What is PMP?

PMP® (Project Management Professional) Certification is the most in-demand professional credential in project management offered by PMI® to
professionals who successfully clear the PMP Exam. Compiled by our PMP Experts, this ebook contains essential formulas and concepts to
support you en route your PMP preparation.

Table of Contents

Chapter 1: Numerical Formulas

Chapter 2: Important Definitions

Chapter 3: Essential Concepts/Mindmaps

Chapter 4: Influence of Organizational Structure on Projects

Chapter 5: Change Management

Chapter 6: Group Creativity Techniques

Chapter 7: Group Decision Making Techniques

Chapter 8: Time Management

Chapter 9: Quality Management

Chapter 10: HR Management

Chapter 11: Risk Management

Chapter 12: Procurement Management

Chapter 13: Data Flows in Project Management

1 Numerical Formulas

Section Formula/Equation Legend

RoI = Return on Investment

RoI = ARR ARR = Average Rate of Return

I I = Initial Investment

PV = Present Value
FV = Future Value
FV
PV = (1+ r ) N
r = Rate of discounting
N = Number of years

NPV = Net Present Value

N
CFi
NPV = ∑
CFi = Cash flow for year I
(1 + r ) i r = Rate of discounting
Benefit-Cost Analysis; Project i =0
Selection criteria N = Number of years

IRR IRR = Internal rate of return

PV of Benefits
BCR = BCR = Benefit/Cost Ratio
PV of Costs

LS = Latest Start Time; LF = Latest Finish Time

ES = Earliest Start Time; EF = Earliest Finish Time
μ = Expected time
Total Float = LS – ES or LF – EF
σ = Standard deviation
Time Management μ=(O+4M+P)/6 O = Optimistic Time estimate
σ = (P – O)/6 P = Pessimistic Time estimate
M = Most likely Time estimate

(SD)^2 Variance of an activity

CV = EV – AC CV = Cost Variance; SV = Schedule Variance

SV = EV – PV
CPI = Cost Performance Index; SPI = Schedule Performance Index
CPI = EV/AC
EV = Earned Value; PV = Planned Value; AC = Actual Cost
SPI = EV/PV

BAC
EAC= Same rate of spending
Earned Value Management CPI

EAC=AC+Bottom-up ETC Use when Initial Estimates are flawed and no longer valid

EAC=AC+(BAC-EV) Use when future variances are atypical

(BAC-EV)
EAC=AC+ Considering SPI and CPI which influences remaining work
(CPI X SPI)

VAC=BAC-EAC
EAC = Estimate at Complete; BAC = Budget at Complete
ETC = Estimate to Complete
(BAC-EV)
TCPI= VAC = Variance at Completion
(BAC-AC)
TCPI = To-complete cost performance index; to manage overall
spent to Target
(BAC-EV)
TCPI=
(EAC-AC)

(n-1) C = Number of channels of communication

Channels of communication C=n*
2 N = Number of team members

EMV = Expected Monetary Value

Risk Management EMV= ∑(P*I)i P = Probability of event i
I = Impact of event i
2 Important definitions

Term Definition

Project Temporary endeavor undertaken to create a unique product, service or result

Program A group of related projects managed in a coordinated way to obtain benefits or control not available
from managing them individually

Portfolios A collection of projects, programs, sub-portfolios and operations managed as a group to

achieve strategic objectives

Stakeholder An individual, group or organization who may affect, be affected by or perceive itself to be
affected by a decision, activity or outcome of a project

Payback period Number of time periods it takes to recover the initial investment

Opportunity cost The value of the opportunity that was available but had to be given up in order to pursue another opportunity

Configuration management A set of procedures used to apply technical and administrative direction and surveillance to identify and
document the functional and physical characteristics of a product, service or a result component

Product scope Features and functions that characterize a product

Project scope The work that must be done to deliver a product, service or result with the specified features and functions

Control account The level of work at which the management wishes to exercise control

Work package A unit of work or deliverable at the leaf node of a work package

Rolling wave planning An iterative planning technique in which the work to be accomplished in the near term is planned in greater
detail while the work to be done in the future is planned at a higher level

A successor activity is said to have a lead when it can start in advance of the predecessor; it is said to have a
Leads and Lags
lag when it has to wait for a certain period after the predecessor

Longest path from start to finish in a project network diagram; all activities on the
Critical path critical path have zero float

Float or Slack The amount of time that an activity can be delayed without delaying the project

Crashing Achieving reduction in time taken by increasing the cost

Fast-tracking Achieving reduction in time taken by increasing the work being done in parallel

Resource optimization Applying optimization techniques to achieve the desired level of utilization of resources

Depreciation An accounting practice or entry that takes into consideration the reduction in the value of an asset over time

Quality The degree to which a set of inherent characteristics fulfills requirements

Grade A category assigned to deliverables having the same functional use but different technical characteristics

Cost of quality All the costs incurred over the life of a product to ensure that it conforms to the requirements

A common type of responsibility assignment matrix that uses responsible, accountable, consulted and
RACI informed statuses to define the involvement of stakeholders

An uncertain event or condition that, if it occurs can have a positive or negative

Risk
effect on a project’s objectives

Contract A mutually binding agreement that obligates the seller to provide the specified products or services or results
and the buyer to provide the monetary or other valuable consideration
 A form of contract that requires the buyer to pay the seller for all the costs incurred, plus a fee representing
Cost reimbursable contract the seller’s profit

Fixed price contract A form of contract that sets the fee to be paid for a defined scope of work regardless of
the cost of effort to deliver it

3 Important concepts/Mindmaps
Knowledge areas of project management

Scope

Risk
HR
Integration

Quality

Procurement Stakeholder

Cost Time

Communication

Process groups of project management

Initiating Planning Processes Executing Processes

Closing Processes Controlling

4 Influence of organizational structure on projects
Organization Type Matrix
Functional Functional
Project Characteristics Weak Matrix Balanced Matrix Strong Matrix

High to almost
Project Manager's Authority Little or None Low Low or Moderate Moderate to High
total

Resource Availability Little or None Low Low or Moderate Moderate to High High to almost
total

Who manages the project budget Functional Functional Project Manager

Mixed Project Manager
Manager Manager

Project Manager's Role Part-time Part-time Full-time Full-time Full-time

Project Management Administrative staff Part-time Part-time Part-time Full-time Full-time

5 Change
management steps 6 Group
creativity techniques 7 Group decision
making techniques
Determine that a change is Brainstorming Unanimity
“necessary” or has occurred
Nominal group technique Majority
Evaluate the impact of the change
Idea/Mind mapping Plurality
Come up with alternatives
Affinity diagram Dictatorship
Discuss internally
Multi-criteria decision analysis
Discuss externally

8 Time management concepts

Relationship types

Finish to Start
Start to Start
Finish to Finish
Start to Finish

Dependency types

Internal vs. External

Mandatory vs. Discretionary

Network diagramming techniques

PDM or AON: Activities on the node; arrows indicate relationships

ADM or AOA: Activities on arrows; direction indicates relationships

Types of estimation

Top-down
Expert
Analogous
Parametric
Bottom up or detailed

Critical chain method: A schedule method that allows the project team to place buffers on any project schedule
path to account for limited resources and project uncertainties.
 Properties of normal distributions

68% observations between 1 std deviation of the mean

95% observations between 2 std deviation of the mean
99.73% observations between 3 std deviation of the mean
99.999966% observations between 6 std deviation of the mean

Schedule compression techniques

Crashing: Increasing cost to save time

Fast-tracking: Performing activities in parallel to save time

9 Quality management concepts

Marginal quality (optimal quality) is reached when the cost of achieving additional quality is matched by the additional revenue it fetches.

Philosophies for quality management:

Total quality management (TQM): Integrated management philosophy

Kaizen: Small improvements to make things better
Deming cycle: PDCA (Plan-Do-Check-Act)
Kanban: A pull-based system for management of inventory that operates on JIT (just-in-time) principles

Quality Assurance

Is ongoing during execution

Focuses on the process
Audits, reviews, etc.

Quality Control

Inspects specific results or deliverables

Focuses on the product or results
Testing, Inspection, etc.

Cost of quality = Cost of conformance + Cost of non-conformance

Cost of conformance = Prevention costs (Training, Documentation, etc.) + Appraisal costs (Testing, etc.)
Cost of non-conformance = Internal failure costs (Rework, scrap, etc.) + External failure costs (Warranty, recall, etc.)

7-basic quality tools

Control charts: Observe variation in a process to make sure it is in control

Cause and effect (or Ishikawa or Fish-bone) diagram: For root cause analysis
Flowcharting: Visualizing the flow in a process
Histogram: To assess frequency for a certain category
Pareto diagram: Based on 80-20 rule; used for prioritization
Scatter diagram: To assess the correlation between two variables
Checksheets: To organize data for inspection or presentation

10 HR management concepts
Stages of team formation: Forming, Storming, Norming, Performing and Adjourning

Sources of conflict: Resources, Scheduling, Personality

Conflict resolution techniques:

Withdraw/Avoid
Smooth/Accommodate
Compromise/Reconcile
Force/Direct
Collaborate/Problem solve

Forms of authority for the manager: Formal, Expert, Reward, Penalty, Referent

Maslow’s hierarchy: Physiological, Safety, Social, Esteem, Self-Actualization

Herzberg’s theory: Hygiene factors, Motivating agents

 McGregor's theory: X theory (people want to avoid work) and Y theory (people are self motivated)

Leadership styles: Autocratic/Authoritarian, Participative/Democratic, Delegative/Laissez Faire

McKinsey’s 7-S: Hard elements – Strategy, Structure, Systems; Soft elements: Shared values, Skills, Style, Staff

11 Risk management concepts 12 Procurement management concepts

Contingency reserves are for known unknowns, management Contract types:

reserves for unknown unknowns
Cost reimbursable: Buyer pays all costs plus a profit
Strategies for responding to pure risks or threats: Cost risk lies with the buyer
Used when the scope and duration is uncertain
Avoid
Transfer Time and Material: Buyer pays at a certain rate
Mitigate Seller doesn’t have to worry about scope – buyer is in control
Accept Used for small assignments or to get started or staff augmentation

Strategies for responding to positive risks or opportunities: Fixed price: Buyer pays a fixed fee
Cost risk lies with the seller
Exploit Used when the scope is well known and stable
Share
Enhance
Accept

13 Data flows in project management

Project Initiator Enterprise or

Customer Sellers
or Sponsor Organization
Project SoW Business

Final product,
Case agreements

Requirements
Organizational process service or result
Assets Seller proposals
Enterprise environmental factors
Contract award

Procurement
documents

Initiating Process Planning Process Project Executing Process Closing

Group Group Documents Group Process Group

Resource
calendars
Procurement documentation
Accepted deliverables

Project management plan Approved Change Deliverables

Project Charter Make-or-buy decisions Change requests
requests
Stakeholders Register Source selection criteria Work performance
Quality control
Stakeholder management strategy information
measurements
Performance reports Selected Sellers

Monitoring and Controlling Process Group

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