Learning PMP Formulas the Easy Way A step by step process to learn the formulas needed to pass the PMP® examination

Agenda The purpose of this presentation The PMP® examination and formulas The formulas you need to know for the test The formulas explained How to learn the formulas the “easy” way Test yourself – time to prepare What to do - pre-exam Your ready!

The Purpose of this Presentation This presentation has 3 goals: To explain the formulas that you will need to know for the PMP® Examination To give you an easy-to-learn method to remember these formulas To ensure that you can quickly reproduce these formulas on paper before you start the PMP® exam

The PMP® examination and formulas Some things to know before the test: Do not get intimidated by the formulas The formulas are not hard to learn If you follow my step by step plan it’s easy With a little practice you should be able to write them down in 5 minutes! Let’s get started!!!!!!!!!!!!

The Formulas You Need to Know for the Test These are the first 5 formulas you will need to know: Present Standard Activity PERT Communication Value Deviation Variance (3 Point Est.) Channels FV C (R + 1) Where: FV = Future Value R = Interest Rate n = # of time periods P - O 6 Where: P = Pessimistic Time O = Optimistic Time Where: P = Pessimistic Time O = Optimistic Time P + (4M) + O 6 Where: P = Pessimistic Time M = Most Likely Time O = Optimistic Time N (N – 1) 2 Where: N = Number of People P - O 6 2 n

The Formulas Explained - First 5 1. Present Value Present value means - the value today of future cash flows FV = Future Value R = Interest Rate n = Number of periods FV (R + 1) n

The Formulas Explained - First 5 2. Activity Standard Deviation This can be used for both Time and Cost estimates The + or – an activities/cost range P = Most Pessimistic Time or Cost estimate for an activity O = Most Optimistic Time or Cost estimate for an activity P - O 6

The Formulas Explained - First 5 3. Activity Variance This can be used for both Time and Cost estimates Represents variances of critical path activities P = most Pessimistic Time or Cost estimate for an activity O = most Optimistic Time or Cost estimate for an activity Note: Remember to Square the result which is a fancy way of multiplying the result times itself 2 P - O 6

The Formulas Explained - First 5 4. Three Point Estimate (PERT) This can be used for both Time and Cost estimates Also Known as Expected Activity Duration EAD + or – SD gives you a range for an individual activity estimate ex) an activity can take 25 days + or – 3 days P = Most Pessimistic Time or Cost estimate for an activity M = Most Likely Time or Cost estimate for an activity O = Most Optimistic Time or Cost estimate for an activity P + (4M) + O 6

The Formulas Explained - First 5 5. Communication Channels This formula is used to calculate the number of communication channels required for the number of stakeholders. It will give an indication of how complex a project’s communications will be. N = Number of Stakeholders (People) N (N – 1) 2

The Formulas You Need to Know for the Test These are the next 4 formulas you will need to know: 4 key terms you need to know before we start: PV = Planned Value – As of today what is the amount of work that should be completed? EV = Earned Value – As of today what is the amount of work that is actually accomplished? AC = Actual Cost – As of today what is the actual cost incurred for the work accomplished BAC = Budget at Completion – How much did we budget for the total project??

The Formulas You Need to Know for the Test These are the next 4 formulas you will need to know: CV SV CPI SPI Cost Schedule Cost Schedule Variance Variance Performance Performance Index Index EV – AC Where: EV = Earned Value AC = Actual Cost EV – PV Where: EV = Earned Value PV = Planned Value EV / AC Where: EV = Earned Value AC = Actual Cost EV / PV Where: EV = Earned Value PV = Planned Value

The Formulas Explained - Next 4 6. CV - Cost Variance EV – AC The difference between Earned Value and Actual Cost Negative value = Cost Overrun or over budget Positive value = on or under cost or under budget Are we under or over budget  1.0 or greater is good EV = Earned Value AC = Actual Costs

The Formulas Explained - Next 4 7. SV - Schedule Variance EV – PV The difference between Earned Value and Planned Value Negative value = behind schedule Positive value = on or ahead of schedule Are we ahead or behind schedule  1.0 or greater is good EV = Earned Value PV = Planned Value

The Formulas Explained - Next 4 8. CPI - Cost Performance Index EV / AC The ratio of Earned Value to Actual Cost Value < 1 = Cost over budget Value > 1 = Cost below budget How efficiently are we using our resources Ex) We are only getting about 89 cents out of every dollar we put into the project – THIS IS BAD EV = Earned Value AC = Actual Costs

The Formulas Explained - Next 4 9. SPI - Schedule Variance EV / PV The ratio of Earned Value to Planned Value Value < 1 = behind schedule Value > 1 = on or ahead of schedule How efficiently are we using time Ex) We are only progressing at about 83 percent of the rate planned – THIS IS BAD EV = Earned Value PV = Planned Value

The Formulas You Need to Know for the Test These are the next 4 formulas you will need to know: EAC ETC TCPI VAC Estimate at Estimate to To Complete Variance at Completion Complete Performance Completion Index BAC / CPI Where: BAC = Budget at Completion CPI = Cost Performance Index EAC – AC Where: EAC = Estimate at Completion AC = Actual Cost BAC - EV BAC - AC Where: BAC = Budget at Completion EV = Earned Value AC = Actual Cost BAC - EAC Where: BAC = Budget at Completion EAC = Estimate at Completion

The Formulas Explained - Next 4 10. EAC - Estimate at Completion BAC / CPI The ratio of Budget at Completion to Cost Performance Index This formula is used if no variances from the BAC have occurred A forecasting formula or AC + (BAC – EV) calculates the actual to date plus remaining budget – Ac plus the remaining work to perform As of now, how much do we expect the total project to cost BAC = Budget at Completion CPI = Cost Performance Index (EV / AC)

The Formulas Explained - Next 4 11. ETC - Estimate to Complete EAC - AC The difference between the Estimate at Completion ratio and the Actual Costs to date This is a forecasting formula From this point on, how much more do we expect it to cost to finish the project cost or what will the remaining work cost EAC = Estimate at Completion AC = Actual Cost

The Formulas Explained - Next 4 12. TCPI - To Complete BAC - EV Performance Index BAC - AC The ratio of Budget at Completion to Earned Value divided by the ratio of Budget at Completion to Actual Cost This formula divides the work remaining to be done by the money remaining to do it Ex) By how much does our performance need to improve, in order come on in time and on budget BAC = Budget at Completion EV = Earned Value AC = Actual Cost

The Formulas Explained - Next 4 13. VAC -Variance at Completion BAC – EAC The difference between the Budget at Completion and the Estimate at Completion ratio This is a variance formula Ex) As of today will we be under or over budget at the end of the project EAC = Estimate at Completion BAC = Budget at Completion

The Formulas You Need to Know for the Test These are final 3 formulas you will need to know: EMV TOTAL PTA Expected FLOAT Point of Total Monetary Value Assumption P x I Where: P = Probability I = Impact ES EF LS LF [(CP –TP) / BSR] + TC Where: CP = Ceiling Price TP = Target Price BSR = Buyers Share Ratio TC = Target Cost LS – ES or LF - EF

The Formulas Explained - Final 3 14. EMV - Expected Monetary Value P x I Used to determine the overall ranking of risks. A better way than evaluating just the probability or impact. P = Probability I = Impact

The Formulas Explained - Final 3 15. Total Float = LS - ES or LF - EF Use this formula to compute float of activities We always begin “Late” so start each formula as LS or LF Used to evaluate delay or slack on activities thus determining resource allocation Remember activities on the “Critical Path” almost always have zero float LS = Late Start ES = Early Start Note: Either formula LF = Late Finish EF = Early Finish will get the same answer ES EF Amount of Float LS LF

The Formulas Explained - Final 3 16. PTA - Point of Total Assumption [(CP –TP) / BSR] + TC Only applies to Fixed Price incentive fee contracts Refers to the amount above which the seller bears all the loss of a cost overrun Costs that go above the PTA are assumed to be due to management CP = Ceiling Price TP = Target Price BSR = Buys Share Ratio TC = Target Cost

How to Learn the Formulas the “Easy” Way OK let’s put it all together…. Get a regular piece of 8” x 11” paper Draw a vertical line 2” across from the left side of the paper Draw a horizontal line 3” down from the top of the paper

How to Learn the Formulas the “Easy” Way Above the horizontal line put your first 5 formula names: PV SD SDV PERT CC Future Standard Standard Expected Communication Value Deviation Deviation Activity Channels Duration Notice we start with the “present” - PV. But these are “standard” formulas, so write SD twice and take the “V” from the first formula PV and put it at the end of your second SD to make SDV. Next remember to wash your hair with “PERT” Last, you’re tired so have a “CC” on the rocks – Communication Channels

How to Learn the Formulas the “Easy” Way Next write in your first 5 formulas under them: PV SD SDV PERT CC FV (R + 1) P - O 6 P - O 6 P - O 6 N (N – 1) 2 n For the first formula just know that for the Present we must know the Future divided by it’s Rate +1. Don’t forget that the Rate + 1 result must always be taken to the n power where n = number of time periods. Ex) if the rate was 0.1 and the number of time periods were 3 years then the result would be: (1 + 0.1) = 1.331 Notice I wrote all the SD, SDV and PERT formulas the same for now because basically they are. 3

How to Learn the Formulas the “Easy” Way Next write in your first 5 formulas under them: PV SD SDV PERT CC 2 FV (R + 1) n P - O 6 P - O 6 P + (4M) + O 6 N (N – 1) 2 For the next three formulas just know that always start out the same P – O / 6. For SDV just square it. For PERT remember that P-E-R-T is 4 letters, so you must have 4 pieces to the formula the P (Pessimistic) and O (Optimistic), but have to drop the M (Most Likely) x 4 in the middle. The name “Communication Channels” has 4 “N’s” in it and is the only formula with an N in it – N standing for number of people always divided by 2.

How to Learn the Formulas the “Easy” Way Above the horizontal line should look like this: FV SD SDV PERT CC 2 FV (R + 1) n P - O 6 P - O 6 P + (4M) + O 6 N (N – 1) 2

How to Learn the Formulas the “Easy” Way Now below the horizontal line write the 4 key terms: EV AC PV BAC Remember: EV = Earned Value AC = Actual Cost PV = Planned Value BAC = Budget at Completion

How to Learn the Formulas the “Easy” Way Next the inside vertical line write the next 8 formulas: CV SV CPI SPI EAC ETC TCPI VAC Notice the first 4 are COST and SCHEDULE alternating starting with “C” – COST. Do the “V” Variance before you do the “PI” Index After you know your COST and SCHEDULES you can then “E” Estimate. Just remember “A” in EAC comes before “T” in ETC After you Estimate you can Complete Performance. Just remember “T” comes after “E”. After Completing Performance, how much you will be over or under budget at the end of the project. Just remember “V” comes after “T”.

How to Learn the Formulas the “Easy” Way Next to the first 4 formulas, write the following: CV = EV - SV = EV - CPI = EV / SPI = EV / EAC ETC TCPI VAC Notice the first 4 formulas all start with EV Variances “V” are minus Indexes “I” are divides

How to Learn the Formulas the “Easy” Way Now complete the next parts of the formulas: CV = EV - AC SV = EV - PV CPI = EV / AC SPI = EV / PV EAC ETC TCPI VAC Notice that the Cost formulas are the same the only difference is the minus or divide signs Notice that the Schedule formulas are the same the only difference is the minus or divide signs For COST, “A” is closer to “C” so put in AC For SCHEDULE, “P” is closer to “S” so put in SV

How to Learn the Formulas the “Easy” Way Now complete the next 2 formulas: CV = EV - AC SV = EV - PV CPI = EV / AC SPI = EV / PV EAC = BAC / CPI ETC = EAC - AC TCPI VAC Notice that the first part of the EAC formula contains BAC – both have “AC” in it. EAC has a “C” in it – the closest formula up the chain with a “C” in it is CPI so put it in your done. Remember to divide in this formula! It is the only one left where you have to divide. Note: EAC can also be written as AC + (BAC – EV) just a little twist but contained in CPI For ETC, notice you must have completed EAC before it, which becomes the first part of this formula. The next part “AC” is contained in the first part of the formula.

How to Learn the Formulas the “Easy” Way CV = EV - AC SV = EV - PV CPI = EV / AC SPI = EV / PV EAC = BAC / CPI ETC = EAC - AC TCPI = BAC - EV BAC - AC VAC = BAC - EAC Now complete the last 2 formulas: TCPI is the easiest formula of them all. Start off by drawing a divide line and write BAC above and below it and write 2 minus signs - you’re 50% done already! TCPI has CPI in it. Now look at the formula for CPI it contains EV/AC. Just use that to complete the formula – you’re done! For VAC use the BAC in the previous formula. Notice VAC has “AC” in it. The closest formula up the chain that has “AC” in it is EAC. Put it in the formula – you’re done! Notice each formula in the chain relies on a previous formula that you constructed?

How to Learn the Formulas the “Easy” Way In the middle of your page add the last 3 formulas: EMV = P x I FLOAT = LS - ES or LF - EF POTA = [(CP - TP) / BSR] + TC Note: These you will just have to know

How to Learn the Formulas the “Easy” Way EMV = P x I FLOAT = LS - ES or LF - EF EMV – Probability x Impact is easy to remember ES EF FLOAT LS LF FLOAT – We always start late and subtract the value above it in the box. Write this box down, it may become useful if questions are asked about coming up with a critical path or forward or backwards path of an activity.

How to Learn the Formulas the “Easy” Way POTA = Point of Total Assumption POTA = [(CP - TP) / BSR] + TC POTA - the first half of the formula both contain “P” = PRICE. Remember you have to jump to the “C” ceiling to hit (minus) a “T” target. Never forget any buyer always gets his share so you have to divide out his “BSR” Buyers Share Ratio. But costs are always around so and you always have to add back his “TC” Target Cost

How to Learn the Formulas the “Easy” Way Those are the formulas to know for the exam Just remember to set up the sheet the way I laid it out for you and you will do fine. Now it’s time to test yourself – don’t get nervous, it’s easy!

Test Yourself – Time to Prepare Study the formulas until you feel confident in being able to recite them. Practice writing them down using my “T” bar on a sheet of paper. Everyday practice writing them down 5 times. If you make mistakes, understand why and correct it. Talk yourself through writing them down using my formula memory method. Do this for two weeks at different times of the day.

What to do - Pre-Exam When you feel confident with knowing the formulas: Get an egg timer or have someone time you. Write down the formulas as fast as you can – start off with 15 minutes maximum. Initially, see how long it took you for this first attempt. Use this initial time as your starting point. Do this 5 times a day, if you make any mistakes, review the reason(s) why. Every few days try to take off 1 to 2 minutes your time A week before the exam you should be able to write them down in 5 minutes

Your ready! On the day of the exam you will be given 3 sheets of blank paper to use for math problems. Before the actual exam starts on the computer you will have 15 minutes to view a computer tutorial to become familiar with the computer commands for the test. Use part of this this time to write down the formulas on one side of a blank piece of paper Use this paper as your guide throughout the exam for questions concerning formulas – it is perfectly OK to do this!!!!! Remember: if you need more paper you will have to turn in used sheets – don’t worry you’ll never need more paper. GOOD LUCK and do not worry – you will pass !!!!!!!!!!!