so we do 5,000 divided by 4000 and this number is greater than lunch so when the real CPI is greater than 1 that means that it is good and that you are more efficient at realizing the value compared to how much you have actually spent to acquire the value for your project now conversely let's say our actual cost was 6,000 where as our earned value was 5,000 then the CP out be less than 1 and that is bad that means that you spend more money trying to acquire how much that value is worth to your organization what the cost performance index allows you to do is to compare projects in your organization that are of different sizes so let's say that you have one project that's over a million dollars and then you have your current project which is has a budget of $10,000 so if you to see the cost variance was a thousand on your project and then the cost variance on the 1 million dollar project is ten thousand dollars then you can't really compare these two because they have different budget to begin with but if you convert everything into an index then that tells you the skill at which this project is over or under budget so it makes it easier for the organization to compare projects of different sizes that's why you want to calculate both your cost variance as well as your cost performance index now similarly we do the same thing for schedule with the schedule variance is going to tell us is whether or not we're behind we're ahead of schedule but whether we can't calculate our schedule variance is using our earned value and instead of subtracting our actual cost in this case we're subtracting by our planned value so this is how much work we have planned to do at any point in time and the ER value is how much work we have actually done at any point in time thus the formula for SV is evey minus PV and similar to the cost performance index in order to make it easier to compare projects of different sizes we want to turn the number into an index and to do so instead of subtracting we're dividing instead so CPI is equal to e V divided by PV and if this number is greater than 1 that then that is good it was less than 1 that that is bad now with the floor formulas that we saw so far let's do some quick summaries so all of these formulas begin with evie their earned value and whenever you have a variance you subtract whenever you have it indexed you divide whenever is anything related to cost a cost variance and cost performance index you want to use your second term is the actual cost and when it's a schedule variance and scheduled performance index a second term in your equation is the PV or a plant value now let's move on to your estimate at complete formulas so there's a couple of formulas that you can use to calculate your EI c or estimate that complete so this is how much your project will cost one it is finished so how much you estimate your final budget to be once it is complete now there's a couple formulas for EAC however they are not equal to each other the formula that you use will depend upon the assumption that's made on the project and also it will depend on what values you're given in the question so a really great tip is that whenever there is a number that's given in the in the multiple choice question then just make a note on the side as to what that number is so if you're given the budget completion then just write on the side BAC equals whatever that is and if you're given the CPI number write CPI equals and whatever that is and then so you have all of the values or right in front of you and then another great tip is to write down all of your formulas cool and cool the cheat sheet before your exam stare so then you can just match the formulas with the numbers that you are given so when you walk into your exam you'll be given two blank pieces of legal size paper that you can use to write whatever you want so I really recommend using before your exam starts or to write down all of the formulas so this will count towards your four hours of the exam time that you have but I think it's really well worth it to write down all your formulas before your exam starts so you are well-prepared okay now let's jump right into our EAC formulas so the first formula they can use to calculate the EAC is EAC equals BAC divided by CP i-- so BAC is a budget at completion so this is at the start of your project how much you estimate your project will cost however at any given point in your project you may realize that this budget completion is no longer relevant because things changed on your project so then you need to re estimate how much your project will cost and this becomes your EAC so the first formula you can use to calculate your EAC is BAC budget completion divided by the cost Performance Index or CPI and usually you would use this formula when you assume the cost performance is not expected to change and the budget will continue to be adjusted at the same grade as the cost performance index of basically you're using the budget that you originally estimated and adjusting it by the cost performance index and you will eat the assumption you're making here is that the cost performance index will continue the project will continue to change at the same rate as a current cost performance index the second formula they can use to calculate your EAC is using your actual cost so how much you have already spent on your project and then you will retest omit all of the other tasks that you have left so you would roll up all of the activities that you have into work packages and those work packages into control accounts and finally into a final budget and then add that number to your actual cost in order to determine your estimate at completion you would use this formula when you're assuming the original budget that you came up with is fundamentally flawed and you have to re estimate everything in order to come up with a new estimation at completion the next formula that you can use to calculate your EA C is AC or actual cost plus your budget at completion - your earned value and you will use this formula when you assume the cost variance will not happen again so let's take a look at this formula AC is how much you have already spent on your project and the BAC is how much you budgeted to spend on your project and so if you're assuming that the project will continue to evolve in the same rate as we have originally budgeted and whatever happened in the past was just a one-off and that's why you were a bit off track so you would subtract the earned value so this is the amount of value that you have already realized on your project right so you subtract that off and then that will tell you how much your EA C is the next formula for EA C is very similar to the one that we just saw so in this formula we are adjusting the number that we're getting by both the cost performance index scheduled performance index the assumption I'm making here is that both a CPI and the SVI will influence the EAC so in this formula we still start with the AC the actual cost so this is how much we spend so far and then we add the remaining work that's remaining our project which is represented by the BAC minus the EB BAC is a budget at completion and earned value is represented by how much work we have done so far so when subtract the two it tells you the amount of work that's remaining so then after that we would divide that by CPI times SPI because they're assuming the project were the progression of the project will be influenced by both costs performance index and the scheduled performance index now that we have our budget at completion let's look at our budget to complete the budget to complete it how much more money you need at a certain point in the project in order to complete the entire project so the budget and completion is how much money you need in total in order to complete the project at any certain point in the project so you could really just reverse the formulas for budget at complete in order to get your budget to complete so there's a couple of ways that you can calculate your budget to complete so we'll look at look at this on this slide right here so the first way that you can calculate your budget to complete is by using your budget at completion and subtracting the actual cost so how much money you need in total to complete your project - what you have actually spent to get how much more you need in order to complete the projects in this next sense the second way that you can calculate your budget to complete it's using your budget completion and subtracting the earned value the earned value represents the value of the work that you have completed so far and the third way to calculate your estimate to complete is to make a completely new estimate so calculating how much each of your activities you have remaining will cost roll that up to the award package so I won't roll that up to the control account level and then finally roll it up to the project love also doing a new estimation now these three formulas are not equal to each other that one that you use will depend upon the assumptions that you're making on your project so for example if you are assuming that the project will progress at the same rate that you originally budgeted then you will use the second formula which is BAC - Evi if you're assuming the project will progress at the new EAC that you just estimate that then you want to use the first formula which is EAC - a/c our next formula is variance at completion or BAC the variance at completion is a difference between your original budget at completion and the new estimation at completion that you calculated at midway through the project so the formula for EAC is BAC - EAC and our next formula is T CPI which is to complete Performance Index there's two ways you can calculate your tcpi and this would depend upon the assumption that you're making on your project so if the BAC that you originally calculated is no longer relevant then you want to use a second formula which takes the new EAC that you recalculate throughout the project into consideration if the budget completion they calculated is it still relevant then you want to use the first formula which does not use the EAC now let's talk about what is the tcp i the tcp I compute the future require the cost efficiency needed in order to achieve the target budget so it is computed by calculating the work remaining which is your BAC minus your aviso BAC your budget completion - Evi which is the present value of all of the work you completed so far so this will tell you the amount of work that's remaining and you would divide that by the amount of budget you have remaining and the budget have remaining is is represented by the BAC so the budget you have - the AC so how much you have spent so far now if again like what we said earlier if the budget that you calculate at the beginning is no relevant then you want to replace this with the EAC so instead of using B AC minus AC you want to use EAC minus AC to get your budget that you have remaining so once you have done this you also need to know how to interpret the tcpi so the firt let's just look at this numerically the first term that we have is the amount of work that we have remaining and we're dividing this by how much money we have remaining so if we have more work than we have budget so then the only way is for the numerator to be greater than the denominator so the work really we have remaining is greater than the amount of budget we have remaining then the TCPA would be greater than one which is bad so this is the opposite of the CPI and spi we just looked at which is you know if it's more than one thing that's a good thing so let's look at the reverse if the budget if the work we have remaining is less than the budget that we have remaining so we have more budget than the work that we have to do so the numerator is smaller than the denominator if this would mean that TCP R is less than one and that's good because that tells us we have more budget available than the amount of work we have which means that we will be more likely to finish the project on budget the next formula we can look at is the percentage complete we can calculate the percentage complete for any subset asked on the project or the project as a whole the way that we calculate the percentage complete is we use Evi the Earned value so this is a present value of the work we have done so far divided by our budget which is our BAC and we multiply that by a hundred and this will tell us the percentage complete of our project so here is a summary of all of the Earned value formulas that we have looked at so far we will be having a link in this in the comments below to all the slides so you don't have to copy this down you can just download this and print it out if you need to okay the next formula which is not EVM anymore to see these are other formulas over your optimum PMP workup and exams is the three point estimation which is also sometimes called pert so there's two ways that you can calculate this three point estimation the first one is using pert and you can also they will also sometimes refer this to as beta so if the question ask you to use the beta distribution or the pert then you want to use the first formula now the second if they didn't specify that if they say to use a triangular three-point estimation you want to use the second formula so here's how it works so basically when it comes to estimating for schedule or estimating for a budget you want to come up with a pessimistic estimation a most likely estimation and an optimistic estimation and this can work for both schedule and cost so if you're estimating the duration of a specific activity you can say pessimistically this can take 10 weeks to complete most likely it will take seven weeks to complete optimistically it can take five weeks to complete you can do the same thing for budget pessimistically this activity will cost a thousand dollars most likely you'll cost $500 optimistically will cost three hundred dollars okay and then once you come up with these three points of estimation you will plug it in into either the beta distribution formula or the triangular distribution formula so if you plug it into the beta distribution formula you will look at the first one this is also called pert so you will add the pessimistic estimation plus four times the most likely calculation plus the optimistic estimation and then you would divide this by six and if you're using the triangular distribution then you would use a pessimistic estimation you came up with plus the most likely plus the optimistic and in this case you would divide by three so we can see here is that the pert distribution places more emphasis on the most likely scenario where is a triangular one just averages out the pessimistic are most likely an optimistic estimations our next formula is communication channels you will find this in the communications knowledge area the way that you calculate the number of communications on your project is using the formula in x bracket n minus 1 divided by 2 so this will tell you how many different communication channels there are on your project and n represents the number of people on your project so for example if there's 5 people on your project there's more than 5 communication channels so Bob can talk to Sally Sally can talk to George George can talk back to Bob you know Stacy can talk to Tracy etc right so to calculate how many different ways the people on your project can talk to each other you can use this formula so let's say we have five people on our project and equals five then we use five times n minus 1 so 4 so 5 times 4 is 20 divided by 2 will give us 10 so there's 10 different ways these 5 people can talk to each other and their last formula is probability the way that we calculate probability this is used in risk management is by using probability of that risk occurring multiplying it by the impact in any currency for example dollars of what what happened if that impact does occur so as an example let's say we have a risk that has a 30% probability of actually happening in the future and if this risk does happen it will cost our project $5,000 to fix so the total impact of this risk is 0.3 times 5000 which is $1,500 using this formula you can calculate the impact of risks on your project and lastly be sure to note these important values for your exam as well so you need to know your Sigma so 1 Sigma is a 2.2 % to Sigma is 95.5 4% 3 Sigma's 99.73% and Six Sigma is 99.99% also you need to know in what range the estimates have to be in so at the start of your project you just want to get a rough order of magnitude when you're estimating either your schedule or your cost and this could be my anywhere between minus 25% plus 75% and then as you progress through your project and you get to know more and more information then your estimates become your preliminary estimation which can be off by negative 15% to plus 50% and then as you do another round of revisions and you get to know more information you talk to your smees you meet with your teams etc you get your budget estimate which is between negative 10% to plus 25% of the actual budget or scheduled duration that you're estimating and finally we get to the definitive estimation which is even more accurate than the budget estimation so this should be between negative 5% to plus 10% ok guys so that's all of the formulas that you need to know for your upcoming PMP or at Upham exams and again be sure to sign up for a free course at exams p.m. comm that's free in this 1.5 hour free course you'll learn all sorts of all sorts of things like how they fill in your application different ways to approach the multiple choice questions on your exam especially when all of the answers look the same you'll get a study plan for passing your certification in next 6 weeks so it's a really great training be sure to sign up if you haven't already and thank you so much for coming today I hope you learn a lot I hope you now understand all of the formulas you need to know for your upcoming exam and I will see you in the next chapter be sure to LIKE and subscribe to our Channel and I will see you soon

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Keywords: pmp, pmp exam, pmi, project management professional, project management institute, pmp formulas, capm formulas

Id: hb1Sotom5X0

Length: 24min 9sec (1449 seconds)

Published: Wed Jul 18 2018