Mastering the PMP Calculations

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Mastering the PMP Calculations

A Free EBook from TestEagle.com

Is this book right for me? Do you: 1. Need explanations of the most important calculations in the PMBOK®? 2. Want to see examples of how the formulas are calculated? 3. Want tips to help you master PMP exams that use the formulas?

If you answered Yes to any of the questions – keep reading!

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Mastering the PMP Calculations – TestEagle.com

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Learn All of the Calculations The PMP calculations are linked to each other. That’s why learning all of them is vital to passing the PMP.

BAC

TCPI SV

EV CV ETC

PV SPI

AC CPI

EAC

BETC

The arrows show the formulas that are needed by the target formula. (The dotted arrows show a formula that is required dependent on the scenario)

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Contents Is this book right for me? ............................................................................................................................ 2 How can TestEagle Help You? ..................................................................................................................... 3 Learn All of the Calculations ....................................................................................................................... 4 Actual Cost (AC) .......................................................................................................................................... 7 AC Formula ............................................................................................................................................. 7 Example of Calculating Actual Cost ..................................................................................................... 7 Budget At Completion (BAC) ....................................................................................................................... 9 BAC Formula ........................................................................................................................................... 9 Example of Calculating BAC .................................................................................................................... 9 Planned Value (PV) ................................................................................................................................... 10 PV Formula............................................................................................................................................ 10 Example of Calculating PV ..................................................................................................................... 10 Earned Value (EV) ..................................................................................................................................... 11 EV Formula ............................................................................................................................................ 12 Example of Calculating EV ..................................................................................................................... 12 Cost Variance (CV) .................................................................................................................................... 13 CV Formula ........................................................................................................................................... 13 Example of Calculating CV..................................................................................................................... 14 Schedule Variance (SV) ............................................................................................................................. 15 SV Formula ............................................................................................................................................ 15 Example of Calculating SV ..................................................................................................................... 16 Cost Performance Index (CPI) ................................................................................................................... 17 CPI Formula ........................................................................................................................................... 17 Example of Calculating CPI .................................................................................................................... 18 Schedule Performance Index (SPI) ............................................................................................................ 19 SPI Formula ........................................................................................................................................... 19 Example of Calculating SPI .................................................................................................................... 20 Estimate At Completion (EAC) .................................................................................................................. 21 EAC Formula ......................................................................................................................................... 21 Scenario 1 – Original estimate is no longer valid .............................................................................. 21 Scenario 2 – CPI will stay the same for the rest of the project .......................................................... 22 Mastering the PMP Calculations – TestEagle.com

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Scenario 3 – Current CPI is abnormal ................................................................................................ 22 Scenario 4 – Project has to meet a deadline ..................................................................................... 23 Examples of Calculating EAC ................................................................................................................. 23 Example 1.......................................................................................................................................... 23 Example 2.......................................................................................................................................... 24 Example 3.......................................................................................................................................... 25 Example 4.......................................................................................................................................... 26 Estimate To Complete (ETC) ..................................................................................................................... 27 ETC Formula .......................................................................................................................................... 27 What does ETC mean? ...................................................................................................................... 27 Example of Calculating ETC ................................................................................................................... 28 To-Complete Performance Index (TCPI) .................................................................................................... 29 TCPI Formulas ....................................................................................................................................... 29 Scenario 1 - BAC is valid .................................................................................................................... 29 Scenario 2 - BAC is no longer valid .................................................................................................... 30 What does TCPI mean? ..................................................................................................................... 30 Example of Calculating TCPI .................................................................................................................. 31 Example 1.......................................................................................................................................... 31 Example 2.......................................................................................................................................... 32 Communication Channels ......................................................................................................................... 33 Communication Channels Formula ....................................................................................................... 33 What does the Communication Channel value mean? ..................................................................... 34 Example of Calculating Communications Channels............................................................................... 35 PMP Formula Cheat Sheet ........................................................................................................................ 36

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Actual Cost (AC) Actual Cost is one of the easiest calculations that you’ll need to know for the PMP. Well there’s no formula involved so that makes it pretty easy right?

Tip – AC is also known as Actual Cost of Work Performed (ACWP).

So what is “Actual Cost”? Actual Cost (AC) is the actual costs incurred by the project as of a certain point in time. AC is used to answer the question “How much have we spent on the project as of today?”

AC Formula As we already said, there’s no formula for AC. But that doesn’t mean there’s no math involved. To calculate the AC for a project, you add up all the costs incurred by the project as of the point in time you are measuring. Usually this means adding all the costs incurred by the project as of today.

Example of Calculating Actual Cost

Let’s see an example. Tom is working on a project to install a new Wi-Fi network on the campus of a Palo Alto Smartphone manufacturer. The project has a budget of $2.5 million and involves numerous contractors. The expected value of the work (e.g. the Wi-Fi network) is $3.6 million dollars.

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Tom has budgeted $1.2 million for Wi-Fi equipment, $1.1 million for installation costs, employee laptop updates and training. He has also budgeted $200,000 for miscellaneous costs. The project team has just begun installing the equipment needed – starting with the Wi-Fi antennas. The project has spent $400,000 on Wi-Fi equipment, $50,000 on site surveys, $3,000 on team meetings and team building sessions. Tom will be signing a contract for an extra ten Wi-Fi antenna tomorrow for $30,000. What is the AC of the project?

Answer: $453,000.

How did we calculate this? $400,000 + $50,000 + $3,000 = $453,000.

Maybe you are wondering why the AC isn’t $483,000?

Read the text again. The contract for the extra ten Wi-Fi antennas is being signed tomorrow. Which means it isn’t an actual cost today. Today it’s an expected cost of $30,000. So the $30,000 is not included in the AC calculation.

That was easy right?

You can expect questions like this in the PMP exam.

You’ll also find them in the TestEagle practice PMP exams.

Mastering the PMP Calculations – TestEagle.com

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Budget At Completion (BAC) Budget At Completion (BAC) is a measure of how much you estimate the project will cost at its completion.

Tip – BAC is an estimate and is determined at the start of the project. This is not a calculation that you perform at the end of the project to figure out how much you spent. If you want that figure, you’d calculate AC at the end of the project.

BAC Formula How is BAC calculated? Usually for the PMP exam you won’t need to calculate it. You will normally be given the BAC in the question as part of figuring out another value. For example, the question may want you to calculate the To-Complete Performance Index. To do that, the BAC could be included in the question text.

However, if you do need to calculate the BAC here’s how to do it. BAC is estimated by calculating how much money you believe you will need to complete the project. (There is no formula).

Example of Calculating BAC Let’s see an example. Dave is the project manager on a project to install a new privacy fence around a five-star hotel. The materials for the fence are estimated to cost $230,000. The labor is estimated at $95,000. Miscellaneous costs are estimated at $15,000. And training is estimated at $3,000. Ongoing maintenance is estimated at $20,000. What is the BAC?

Answer: $343,000.

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How did we calculate this? $230,000 + $95,000 + $15,000 + $3,000 = $343,000.

Tip – The $20,000 of ongoing maintenance was not included as this is not part of the project to install the fence.

Planned Value (PV) Planned Value (PV) is the estimated value of the work to be completed by your project within a specific time period. PV is also used to calculate Schedule Variance (we’ll be covering that in a later chapter).

Tip – PV is also known as Budgeted Cost of Work Scheduled – BCWS.

PV Formula Planned Value = Planned % Complete X BAC

Example of Calculating PV Let’s see an example. Jenny is the project manager on a project to build a new smart-phone browser. The project is expected to last 10 months. The estimated total cost is $2,300,000. What is the PV after 5 months?

Answer: $1,150,000.

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How did we calculate this? Planned % Complete is the percentage of the project that is planned to be complete. In this case, 5 months / 10 months = 0.5 (or 50% in other words).

We know that BAC is the estimated total cost of the project. So in this case, BAC = $2,300,000. With these figures we can calculate that PV = 0.5 x $2,300,000 = $1,150,000.

Earned Value (EV) EV is the estimated value of the work completed by your project as of today. So if the project stopped today, the EV would show the value that it has produced.

Understanding EV is vital as it’s used in many of the other calculations that you will need to know to master the PMP exam. It’s used to calculate: 

Cost Variance (CV)



Schedule Variance (SV)



Cost Performance Index (CPI)



Schedule Performance Index (SPI)



To-Complete Performance Index (TCPI)

Tip – EV is also known as Budgeted Cost of Work Performed (BCWP).

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EV Formula Earned Value = Percent Complete * Budget At Completion

Example of Calculating EV Rohit is the project manager on a project to build a new cricket stadium in Mumbai, India. After six months of work, the project is 27% complete. The estimated total cost of the project is expected to be $50,000.000.

What is the EV?

Answer: $13,500,000.

How did we calculate this? The Percent Complete = 27%.

We know that BAC is the estimated total cost of the project. So in this case, BAC = $50,000,000.

With these figures we can calculate that the EV = 27% * $50,000,000 = $13,500,000.

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Cost Variance (CV) As the name suggests the CV calculation shows if there are any variations in the costs of the project. In other words, CV shows if your project is under or over budget.

CV Formula Cost Variance = Earned Value – Actual Cost

Tip – EV is also known as Budgeted Cost of Work Performed (BCWP). And AC is also known as Actual Cost of Work Performed (ACWP). So you may see the formula written as: CV = BCWP – AC CV = BCWP - ACWP CV = EV – ACWP

The formula produces a dollar amount (or pounds, rupees etc). But what does this mean? A negative number is over budget. And a positive number is under budget.

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An important point to remember is that on a perfect project, the CV is $0. This because a CV of $0 is neither over budget or under budget.

Most people understand instinctively why being over budget is bad. But why is being under budget bad? It could be a sign that the team has missed a requirement, forgot to install a piece of equipment etc. Anytime the CV isn’t $0 – you need to investigate.

Example of Calculating CV Chris is the project manager on a project to build a new photo sharing app for the iPhone and Android smart phones. The value earned by the project is $2,300,000. The costs incurred by the project are $2,560,000. What is the CV? And what does it tell us about the project?

Answer: The CV is -$260,000. And this tells us that the project is over budget.

How did we calculate this? The EV is $2,300,000 (“value earned by the project” is another way of saying Earned Value). The AC is $2,560,000 (The project’s costs are “the costs incurred by the project”).

Knowing this we can calculate that the CV = $2,300,000 – $2,560,000 = -$260,000.

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Schedule Variance (SV) Just like with CV, Schedule Variance shows if there is a variance on the project. In this case, it shows if there is a variance in the scheduling of the project. Simply put, Schedule Variance is your project is behind or ahead of schedule.

SV Formula Schedule Variance = Earned Value – Planned Value

Tip – EV is also known as Budgeted Cost of Work Performed (BCWP). And PV is also known as Budgeted Cost of Work Scheduled (BCWS). So you may seen the formula written as: SV = BCWP - BCWS

A value of less than zero means the project is behind schedule. And a value greater than zero means the project is ahead of schedule. A value of zero means the project is exactly on schedule but this is very rare.

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Tip – Most people understand that being behind schedule is bad. But did you know that being ahead of schedule can be bad as well? For example, if a team works overtime and gets a task finished early this may mean that they sit around idle waiting for the next task to start. Which is a waste of resources (and the company’s money!). Basically if a project has a Schedule Variance that isn’t zero – you need to investigate why and mitigate the risks.

Example of Calculating SV Doug is the project manager for a software company based in San Francisco. He is working on a project to build a new inventory management system. The project has been underway for six months. Doug has estimated that the project should have a planned value of $825,000 at this point. The value earned by the project is $815,000.

What is the Schedule Variance? And what does this tell us about Doug’s project?

Answer: The Schedule Variance is -10,000. This tells us that the project is behind schedule.

How did we calculate this? Well we know that Schedule Variance = Earned Value – Planned.

The Earned Value is $815,000. Tip – The PMP exam may use slightly different descriptions to describe the input to a formula. This is to test your knowledge and make sure you understand what you are calculating. EG “value earned by the project” is another way of saying Earned Value.

The Planned Value is $825,000. Knowing this we can calculate that the SV = $815,000 – $825,000 = -$10,000 Mastering the PMP Calculations – TestEagle.com

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Cost Performance Index (CPI) Cost Performance Index is used to show the efficiency of the money being spent by the project. In other words, the Cost Performance Index shows how much value you are getting for each dollar spent on the project (or pounds, rupees or riyals – you get the point).

CPI Formula Cost Performance Index = Earned Value / Actual Cost

Tip – EV is also known as Budgeted Cost of Work Performed (BCWP). And AC is also known as Actual Cost of Work Performed (ACWP). So you may see the formula written as – CPI = BCWP / ACWP

The result of the Cost Performance Index formula is a number. So what does this number mean? A value of less than one means that money is being spent inefficiently on the project. So if your CPI is 0.75, this means that for every $1 spent on the project you are getting $0.75 of value.

$1

$0.5

Investment Return

A CPI of one means that your project is exactly on track. You spent $1 on the project and got $1 of value in return.

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And a value of greater than one means that money is being spent efficiently on the project. So if your CPI is 1.4, this means that for every $1 spent on the project you are getting $1.40 of value. Cost Performance Index answers the question “We’re investing in this project, but what is the return?”

Example of Calculating CPI Brian is the project manager for a food manufacturing company based in Dallas, Texas. He is working on a project to implement a new inventory management system. The estimated value of the work completed by the project so far is $405,000. The total cost of the project is expected to be $650,000. So far the project has cost $325,000. What is the Cost Performance Index? And what does this tell us about Brian’s project?

Answer: The Cost Performance Index is 1.25. This means that for every $1 spent on the project $1.25 of value is being produced.

How did we calculate this? Well we know that Cost Performance Index = Earned Value / Actual Cost. The EV is $405,000. Tip – The PMP exam may use slightly different descriptions to describe the input to a formula. This is to test your knowledge and make sure you understand what you are calculating. EG “value earned by the project” is another way of saying EV. The AC is $325,000. Knowing this we can calculate that the CPI = $405,000 / $325,000 = 1.25

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Schedule Performance Index (SPI) Schedule Performance Index is used to show whether a project is behind or ahead of schedule. In other words, the Schedule Performance Index shows whether your project will deliver late, on time or early.

SPI Formula Schedule Performance Index = Earned Value / Planned Value

Tip – EV is also known as Budgeted Cost of Work Performed (BCWP). PV is also known as Budgeted Cost of Work Scheduled (BCWS). So you may see the formula written as - SPI = BCWP / BCWS

A value of less than one means that the project is potentially behind schedule. So if your SPI is 0.8, the project will not finish on time. An SPI of one means that your project will be finish exactly when the plan predicts. And a value of greater than one means that the project will be completed early. So if your SPI is 1.2, the project will be completed sooner than the plan predicts. Schedule Performance Index answers the question “When will the project be completed?”.

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Example of Calculating SPI Frank is the project manager for a software development company based in London. He is managing a project to create a new mobile photo sharing app. The estimated value of the work completed by the project so far is $116,000. The planned value of the project is $125,000. What is the Schedule Performance Index? And what does this tell us about Frank’s project?

Answer: The Schedule Performance Index is 0.93. This means that Frank’s project is behind schedule.

How did we calculate this? We know that Schedule Performance Index = Earned Value / Planned Value. The Earned Value is $116,000. Tip – The PMP exam may use slightly different descriptions to describe the input to a formula. This is to test your knowledge and make sure you understand what you are calculating. EG “value earned by the project” is another way of saying Earned Value. The Planned Value is $125,000. Knowing this we can calculate: Schedule Performance Index= $116,000 / $125,000 = 0.93

Mastering the PMP Calculations – TestEagle.com

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Estimate At Completion (EAC) Estimate At Completion (EAC) is used to predict the cost of the project at its completion. In other words, the EAC predicts the total cost of your project.

Why is this different to BAC? EAC is used once the project has started and uses actual results from the project not just estimates. If you have been working on a project for six months and the PMO ask for an estimate of what the project will cost – you would give them the EAC not the BAC.

EAC Formula The Estimate At Completion formula is more complicated than most. This is because there are actually four formulas. Each formula tackles a different scenario that you may face on your project.

Scenario 1 – Original estimate is no longer valid You might discover that the original estimates for your project were fundamentally floored. Or circumstances may have changed so much that the estimates you have are no longer valid. In this case you would use the following formula: Estimate At Completion = Actual Cost + Bottom-up Estimate To Complete

You might be wondering how you calculate the Bottom-up Estimate To Complete. According to the PMBOK® there is no formula. Instead this is a prediction by the team of how much work is left to complete the project.

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Tip – you may see the formula written as: EAC = AC + Bottom-up ETC

Scenario 2 – CPI will stay the same for the rest of the project

This scenario assumes that the Cost Performance Index (CPI) experienced by the project will stay the same until the project is completed. In this case you would use the following formula: Estimate At Completion = Budget At Completion / Cost Performance Index

Scenario 3 – Current CPI is abnormal

In this case you need to calculate the Estimate At Completion but discover that your current CPI is abnormal. Why could the current CPI be abnormal? An example might be that you have estimated $50,000 to install a new generator. During the installation the generator is accidentally damaged and $5,000 has is spent on repairs. You have three more generators to install but you are confident that the accident won’t happen again as you have a risk mitigation plan (and you yelled at the people who caused the damage!). In this case it is appropriate to believe that your original estimates for installing the generators are still good. It’s also appropriate that the current CPI (which reflects the accidental damage) does not reflect how the project will progress. In this case you should use a formula that ignores the CPI. The formula is: Estimate At Completion = Actual Cost + (Budget At Completion – Earned Value)

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Scenario 4 – Project has to meet a deadline

We’ve all worked on projects where the boss or a customer demands that a project be delivered by a certain date. To calculate the Estimate At Completion for such a project you need to take into account the Schedule Performance Index and Cost Performance Index. The formula is: Actual Cost +

[(Budget At Completion - Earned Value) / (Cost Performance Index X Schedule Performance Index)]

Examples of Calculating EAC

Example 1

Frank is the project manager for a software development company based in London. He is managing a project to create a new recipe sharing social network. The project recently hit problems when the development team discovered that the software architecture they were going to use is not valid. After discussions the team has decided on a new approach. The PMO has asked for a new estimate of the total cost of the project. The project has already spent $210,000 and has a CPI of 1.1. After talking with the teams on the project, he determined that the remaining costs are development – $50,000, quality assurance – $30,000 and documentation – $10,000.

What is the Estimate At Completion?

Answer: The Estimate At Completion is $300,000. Mastering the PMP Calculations – TestEagle.com

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How did we calculate this? In this example, the original estimates are bad because they are based on a flawed architecture approach. Therefore, we will calculate Estimate At Completion using the formula from scenario one: Estimate At Completion = Actual Cost + Bottom-up Estimate To Complete Knowing this we can calculate: $210,000 + ($50,000 + $30,000 + $10,000) = $300,000

Example 2

Tim is the project manager for an undersea cable company based in Cyprus. He is managing a project to lay an optical fiber cable from Naples to Palermo. The PMO has asked for an updated estimate of the total cost of the project. At the start of the project, the costs of the project were estimated as $1,600,000 for design and permitting, $18,750,000 for optical fiber costs, $4,500,000 for installation and $2,300,000 for testing of the cable. The Cost Performance Index of the project is currently 1.08.

What is the Estimate At Completion?

Answer: The Estimate At Completion is $25,138,888.89

How did we calculate this? In this example, the CPI is not considered abnormal. Therefore, a formula using CPI can be used. So we will calculate Estimate At Completion using the formula from scenario two: Estimate At Completion = Budget At Completion / Cost Performance Index Knowing this we can calculate: ($1,600,000 + $18,750,000 + $4,500,000 + $2,300,000) / 1.08 = $25,138,888.89

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Example 3

Gill is the project manager for a software company based in New York. She is managing a project to create a new accounting software package. During construction, the team realized that mistakes were made while collecting requirements. The mistake has now been fixed and a risk mitigation plan put in place. During a review of the project, the PMO has asked for an updated estimate of the total cost of the project. At the start of the project, the costs of the project were estimated as $200,000 for design, $300,000 for development, $200,000 for quality assurance. The project has spent $400,000 so far. The value of the work completed is $500,000. What is the Estimate At Completion?

Answer: The Estimate At Completion is $600,000

How did we calculate this? In this example, the CPI is considered abnormal. So we will calculate Estimate At Completion using the formula from scenario three: Estimate At Completion = Actual Cost + (Budget At Completion – Earned Value) Knowing this we can calculate: $400,000 + ($700,000 – $500,000) = $600,000

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Example 4

Rajesh is working on a project to create a new inventory management system for a food manufacturer in Sheffield, England. The CEO has told the shareholders that the new system will be in place in six months, without discussing this first with the PMO. At the start of the project, the costs of the project were estimated as $150,000 for design, $700,000 for development, $225,000 for quality assurance. The project has spent $450,000 so far. The CPI for the project is 0.9 and the SPI is 0.8. The value of the work completed is $375,000. What is the Estimate At Completion?

Answer: The Estimate At Completion is $1,422,222.23

How did we calculate this? In this example, the project has to meet a deadline. So we will calculate Estimate At Completion using the formula from scenario three: Estimate At Completion = Actual Cost +

[(Budget At Completion - Earned Value) / (Cost Performance Index X Schedule Performance Index)]

Knowing this we can calculate: = $450,000 + [($1,075,000 - $375,000) / (0.9 X 0.8)] = $450,000 + [$700,000 / 0.72] = $450,000 + $972,222.23 = $1,422,222.23

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Estimate To Complete (ETC) Estimate To Complete is a prediction of how much more money the project will cost to complete. The prediction is from now to the end of the project.

Actual Costs

ETC

Now

6 Months Ago

Project End

ETC Formula Estimate To Complete = Estimate At Completion - Actual Cost

Tip – AC is also known as Actual Cost of Work Performed (ACWP). So you may see the formula written as - ETC = EAC - ACWP

What does ETC mean?

The result of the ETC formula is a dollar amount (or rupees, pounds etc - you get the point). So what does this amount represent? Estimate To Complete tells you and the PMO (which may be more important), how much cash you need to finish the project. This information is crucial when trying to determine the future of a project. For example, imagine that the company you are working for is rationalizing its budget by cutting Mastering the PMP Calculations – TestEagle.com

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projects. You are working on a large project whose Actual Cost is $2.3 million. The PMO could say “This project has cost us $2.3 million and isn't even finished yet. Let’s cut the project - it’s bound to save us money”. But then you run the numbers and calculate that the Estimate To Complete is $20,000. So you respond by saying “Hey but we only need $20,000 to finish the project. And the Earned Value of the project is $3.4 million. So cutting the project makes no sense.”

Example of Calculating ETC Joe is the project manager for a software development company based in Vancouver. He is managing a project to create a new sports news app. So far the project has spent $430,000. The predicted total cost of the project is $650,000. What is the Estimate To Complete?

Answer: The Estimate To Complete is $220,000.

How did we calculate this? Well we know that Estimate To Complete = Estimate At Completion - Actual Cost. The EAC is $650,000.

Tip – The PMP exam may use slightly different descriptions to describe the input to a formula. This is to test your knowledge and make sure you understand what you are calculating. EG “predicted total cost of the project is” is another way of saying Estimate At Completion.

The AC is $430,000. (“the project has spent” is another way of saying Actual Cost). Knowing this we can calculate Estimate To Complete = $650,000 - $430,000 = $220,000 Mastering the PMP Calculations – TestEagle.com

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To-Complete Performance Index (TCPI) To-Complete Performance Index (TCPI) is an estimate of the performance needed to achieve a goal.

Imagine you are the driver of a freight train 5506. You are due in Boston by 4:00pm.

It is now 2:40pm and you have 80 miles to go.

Your TCPI is the speed you need to squeeze out of 5506 to arrive in Boston by 4:00pm.

TCPI Formulas As with EAC, there is more than one formula for TCPI. One formula is based on the BAC; the other is based on EAC.

Scenario 1 - BAC is valid

We know that BAC is an estimate of the project cost that you created at the start of the project. If this estimate is still valid, use this formula:

To-Complete Performance Index =

(Budget At Completion - Earned Value) (Budget At Completion - Actual Cost)

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How do you know if the BAC is still valid? Remember that the BAC is estimated at the start of the project based on certain assumptions. If any of those assumptions aren’t valid anymore, don’t use this formula. For example, one of those assumptions for the tablet project was probably that you need x people working x hours a day to finish the project on time. (EG I need 200 people working 6 hours per day to finish this project in four months). If the project now has to be complete in two months, then you will probably need more people or to work longer hours. (Actually it will most likely be both...) So in this case the BAC is no longer valid and this formula should not be used.

Scenario 2 - BAC is no longer valid

If the BAC is invalid, use this formula:

To-Complete Performance Index =

(Budget At Completion - Earned Value) (Estimate At Completion - Actual Cost)

What does TCPI mean?

After calculating the TCPI, you will have an index value that you can compare to the current CPI. This will give you an idea of how likely you are to achieve what is being asked. For example, if the current CPI is 0.97 and the TCPI is 1.45 then more funds will be needed to complete the project by the required date.

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Example of Calculating TCPI

Example 1

Let’s see an example. John is the project manager on a project to install new light fixtures in a hotel in Houston. The hotel is currently closed and the light fixtures are being replaced as part of a refurbishment. The project is estimated to last for six months. The project is due to be completed in two months. At the start of the project, John estimated that the project would cost $120,000 to complete. The costs incurred by the project so far are $80,000. John has also estimated that the value of the work completed so far is $85,000. At a recent meeting with the stakeholder, he was informed that the hotel will be opening ahead of schedule and that the project needs to be completed in one month. What is the To-Complete Performance Index?

Answer: The TCPI is 0.875

How did we calculate this? In this example, the BAC is $120,000. The EV is $85,000 and the AC is $80,000. The BAC can be considered valid. Why? The BAC was estimated to be $120,000. The project is two thirds complete (four months work has been completed on a six month project). The AC is $80,000 which is exactly what you would expect two thirds of the way through the project. So we will calculate the TCPI using the formula from Scenario 1:

To-Complete Performance Index =

(Budget At Completion - Earned Value) (Budget At Completion - Actual Cost)

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To-Complete Performance Index =

($120,000 - $85,000) ($120,000 - $80,000)

To-Complete Performance Index =

$35,000 $40,000

To-Complete Performance Index = 0.875

Example 2

Let’s see an example. Greg is the project manager on a project to create a new mobile sharing app. The project is due to go live in twelve months. The project is due to be completed in four months. At the start of the project, Greg estimated that the project would cost $2,400,000 to complete. The costs incurred by the project so far are $2,100,000. John has also estimated that the value of the work completed so far is $1,200,000. At a recent meeting with the stakeholder, he was informed that the project must now go live in two months. After the meeting John estimated that the total project will cost $2,700,000. What is the To-Complete Performance Index? Answer: The TCPI is 2 How did we calculate this? In this example, the BAC is $2,400,000. The EV is $1,200,000 and the Actual Costs are $2,100,000. The BAC cannot be considered valid. Why? The BAC was estimated to be $2,400,000. The project is three quarters complete (eight months work has been completed on a twelve month project). So you would expect the AC to be $1,600,000. However the AC is $2,100,000 - a discrepancy of $500,000.

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So we will calculate the TCPI using the formula from Scenario 2:

To-Complete Performance Index =

(Budget At Completion - Earned Value) (Estimate At Completion - Actual Cost)

To-Complete Performance Index =

($2,400,000 - $1,200,000) ($2,700,000 - $2,100,000)

To-Complete Performance Index =

$1,200,000 $600,000

To-Complete Performance Index = 2

Communication Channels Calculating the number of communication channels on a project is important for two reasons. First of all it gives you an idea of how complex the communication will be on the project. More communication channels mean more complexity. Secondly, it’s likely that there will be a question about communication channels on the exam!

Communication Channels Formula The formula for calculating communication channels is: Communication Channels = [N(N-1)] / 2 N = the number of people & stakeholders on the project.

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What does the Communication Channel value mean?

The Communication Channel value shows you the number of communication channels on a project. Communication is a vital part of any project. Emails are created, reports are written and change requests are documented. These communications then need to reach their recipients. So communication flows back and forth between team members and stakeholders via communication channels. These channels could be email, status reports, meetings, instant message - basically any way of sending and receiving the communication.

In the example below there are four people involved in the project. This creates six communication channels.

1 Project Manager

Customer

5 6

2

4

3 Analyst Mastering the PMP Calculations – TestEagle.com

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Example of Calculating Communications Channels Let’s see an example. Tim is a project manager on a project to build a new hospital in northern California. His team consists of 86 laborers, 2 foreman, 1 head foreman and 2 assistant project managers. The hospital board of trustees has assigned 2 people to monitor progress on the project. How many communication channels are there?

Answer: There are 4,371 communication channels on this project.

How did we calculate this? First we calculate N = 86 + 2 + 1 + 2 + 2 + 1 = 94 Now we can calculate the number of communication channels. Communication Channels = [N(N-1)] / 2 Communication Channels = [94(94-1)] / 2 Communication Channels = [94(93)] / 2 Communication Channels = 8,742 / 2 Communication Channels = 4,371

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PMP Formula Cheat Sheet Name Actual Cost

Acronym AC

Formula None - calculate all the costs incurred by the project as of the point in time you are measuring.

Budget At Completion

BAC

Planned Value Earned Value Cost Variance Schedule Variance Cost Performance Index Schedule Performance Index Estimate At Completion

PV EV CV SV CPI SPI EAC

None - calculate how much money you believe you will need to complete the project. Planned % Complete X BAC Percent Complete * Budget At Completion Earned Value – Actual Cost Earned Value – Planned Value Earned Value / Actual Cost Earned Value / Planned Value Scenario 1 – Original estimate is no longer valid Actual Cost + Bottom-up Estimate To Complete Scenario 2 – CPI will stay the same for the rest of the project Budget At Completion / Cost Performance Index Scenario 3 – Current CPI is abnormal Actual Cost + (Budget At Completion – Earned Value)

Estimate To Complete To-Complete Performance Index

ETC TCPI

Scenario 4 – Project has to meet a deadline Actual Cost + [(Budget At Completion - Earned Value) / (Cost Performance Index X Schedule Performance Index)] Estimate At Completion - Actual Cost Scenario 1 - BAC is valid (Budget At Completion - Earned Value) (Budget At Completion - Actual Cost) Scenario 2 - BAC is no longer valid (Budget At Completion - Earned Value) (Estimate At Completion - Actual Cost)

Communication Channels

[N(N-1)] / 2

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"PMI", "PMP", "PgMP", "CAPM", and "PMBOK Guide" are trademarks of Project Management Institute, Inc.

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