Mastering The PMP Calculations

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Mastering the PMP
Calculations

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!

Mastering the PMP Calculations TestEagle.com Page 3

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Quickly test yourself on a specific Process
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Learn All of the Calculations

The PMP calculations are linked to each other.
Thats why learning all of them is vital to passing the PMP.

CV
SV
ETC
TCPI
EV
AC
EAC
BAC
PV
SPI
CPI
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)

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

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


Actual Cost (AC)
Actual Cost is one of the easiest calculations that youll need to know for the PMP. Well theres
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, theres no formula for AC. But that doesnt mean theres 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
Lets 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.

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 isnt $483,000?

Read the text again. The contract for the extra ten Wi-Fi antennas is being signed tomorrow.
Which means it isnt an actual cost today. Today its 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.

Youll also find them in the TestEagle practice PMP exams.


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, youd calculate AC at the end of the project.

BAC Formula
How is BAC calculated? Usually for the PMP exam you wont 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 heres 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
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.

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 (well 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
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.

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 its used in many of the other calculations that you will need to
know to master the PMP exam.
Its 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).


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.


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

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.


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 isnt $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 projects costs are the costs incurred by the project).

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


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

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.


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 companys money!).
Basically if a project has a Schedule Variance that isnt 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 Dougs 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

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.

Investment
Return
$1
$0.5

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.


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 Were 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 Brians 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.

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


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?.


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 Franks project?

Answer: The Schedule Performance Index is 0.93. This means that Franks 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.

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


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.


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 wont
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.
Its 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)


Scenario 4 Project has to meet a deadline
Weve 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.

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.


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

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.


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


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.


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) /

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


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
Now
6 Months Ago
ETC
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

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. Lets cut the project - its 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.

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

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)


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 arent valid anymore, dont 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:

(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.


Example of Calculating TCPI

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.

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

To-Complete Performance Index = $35,000
$40,000

To-Complete Performance Index = 0.875

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.

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.


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


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, its 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.


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.

Customer
Developer
Project Manager
Analyst
1
2
3
4 5
6


Example of Calculating Communications Channels

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


PMP Formula Cheat Sheet

Name Acronym Formula
Actual Cost AC None - calculate all the costs incurred by the project as of the
point in time you are measuring.
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

Scenario 3 Current CPI is abnormal
Actual Cost + (Budget At Completion Earned Value)

Scenario 4 Project has to meet a deadline
Actual Cost +
[(Budget At Completion - Earned Value) /
Estimate To Complete ETC Estimate At Completion - Actual Cost
To-Complete Performance
Index
TCPI Scenario 1 - BAC is valid
(Budget At Completion - Earned Value)

Scenario 2 - BAC is no longer valid
(Budget At Completion - Earned Value)
Communication Channels [N(N-1)] / 2


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

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