Formula based questions in PMP are an easy area to score because the concepts are easily understood, and once you understand them the math is quite simple, and gives you a great scoring opportunity that you shouldn’t miss. I’m listing down the different concepts that you should know in order to get all the numbers related problems correct.
Three Point Weighted Average Estimate: This is used for scheduling, and is calculated as:
(O +4M + L)/6
Standard Deviation: This is very simple in the context of PMP and can be calculated with the following formula:
(P – O)/6 where P is the Pessimistic Estimate, and O is the Optimistic Estimate.
Duration of an Activity: Late Finish – Late Start or Early Finish – Early Start
Rough order of Magnitude: +/- 50%
Budget Estimate: -10% to +25%
Definitive Estimates: -5% to 10%
If there are two projects A & B, and the NPV of A is $85,000 and B is $50,000 then the opportunity cost of selecting project A is $50,000.
Communication Channels: This is another very simple one to calculate, and can be calculated as n*(n-1)/2. The questions trick you by asking how many new channels were added, sometimes you forget to include yourself to see what n is but other than that it is pretty simple.
NPV: These type of questions are common, and they give you a certain cash flow, discount rate, number of years, and ask you which project to select. For instances where there is just one cash inflow, you can use the simple formula:
PV = FV / [(1+i)^n]
If there is more than one year then unfortunately you have to calculate this for every year and then sum the number but that itself shouldn’t take a lot of time.
Earned Value Measurement
There are several questions on EV (Earned Value), and I found that the best way to get a handle on this was to walk through an example in my head.
Say, there is a project that is 5 weekdays long, and you expect $10 worth of work to be done every day. This project will be $50 when it is finally completed, and that is the BAC (Budgeted At Cost).
So, on Tuesday, you would expect $20 worth of work to be done which is the (PV) Planned Value on Tuesday.
On Tuesday you find that only Monday’s work has been done, so now your EV (Earned Value) is just $10. To your great dismay, you find that the work that was done actually cost you $15 so that is your AC (Actual Cost)
Your Cost Variance is what you got done minus what it cost you so EV – AC viz. -5$ in this case. The Cost Performance Index is how well you are doing on cost, and that is measured as EV/AC so 10/15 or 0.67 in this case.
For Variance, remember that negative is bad, and for indices, remember that a number less than 1 is bad, and a number greater than one is good.
To see how you are doing with time, you know that you had to accomplish $20 worth of work but did only $10 worth of work so in terms of schedule you are $10 behind.
Schedule Variance can be calculated as Earned Value – Planned Value, so -10$ in this case.
SPI (Schedule Performance Index) is EV/PV so 0.50 in this case.
EAC is Estimate At Actuals, and means how much do we expect the project to cost when it is complete. There can be three situations.
When the current variation is one off, in which case:
EAC = (BAC-EV) + AC
When the current variance in cost or schedule is expected to continue:
BAC/CPI or BAC/SPI
When the current variance in cost and schedule is expected to continue:
(BAC – EV) / (CPI x SPI)
The To Complete Performance Index can be calculated as BAC – EV / BAC – AC
Finally, the VAC (Variance at Complete) can be calculated as BAC – EAC.
Understanding these numbers is great because they don’t take a lot of time, and once done gives you guaranteed points on the exam!