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Key Concepts and Formulas for PMP Exam

Key Concept and Formulas for PMP Exam

Project Selection
Financials

Earn Value Formulas

NPV (Net Present Value) =


FV/(1+r)n
FV= Future Value, r= interest
rate, n= no. of time periods
Higher NPV is better
PV (Planned Value) = BCWS (Budgeted Cost of Work Scheduled

IRR (Internal Rate of Return)

EV (Earned Value) = BCWP (Budgeted Cost of Work Performed)

= Solve the NPV equation for

AC (Actual Cost) = ACWP (Actual Cost of Work Performed)

SV = EV PV (minus is behind schedule)

Also called Hurdle Rate

CV = EV AC (minus is over budget)

Higher IRR percentage is

SPI = EV/PV (Less than 1 is behind schedule)

better

CPI = EV/AC (Less than 1 is over budget)

BCR (Benefit/Cost Ratio)

EAC = AC + (BAC-EV)

Higher BCR is better.

Use when variances are atypical

EAC = AC + [(BAC-EV)/CPI]

Use when variances are typical

Beware, exam can call it CBR,

(Note: This is the same as EAC = BAC/CPI)

where lower is better

VAC = BAC EAC

ROI (Return on Investment) =

ETC = BAC EV

Use when variances are atypical

ETC = (BAC EV)/CPI


ETC = EAC AC

Use when variances are typical

Use when original estimates were flawed

Earnings/Investment
Higher ROI is better
Payback Period = Time to
recover cost of the project
Lower payback period is
better
Cash Flow = Cash In Cash
Out

Network Diagram

Calculating Stackor Float

Precedence Diagramming Method (PDM)

Total Float (also called Slack,


Float, or Project Float) is the

Also called Activity on Node (AON): Activities are in

total amount of time an

boxes

activity can be delayed

Most commonly used today

without delaying the project

Has 4 relationships: F-S, S-S, F-F, S-F

finish date.

No dummies (zero duration dependencies) allowed

Free Float/Slack is the amount

Can analyze using either Three-Point Estimates or CPM

of time an activity can be


delayed without delaying its

Arrow Diagramming Method (ADM)

successor (following activity).

Also called Activity on Arrow (AOA)

Only 1 relationship: F-S

slack with forward

Can have dummies

pass

C2DI Inc. 2015

LS ES:

Calculates

Key Concepts and Formulas for PMP Exam

Can analyze using either Three-Point Estimates or CPM

LF EF:

Calculates

slack with backwards


Graphical Evaluation and Review Technique (GERT)

Allows loops and repetitive activities

pass
Lag Time: Inserted wait time
between activities
Lead Time: Overlapping
activities, also called
paralleling or fast tracking.
Lead In; Lag Out

Three Point Estimates, or PERT

Accuracy of Estimates

PERT = PROGRAM Evaluation and Review Technique

Order of Magnitude:-25% to

Holds schedule and lets cost float

+75%

3 estimates for each task: Optimistic, Pessimistic, and Most

Budget Estimate:-10% to

Likely

+25%

Mean Estimate = (O + 4*ML + P)/6

Definitive Estimate:-5% to

Standard Deviation (s) = (P O)/6

+10%

Variance =

s2

, or [(P

O)/6]2

Standard deviation of tasks on CP =

Sum of variances

Powers of a Project Manager

Conflict Resolution
(Best to Worst)
1.Problem Solving: Also
called Confronting

1. Expert: Best, earned on your own


2. Reward: Next best. Based on PM position
3. Formal: Power, based on PM position
4. Referent: Referring to positions of others
5. Penalty: Worst. Based on PM position

2. Compromising: Solutions
satisfy both parties
3. Withdrawal: Postponing a
decision
4. Smoothing: Emphasis on
agreement
5. Forcing: One viewpoint at
expense of another.

Sources of Conflict (Order of Priority)

Herzbergs Motivators

1. Schedules

1. Achievement

2. Project Priorities

2. Recognition

3. Resources

3. Challenge of the work

4. Technical Opinions

itself

5. Administrative Procedures

4. Responsibility

6. Cost

5. Advancement

7. Personality

6. Growth

C2DI Inc. 2015

Key Concepts and Formulas for PMP Exam


Channels of Communication
Between Team Members = N(N-1)/2

Closing
Project is closed when
administrative closure is
complete.
Administrative closure is
done at end of each Project
Phase and at the end of the
Project.
Contract closure: verification
that deliverables were
acceptable; it is done once
at the end of the contract.
Contract Closure Procedure
is produced under Close
Project

si
Using CV and SV to Analyze Project Risk
If CV = 0 and SV = 0

Then
The project is on budget
and on schedule

If CV is Positive (+ve) and SV is Negative (-ve)

The project is under budget


and behind schedule; the
task has not started, or it
has started and not enough
resources have been applied

If CV is Negative and SV is Negative

The project is over budget


and behind schedule

If CV is Negative and SV is Positive

The Project is over budget


but ahead of schedule

If CV is Positive and SV is Positive

The Project is under budget


and ahead of schedule.

C2DI Inc. 2015