## Important PMP Formulas for Examination

Project Management Professional (PMP) certification exam requires solving quantitative questions as well. Though the calculations are not elaborate but considering the length of the test recalling some formulas can be a challenge. Important PMP formulas that are required for the exam are listed below.

Contents

- 1 Important PMP Formulas for Examination
- 2 1. Project Selection Methods
- 3 2. Program Evaluation and Review Technique (PERT)
- 4 3. Critical Path Method (CPM)
- 5 4. Project Budget
- 6 5. Earned Value Management
- 7 6. Number of Communication Channels
- 8 7. Statistics
- 9 8. Expected Monetary Value (EMV)
- 10 9. Procurement Management
- 11 Read posts related to PMP Certification
- 12 View Other Resources
- 13 Author’s Profile

## 1. Project Selection Methods

### (a) Net Present Value (NPV)

Present Value (PV) = Future Value (FV) / (1+k)^{N}

- k = discounting factor / interest rate
- N = Number of time periods

NPV = [Sum of present value of all future cash inflows] – [Sum of present value of cash outflow]

- NPV > 0 Accept the project
- NPV < 0 Reject the project
- While evaluating two or more projects select the project with greater NPV

### (b) Internal Rate of Return (IRR)

- IRR is the discount rate at which NPV = 0
- Select the project with higher IRR
- IRR > k accept the project

### (c) Benefit Cost Ratio (BCR) / Cost Benefit Analysis (CBA)

Ratio of sum of present value of all cash inflows to sum of present value of all cash outflows

- BCR > 1 Accept the project
- BCR < 1 Reject the project

### (d) Payback Period

Length of time it takes to recover investments done in a project before the project starts generating profit.

- Select projects with smaller payback period

## 2. Program Evaluation and Review Technique (PERT)

### (a) Three Point Estimates Based On Beta Distribution

- Activity Duration / Cost Estimates = (P + 4M + O) / 6
- P = Pessimistic Value

- M = Most Likely Value
- O = Optimistic Value

- Standard Deviation = (P – O) / 6
- Variance = (Standard Deviation)
^{2}= (P – O)^{2}/ 36

### (b) Three Point Estimates Based On Triangular Distribution

- Activity Duration / Cost Estimates = (P + 4M + O) / 3

## 3. Critical Path Method (CPM)

### (a) If The Convention That Project Starts On Day Zero (0) Is Adopted

Early Start (ES) =

- 0 for the first activity
- The earliest finish time of the immediately preceding activity.
- For activities with more than one preceding activity ES is latest of the earliest finish times of the preceding activities.

Early Finish (EF) = ES + Activity Duration (D)

Late Finish (LF) =

- LF of the last activity is equal to the EF of that activity
- The latest start time of the activity that immediately follows
- For activities with more than one activity that immediately follow, LF is the earliest of the latest start times of those activities.

Late Start (LS) = LF – Activity Duration (D)

### (b) If The Convention That Project Starts On Day One (1) Is Adopted

Early Start (ES) =

- 1 for the first activity
- The earliest finish time of the immediately preceding activity plus 1 = EF + 1
- For activities with more than one preceding activity ES is latest of the earliest finish times of the preceding activities.

Early Finish (EF) = ES + Activity Duration (D) – 1

Late Finish (LF) =

- LF of the last activity is equal to the EF of that activity
- The latest start time of the activity of the previous node minus 1 = LS -1
- For activities with more than one previous node, LF is the earliest of the latest start times of those activities.

Late Start (LS) = LF – Activity Duration (D) + 1

### (c) On Critical Path

- ES = LS and EF = LF
- Total Float = 0

### (d) Float

- Total Float = LS – ES or LF – EF
- Free Float = (ES)
_{S}– (EF)_{C}[When Start = 0] Where S = Successor Activity and C = Current Activity - Free Float = (ES)
_{S}– (EF)_{C}– 1 [When Start = 1]

### (e) Read Post Related Critical Path Analysis

- For detailed theory on schedule network analysis please read
- For methods to sequence project activities please read my post
- For Solved example of critical path method view post

### (f) Cost to Crash

Cost to crash per period = (CC – NC) / (NT – CT)

- CC = The activity cost associated with the crash time
- NC = The activity cost associated with the normal time
- NT = The time necessary to complete the activity under normal conditions
- CT = The shortest possible time necessary to complete an activity

## 4. Project Budget

- Work Package Cost Estimates = Activity Cost Estimates + Activity Contingency Reserve
- Control Accounts = Work Package Cost Estimates + Contingency Reserve
- Cost Baseline = Summation of Control Accounts
- Project Budget = Cost Baseline + Management Reserve

## 5. Earned Value Management

To download a copy of EVM graph and formulas visit my resources page EVM S-Curve and Formulas

## 6. Number of Communication Channels

Number of communication channels = N(N – 1) / 2 ; Where N = Number of stakeholders

## 7. Statistics

### (a) Mode

Mode is the most frequently value occurring value is a set of data

### (b) Median

Median is the middle value in the ordered set of numbers. For odd number of terms the middle number is the median. For an even number of terms the average of the middle two numbers is the median.

### (c) Mean

Arithmetic mean is the average of a group of numbers. It is calculated by adding all the numbers and dividing by the total count of the numbers.

## 8. Expected Monetary Value (EMV)

EMV = Probability X Net Path Value

- Net Path Value = Pay offs – Costs along the path
- EMV of opportunities = Positive Value
- EMV of risks = Negative Value

## 9. Procurement Management

(a) Target Price = Target Cost + Target Fee

(b) Final Fee = [(Target Cost – Actual Cost)*Sellers ratio] + Target Fee

(b) Final Price = Actual Cost + Final Fee

(d) Point of Total Assumption (PTA) = [(Ceiling Price – Target price) / Buyer’s Ratio] + Target Cost

- PMBOK 6th Edition – An Overview of Changes
- PMP Exam Questions – A Brief Analysis
- PMP Certification Benefits
- A Step-by-Step Guide To PMP Certification

## View Other Resources

Hope the above list of pmp formulas is of help for those preparing for the PMP exam. In case I have missed some important pmp formulas please do let me know. You may visit the contact page to get in touch.

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