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Do you:
Our web-based study guide lets you The practice exam questions are all written
study when and where you want. using the PMBOK® 4th edition.
BAC
TCPI
EV SV
CV PV
SPI
ETC 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)
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.
Answer: $453,000.
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.
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.
Answer: $343,000.
Tip – The $20,000 of ongoing maintenance was not included as this is not part of the
project to install the fence.
PV Formula
Example of Calculating PV
Answer: $1,150,000.
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:
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.
Answer: $13,500,000.
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.
CV Formula
The formula produces a dollar amount (or pounds, rupees etc). But what does this mean?
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.
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”).
SV Formula
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.
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.
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.
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
Tip – EV is also known as Budgeted Cost of Work Performed (BCWP). And AC is also
known as Actual Cost of Work Performed (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.
Cost Performance Index answers the question “We’re investing in this project, but what is the
return?”
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
In other words, the Schedule Performance Index shows whether your project will deliver late,
on time or early.
SPI Formula
Tip – EV is also known as Budgeted Cost of Work Performed (BCWP). PV is also known as
Budgeted Cost of Work Scheduled (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?”.
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.
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.
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
Each formula tackles a different scenario that you may face on your project.
Or circumstances may have changed so much that the estimates you have are no longer valid.
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.
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.
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:
To calculate the Estimate At Completion for such a project you need to take into account the
Schedule Performance Index and Cost Performance Index.
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.
Therefore, we will calculate Estimate At Completion using the formula from scenario one:
Estimate At Completion = Actual Cost + Bottom-up Estimate To Complete
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.
How did we calculate this? In this example, the CPI is not considered abnormal.
So we will calculate Estimate At Completion using the formula from scenario two:
Estimate At Completion = Budget At Completion / Cost Performance Index
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.
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)
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.
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)]
= $450,000 + $972,222.23
= $1,422,222.23
ETC Formula
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.
For example, imagine that the company you are working for is rationalizing its budget by cutting
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.”
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.
How did we calculate this? Well we know that Estimate To Complete = Estimate At Completion
- Actual Cost.
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 Schedule Performance Index = $650,000 - $430,000 = $220,000
TCPI Formulas
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.
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 the cost performance needs to
improve by 49%.
Example 1
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.
How did we calculate this? In this example, the BAC is $120,000. The EV is $85,000 and the AC
is $80,000.
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.
Example 2
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.
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).
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 is a vital part of any project. Emails are created, reports are written and change
requests are documented.
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.
5 4
6 2
3
Analyst Developer
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.
Budget At Completion BAC None - calculate how much money you believe you will need to
complete the project.
Planned Value PV Planned % Complete X BAC
Earned Value EV Percent Complete * Budget At Completion
Cost Variance CV Earned Value – Actual Cost
Schedule Variance SV Earned Value – Planned Value
Cost Performance Index CPI Earned Value / Actual Cost
Schedule Performance Index SPI Earned Value / Planned Value
Estimate At Completion EAC 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