PMBOK Project Management Secret Formulas

  • 12th April 2017
  • News

Useful PMBOK formulas to help your projects

At Wyamee, we’re working towards our PMBOK Project Management Professional (PMP) qualification.

The qualification is accredited with the Project Management Institute (PMI), which sets the international standards for project management best practices.

As part of the 1000 hours of clocked in managing projects and learning the framework, we thought it would only be fair to share some of the best practices.

This will be one of many blogs we share to hopefully help businesses or anyone studying for their PMBOK PMP exam – Jamie Prangnell

Stick with it because we didn’t pass the exam first time, there’s a big mountain of knowledge to disseminate and understand.

We’re practitioners so although the theory is really helpful, it doesn’t become relevant until you work on actual projects.

Todays post is all about some of the formulas you can use to help you plan, manage, deliver, monitor & control, and close your projects.

Remember what your 5 process groups are, because it will help you understand where the formulas are applied in the context of the project:

  • Initiate
  • Plan
  • Execute
  • Monitor and Control
  • Close

 

Schedule Performance Index (SPI)

The Schedule Performance Index formula is designed to calculate whether your project is behind, on time, or ahead of schedule.  The important thing to remember is what the different positive or negative values mean:

Schedule Performance Index SPI

< 1 : The project is behind schedule

= 1 : The project is on schedule

> 1 : The project is ahead of schedule

 

Case Study

  • Total cost of project = £780,000
  • At the 3 week mark it’s behind by 1 week
  • Cost so far = £390,000

Calculation

  • (3 weeks – 1 week = 2 weeks)
  • Actual % complete = 2 / 5 = 0.4
  • EV = 0.4 * £780,000 (BAC) = £312,000
  • PV = planned % complete * BAC
  • 3 / 5 = 0.6 (60%)
  • 0.6 * £780,000 = £468,000
  • SPI = £312,000 / £468,000 = 0.67

 

Cost Performance Index (CPI)

The Cost Performance Index formula is similar to schedule performance index, but is used to calculate whether your project is under, on cost, or over budget.

The important thing to remember is what the different positive or negative values mean:

Cost Performance Index CPI Formula

  • < 1 : Over budget
  • = 1 : On budget
  • > 1 : Under budget

Case Study

Scenario: Developing a software CRM platform
System Discovery = 35 days
UI / UX Design = 10 days
Prototyping = 5 days
Total cost of project £137,000
Cost of prep = £121,000

 

Calculations

We need to calculate the EV (Actual % Complete * budget at completion – BAC)

  • Beginning of day 36
  • 36 / 50 = 0.72
  • 0.72 * $137,000 = $98.640

We now need to know the Actual Cost (AC).

  • CPI = EV / AC
  • $98.640 / $121,000 = 0.815 (0.82)

 

Actual Cost (AC)

Here’s a nice easy one for you.  The ‘Actual Cost’ is the total cost incurred for the actual work completed so far.

The actual cost used to calculate both the ‘Cost Variance’ and the ‘Cost Performance Index’

Actual Cost Formula

Case Study

You have a project to be completed in 12 months and the total cost of the project is £100,000. Six months have passed and £60,000 has been spent, but on closer review you find that only 40% of the work has been completed so far.

Calculations

£100,000 – £60,000
Answer = £60,000

 

Planned Value (BCWS)

The Planned Value, which is also known as ‘Budgeted Cost for Work Scheduled’ (BCWS), is the authorised budget assigned to work to be completed for an activity or WBS component.

You calculate the Planned Value before actually doing the work, which also serves as your baseline for the project.

Planned Value BCWS Formula

Case Study

The project has been scheduled to take 16 weeks. Total cost is set to £500,000. At 7 weeks it 1 week behind schedule and the cost so far is £250,000.

Calculations

7 / 16 = 0.4375 (43.75%)
Multiply this with BAC

PV = 0.4375 * £500k = £218,750

 

Earned Value (EV or BCWP)

The Earned Value, which is also known as ‘Budgeted Cost for Work Performed’ (BCWP), is the value of the work actually completed so far.

Try not to get it confused with Planned Value.

  • Planned Value shows you how much value you have planned to earn in a given time
  • Earned Value shows you how much value you have actually earned on the project.

If the project is terminated today, the Earned Value will show you the value that the project has produced.

Earned Value EV

Case Study

You have a project to be completed in 12 months and the total cost of the project is £100,000.

Six months have passed and £60,000 has been spent, but on closer review you find that only 40% of the work has been completed so far.

Calculations

  • Earned Value = 40% of the value of total work
  • = 40% of BAC
  • = 40% of 100,000
  • = 0.4 X 100,000
  • EV = 40,000

 

Schedule Variance (SV)

Schedule Variance is a very important analytical tool for you. This tool gives you information needed to determine if you are ahead of schedule or behind the schedule in terms of pounds.

The different between Schedule Variance and the Schedule Performance Index is:

  • Schedule Performance Index (SPI) is the ratio of work accomplished versus the work planned.
  • Schedule Variance, is the measured difference between the planned or scheduled activity duration and the actual activity duration

Schedule Variance SV Formula

 

  • Negative value = Behind Schedule
  • Equals zero = On schedule
  • Positive value = Ahead of schedule

Case Study

£205,000 Total Estimate

10 weeks estimate

After 5 weeks it is half a week ahead at cost of £143,000

 

Calculations

  • Planned % Complete at this point is 50% (5/10 = 0.5)
  • PV = Planned % Complete * BAC = 50% * $205,000 = $102,500
  • EV = 5.5 weeks / 10 weeks = 0.55 (55%)
  • Actual & Complete * BAC = 55% * $205,000 = $112,750
  • SV = EV – PV ($112,750 – $102,500 = $10,250)

 

Cost Variance (CV)

Cost Variance deals with the cost baseline of the project. It provides you with information about whether you are over budget or under budget, in terms of dollars. Cost Variance is a measure of cost performance of a project.

Cost Variance CV

 

  • Negative = Over budget
  • Zero = On budget
  • Positive = Under budget

Case Study

Scheduled to take 8 weeks

Total cost is set at £78,000

At 5 weeks, it is 1.5 weeks behind schedule and the cost so far is £45,000.

It’s costing £9,750 per week

At 5 weeks it should equal = £48,750

AC = £45,00

 

Calculation

  • Behind by 1.5, so after 5 weeks – 1.5 = 3.5
  • 3.5 / 8 = 0.4375
  • Now multiply this by the BAC (0.4375 * £78,000 = £34,125)
  • CV is then calculated by subtracting the actual cost (AC) from the EV:
  • CV = EV – AC
  • £34,125 – £45,000 = -£10,875

 

Estimate At Completion (EAC)

The Estimate at Completion (EAC) gives you the forecasted value of the project when it is completed.

With this data it can forecast how much you may have to spend to complete the project. In other words, it is the amount of money that the project will cost.

Estimate at Completion EAC

Case Study

Project budget set at £1,100,000 for an 8 month duration.

Total spent so far:

Month. 1 EV = 47000 AC = 39000 CPI = 1.20
Month 2 EV = 177100 AC = 168500 CPI = 1.05
Month 3 EV = 139500 AC = 157900 CPI = 0.88
Month 4 EV = 151800 AC = 160750 CPI = 0.96

 

Calculations

What is the Estimate at Completion after 4 months?

EV Total = 515,400

AC Total = 526,150

EV / AC = 0.98

EAC = £1,100,000 / 0.98 = £1,122,000

 

Estimate At Completion (EAC)

Expanded formula for different contexts

  • EAC = BAC / CPI If the CPI is expected to be the same for the remainder of the project then the EAC could be calculated using the above formula.
  • EAC = AC + BAC – EV If the future work will be accomplished at a planned rate then the EAC could be calculated using the above formula.
  • EAC = AC + Bottom up ETC If the initial plan is no longer valid, then the EAC could be calculated using the above formula
  • EAC = AC + (BAC – EV ) / (CPI * SPI ) If both the CPI and SPI influences the remaining work, then the EAC could be calculated using the above formula

 

Estimate To Completion (ETC)

Estimate to complete (ETC) is a forecast of how much more money will need to be spent to complete the project.

Estimate To Completion ETC

Case Study

Total AC = £192,250

Total EV = £179,150

The cumulative CPI is £179,150 / £192,250 = 0.93

 

Calculation

EAC = £392,000 / 0.93 = £421,505

ETC = £421,505 – £192,250 = £229,255

 

Variance At Completion (VAC)

Variance At Completion (VAC) is the variance between the Estimate At Completion and the Budget at Completion.

This is the difference between what the project was originally expected (baselined) to cost, versus what it is currently estimated to cost.

This formula is nice and simple

Variance At Completion VAC

Case Study

  • Total budget £1,250,000
  • EV = £555,400
  • AC = £566,150

 

Calculation

  • EV / AC = 0.98
  • EAC = £1,250,000 / 0.98 = £1,275,510
  • VAC = £1,250,000 – £1,275,510 = -£25,510

 

Number of Communication Channels

Communication is key in project management when you’re delivering a big and complex project.

Project managers can spend up to 90% of their time communicating with stakeholders or team members.

Additionally issues that often materialise on projects  stem back to communication problems.

One critical aspect of planning is understanding how many different routes (channels) communications can take on a project and this formula helps this.

calculating the number of communication channels

Case Study

You’re running a project and have 10 stakeholder, but recently it was reduced to 6.

How many fewer potential communication channels do you have?

Calculations

  • Calculation 1: 10 * 9 / 2 = 45
  • Calculation 2: 6 * 5 / 2 = 15
  • Final calculation: 45 – 15 = 30

 

Expected Value (EV) or PERT Estimation

This is also known as the Three Point Estimate. PERT is used to calculate the expected activity duration and stands for:

PERT Three Point Estimate

PERT formula

Case Study

You’re working on a new software project and are scoping out all the individual requirements into individual work breakdown packages.

  • Most likely = 8 days
  • Best case = 4 days
  • Worse case = 18

Calculation

4 + (4 * 8) + 18 / 6

4 + 32 + 18 = 54 / 6 = 9

 

 

 

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