APM PMP PMQ - Learn earned value formula in 16 minutes #APM PMQ

[Music] hi there I'm Dave Litton and a warm welcome to my very short learn your earned value formulas in minutes now the purpose of this video is not to teach you what the earned value method actually is but rather to focus on the formulas you'll need to know in your exam and I want to share with you two key techniques the first is a natural easy to remember sequence in which you calculate the various formulas involved and the second key thing I want to share with you is a set of easy memory tricks to make sure that you fully learn all of the Earned value formulas and most importantly that you can replicate them with ease during your exam so let's get stuck in first up there are 13 key formulas that you'll need to memorize and the first metric if you will you'll need to understand is how much will your project cost this is called budgeted at completion or BAC and this is normally given in any question next up it's your planned value or PV what is our plan spend no they're not quite the same you see this relates to the whole project but this refers to your planned value at a point in time let's say it's the planned value at the end of a stage or a work package for example any question on earned value well first of all set the scene of the whole project but then they'll give you a snapshot at a certain point in time and you'll have to base your calculations on that itself so next up is the earned value itself or Eevee and this states clearly what have we earned so far next up is your actual cost how much have we actually spent now the purpose of this slide by the way is not view to memorize it but to give you an overview of the steps I'm about to introduced next up it's the difference from the planned cost called the cost variance or CV this is one of two variances and the second as you might imagine is the schedule variance or SV and this lays down what is the difference from the planned schedule next its first of two performance indices this being the cost Performance Index or CPI and this calculates how much you are getting for every dollar or whatever monetary units you're using the second Performance Index is the schedule Performance Index or SPI and this is how much are we progressing compared to the schedule plan next up is the estimate at completion and this says clearly how much will it cost based on the current costs and schedule this therefore is one of the first forecasts next the estimates of completion another forecast ATC and this is how much will be spent from this moment or point onwards within this particular project then we're on to the variance of completion or V AC and this calculates the difference between the original budget and what will now be spent then we're on to the first of two cumulative numbers and this is called cumulative CPI and this factors in the performance efficiency over many time periods I'll explain why that makes good sense shortly and then the final one is a bit of a mouthful and it's called the to complete performance index tcp IC and this refers to the level of performance to be achieved on the remaining work in order to meet the cost or schedule goals so now on to the formula the first thing you'd want to do when you get into the exam room is to grab a sheet of paper and to scribble down quickly your three main metrics here I've shown those actual cost at the top plan cost in the middle and earned value at the bottom don't worry the only importance of this is to give you a quick understanding of the variances and for those of you that are still unsure about what and value actually is do check out on YouTube my learn PMP earn value in ten minutes flat video but for now I'll assume you understand the purpose and approach so let's go back to focusing on the formulas most important rule you must always start with what you've got what does that mean well when you're looking at the ratios and the differences between these three key metrics always start with earned value that's your frame of reference hold on to that because it will make absolute sense then of calculating the other two you see the difference between earned value and the actual cost will give you your cost variance and in case it isn't obvious this will be in some military term usually dollars so your cost variance will be expressed in the number of dollars and in a similar way the schedule variance is the difference between two earned value and planned cost so positive variances are good because what they mean is is your project will under spend and will come in ahead of schedule or early if you will whereas negative variances are bad they show that if you carry on doing what you're doing you're going to end up overspending blowing the budget if you will and coming in behind the schedule in other words you'll deliver your project light so do remember the simple little picture here and I strongly recommend you draw this on a scrap of paper first thing within the exam label this has earned value and you don't have to draw a little Superman here but the very least make it clear this is your frame of reference so showing that same diagram again and reminding you this is cost variance and schedule variance let's start with the formulas and here's my first memory trick notice that when it comes to the variances that's cost variance and schedule variance they always start with earned value so the first thing you do when calculating it you put equals earned value equals earn value now the next is fairly simple on the cost variance you'd want to subtract from it the actual costs so cost variance goes with actual cost where I showed your variance it's earned value minus planned value so there's the first trick the two variances start with earned value and they subtract in this case actual cost and in this case planned value let me just plug in a few numbers here that I've grabbed out of the air and you can see how easy that would come out in an example question you'd be given these numbers from the question itself so let's suppose here the earned value is given as 866 you may assume that's dollars if you wish remember that both start with earned value hence it's repeated here and you should subtract the planned value in this case given in the question as 1300 and the actual cost in this case given in the question as a thousand giving you the result here like I said in the previous slide positive numbers are good so because this is negative what it says in plain terms is you failed to carry out 434 dollars worth of work and this is negative so it means it's over budget in other words you're going to overspend if you carry on doing what you're doing then on to these indices or ratios again they all start with earned value look how easy the formulas are let's start with forecasting costs using the cost Performance Index or CPI they all start with earned value and you divide them with what well it's the same as the variances in this case since its cost you divided by actual costs guess what the schedule Performance Index or SPI is earned value again remember they all start with own value this time divided by planned value plugging some simple numbers in yes again here's what we get using the same as before the cost performance index will give you point eight six and in this case because it's less than one you're going to come in over budget and here SPI is 0.66 again less than one so the projects going to come in late as you might imagine if you've got a value of one in either of these it means you're on budget and on time and if it's greater than one in terms of costs you're going to under spend and if it's greater than one in terms of schedule you're going to come in early so next up I want to talk about estimate at completion and there are two assumptions that you may need to consider when you need to calculate estimate cost up completion or EAC the first is if you assume and by the way the question will state this from this point onwards that everything will go to plan so the current cost variance CV if you remember will remain constant until the project end it won't get any worse you fix whatever the variance was and you're going to run with that until the end of the project it's simply your budget at completion minus CV the second assumption you may need to make if you assume from this point onwards that the project will continue with the same average efficiency in other words CPI will continue and in which case now it's the final cost is the budgeted cost divided by CPI so just be aware of that estimated cost of completion it depends which of these situations the question is posing now the estimated completion date what do we do about that well here's what you'll normally expect to see during the exam however I will give you a second option just to get you ahead of the back if you assume from this point on the all remaining work will have the same value of shading performance index and by the way this will only give the correct result if the plan that end date has not really been exceeded in which case your final project duration is your planned project duration divided by SBI SBI will give you earned value divided by planned value and this is normally what you'll get for the exam in other words just like when you worked out your final budget you really divided by the cost performance index here you divide by the scheduled performance index to find out how long the project will take the other option that you may need to know is that if you assume from this point onwards that all future work will be on plan but SV uses money units so we can extrapolate the graph as shown his actual cost plan cost and earned value I've used this from a previous example where I use the creation of green pencils I can extrapolate earned value and here I can see the end date from the original date here and that's the slippage in formula the estimated completion date is the current planned date plus the slippage however as I said for the exam you'll normally only need to use this formula here so let me now bring that together in a nice sequence for you step 1 budget that completion BAC usually given in the question the budget of completion is the project budget or total planned cost typical in most questions it will be posed at some point during the project so you need to calculate where you are at the moment and use that to forecast the future step 1 the budget the completion step 2 the Earned value often given and sometimes it's calculated and what I mean by that is if I give it to you you can just plug it straight into the formulas but sometimes these three variances of the same formula can be helpful remember this earned value equals the actual percentage complete times the budget at completion so if your projects going to cost a thousand dollars and you're 50% complete your earned value is five hundred dollars if you just slow that formula around and translate it you'll get budgeted completion is e V divided by percentage complete and percentage complete equals e V divided by BAC so keep a clear head step three you will then in the question want to calculate first your cost variance then you'll shed your variance or vice versa and then and only then work out your cost performance index and your scheduled performance index bringing us to step four you need to calculate your estimate of completion and the simpler one is simply your budget at completion divided by CPI step 5 estimate to completion from this point is your budget at completion - what your actual cost is step six your variance of completion is BAC minus EAC now when it comes to schedule Performance Index and cost performance index very often you'll need to know about trends and they're often plotted over time in order to show this is a short portion of a project showing a handful or so of weeks and here's your SPI value and you can see that if you plot it say at the end of each week you'll find it'll usually vary over time as will the cost Performance Index so if you're partway through a project you might need to consider the performance over time and here's why well one example would be that the products that you're creating the work and the approach you're using to create the products are different for each stage so it'd be quite normal and natural that SPI and CPI would vary throughout the project second it might be that some products may be similar to previous developments meaning that the team can carry them out in a much more efficient and effective way some work package dynamics can vary considerably different areas of risk levels of certainty of estimates any snags issues problems and so forth the levels of critical thinking can vary within the team and for different products and finally the team effectivity and efficiency varies over time these last two are no criticism of the team themselves just the natural human condition so it makes sense to be able to calculate SPI and CPI trends which brings me to the next two formula the first is called curative CPI remember this is just CPI of a period of time and it's often referred to as CPI uppercase C it's just the sum of all the earned values divided by the sum of the actual costs and mathematically that would look like this CPI cumulative equals the sum of all the V's divided by the sum of all the acs and here I've shown a small simple example over a period of 20 weeks looking at the week periods here here's what the earned value was recorded and the actual costs and here are giving you the ratio of CPI a V divided by AC in this case 1.06 I've done it for all four of them and what I've now done is to add them up here it's due ways of doing this what we want to do is sum all of these numbers here and trust me it comes to six hundred and eighty five thousand dollars some of the a C's up this comes to seven hundred and seventy six thousand dollars and divide the curative earned value by the cumulative actual cost this gives you point eight eight and yes you could have done it by adding up over the CP is and finding the average in this case it's four of them so dividing by four you get the same number the reason being is that taking an average over time develops most likely metrics rather than taking a short say four week period within a project where CPI is going very well and SBI isn't and it might change within the next month in a similar way we need to look at T CPI for cost and T CPI for schedule now pay attention to this last one since as the title suggests there's two ways you could calculate this so first the to complete performance index that tcpi forecasts the performance needed to achieve either the financial budget of completion BAC or the schedule which is your estimate of completion EAC and this is the reason why there are two methods and two formula for each so step two a number greater than one means the future efficiency will need to be greater than planned conversely a figure less than one means future efficiency may be less than planned very similar to the ratios we looked at earlier if key CPI is greater than the current CPI then future efficiency must improve if the project is to achieve the budget at completion or estimate at completion and for to calculate the future cost performance index required to meet the planned budget you've got two ways here tcpi see the formula here is BAC minus DV over remaining funds there's only one formula here but what BAC is depends on these two particular circumstances if you're targeting the original budget then BAC in this case is BAC - I see and if you're targeting this current forecast its EAC minus AC so now you hop on over to my website and download your free handbook for the companies this short video my name is Dave little it's been a pleasure working with you on this short video and I hope that you and I will meet again on my website - ah [Music] you [Music]

Channel: Projex Academy

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Keywords: pm certification, projex, academy, project manager academy, earned value formula, pmbok, apm, pmq, pmp, certified, project management body of knowledge, proessional training, evm

Id: CNNEM5EuPyM

Length: 16min 29sec (989 seconds)

Published: Sat May 06 2017