PMP Formulas

& Cost Overview

…IN PLAIN ENGLISH

JONATHAN DONADO
Linkedin.com/in/jonathandonado
About me

If you like the Flashcards, please give

a ”Like” on SlideShare. It’s much
appreciated !

Jonathan Donado
Bilingual senior general management
executive with expertise in international
business and Mergers & Acquisitions (M&A)

o Education:
- Senior Executive Fellow – Harvard University
- MBA – IESE

o Certifications:
- Six Sigma Black Belt (CSSBB) – ASQ Certified
- PMP
- PMI-ACP – Agile Certified Practitioner

Twitter.com/donadosays

Linkedin.com/in/jonathandonado
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Earned Value = EV
EV
The value of the work accomplished until
this point in time. Cost is as per the original
budget.

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Introduction:
o Project Cost Management is the knowledge use for managing costs. It
helps to ensure a project is completed within the approved budget

o It includes the processes involving in estimating, budgeting and

controlling costs

o These processes interact with each other and with processes in the
other nine knowledge areas as well

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Developing a Cost/Schedule System:

Create Develop Collect

Define Cost Data
work and a time- Compute
work using (at the work
resource phased variances
a WBS package
schedules budget level)

o Scope o Schedule o Use work o Use work o Compute the

o Work packages resources packages packages schedule variance
o Deliverables to activities included in an included in (EV-PV) and the cost
o Organization units o Time-phase activity. an activity. variance (EV-AC)
o Resources work packages Accumulate Accumulate
o Budgets into a network budgets (PV). budgets (PV)

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Cost Relationships Overview:

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Development of Project Baselines:
Purposes of a Baseline
o It is an anchor point for measuring performance
o A planned cost and expected schedule against which actual cost and schedule are measured
o A summation of time-phased budgets (cost accounts as summed work packages) along a project timeline

What Costs Are Included in Baselines?

o Labor, equipment, materials, project direct overhead costs (DOC)

Rules for Placing Costs in Baselines

o Costs are placed exactly as they are expected to be “earned” in order to track them to
their point of origin
o Percent Complete Rule
o Costs are periodically assigned to a baseline as units of work are completed over the duration of a work
package

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Earned Value Management (EVM):
o Project Manager can use the information about the
project progress to help control the schedule and cost to
assess whether the project is on track through earned
value management (EVM)
o EVM uses Variance Analysis methodology
o Other alternative methods are:
o Ask team members for a % of the work completed in each work
package or activity
o Team member provides a simple “guess” of work performed

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Methods of Variance Analysis in EVM:
Comparing Earned Value
o With the expected schedule value
o With the actual costs
Assessing Status of a Project
o Required data elements
o Budgeted cost of the work scheduled (PV)
o Budgeted cost of the work completed (EV)
o Actual cost of the work completed (AC)
o Calculate cost and schedule variances
o A positive variance indicates a desirable condition,
while a negative variance suggests problems or
changes that have taken place

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Methods of Variance Analysis in EVM:
oCost Variance (CV)
o Indicates if the work accomplished using labor
and materials costs more or less than was
planned at any point in the project
oSchedule Variance (SV)
o Presents an overall assessment in dollar terms
of the progress of all work packages in the project
scheduled to date

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Project Cost Management:
The process involved in planning, estimating, budgeting, and controlling costs so that the budget
can be completed within the approved budget

ESTIMATE DETERMINE CONTROL

COST COST COST
Developing an Allocating overall
estimate of costs of cost estimate to
Controlling change to
the resources needed individual work items
project budget
to complete a project “cost baseline”

PLANNING MONITOR & CONTROL

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Monitor & Control Costs : CONTROL
COST

o Monitor Cost Performance

o Ensure that changes are included in cost baseline
o Inform stakeholders of authorized changes which impact cost

Inputs Tools & Techniques Outputs

Cost Change Control System Cost Estimate Updates
Cost Baseline
Performance Measurement Cost Baseline Updates
Project Funding Requirements
Analysis
Performance Measurements
Performance Reports
Forecasting Forecasted Completion
Work Performance
Project Performance Recommended Corrective
Information
Reviews Action
Approved Change Requests
Project Performance Organizational Process
Software Assets Updates
Project Management Plan
Variance Management Project Management Plan
Updates

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Cost Budget Breakdown:
Budget Breakdown

Project Reserves Cost Budget

Not Used in Earned Value Calculations Management Reserve

Used in Earned Value Calculations Cost Baseline

Work Breakdown Structure Schedule Information
Contingency Reserve
Project
Project
WBS

Control Account
Schedule

Work Package

Activity

Tasks

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Cost Budget Components:

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 Terms:
EV Earned value for a task is simply the percent complete times its original budget. Stated differently, EV is the percent of the original
budget that has been earned by actual work completed.

PV The planned time-phased baseline of the value of the work scheduled. An approved cost estimate of the resources scheduled in a
time-phased cumulative baseline [BCWS—budgeted cost of the work scheduled].

AC Actual cost of the work completed. The sum of the costs incurred in accomplishing work. [ACWP—actual cost of the work
performed].

CV Cost variance is the difference between the earned value and the actual costs for the work completed to date where CV = EV – AC

SV Schedule variance is the difference between the earned value and the baseline line to date where SV = EV – PV

BAC Budgeted cost at completion. Total budgeted cost of the baseline or project cost accounts.

EAC Estimated costs at completion.

ETC Estimated costs to complete remaining work.

VAC Cost variance at completion. VAC indicates expected actual over- or under-run cost at completion.

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Terms:
Performance Indexes:
• Cost Performance Index (CPI)
• Measures the cost efficiency of work accomplished to date.
• CPI = EV/AC
• Scheduling Performance Index (SPI)
• Measures scheduling efficiency
• SPI = EV/PV
• Percent Complete Indexes
• Indicates how much of the work accomplished represents of the
total budgeted (BAC) and actual (AC) dollars to date.
• PCIB = EV/BAC
• PCIC = AC/EAC

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Terms:

Index Cost (CPI) Schedule (SPI)

>1.00 Under cost Ahead of schedule
=1.00 On cost On schedule
<1.00 Over cost Behind schedule

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Cost /Schedule Graph:

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Cost /Schedule Graphs: SV = EV - PV
CV = EV - AC

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 Earned Value = EV

The value of the work

accomplished until this point in
time. Cost is as per the original
EV budget.

“ As of today, what is the

estimated value of the work
actually accomplished? “

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 Planned Value = PV

Planned cost or value of the

work to be done until this point
in time.
PV “ As of today, what is the
estimated value of the work
planned to be done? “

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 Actual Costs = AC

The costs actually incurred to

complete the work until this
point in time.
AC “ As of today, what is the actual
costs incurred for the work
accomplished? “

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 Budget At Completion =
BAC

The total planned value or

budget for completing the entire
BAC project.

“ How much did we budget for

the total project? “

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 Cost Variance = CV

CV = EV - AC
CV o Positive is Under Budget
o Negative is Over budget

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 Schedule Variance = SV

SV = EV - PV
SV o Positive is ahead of
schedule
o Negative is behind
schedule

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 Cost Performance Index = CPI
EV
CPI =
AC
CPI
o We are getting $___ worth
out of every $1 spent.
o Greater than 1 is good;
less than 1 is bad

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 Schedule Performance Index =
SPI
EV
SPI =
PV
SPI
o We are progressing at
___% of the rate originally
planned.
o Greater than 1 is good;
less than 1 is bad
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 Estimate At Completion = EAC
Prediction of what project will cost
when completed..

“ What do we currently expect the

total project to cost (a forecast)? “
EAC There are 4 types:
Used when the original
EAC = AC + Bottom up ETC estimate was flawed

EAC = BAC Used when there are no variances from

BAC. Most common one for exam
CPI
EAC = AC + (BAC – EV) Used when the current variances
are “atypical” of the future
(BAC – EV) Used when the current variances
EAC =
(CPI x SPI) are “typical” of the future

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 Estimate To Complete = ETC

From this point on, How much More

do we expect it to cost to finish the
project ? (a Forecast)

ETC How much more will the project cost?

ETC = EAC - AC

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 Variance At Completion = VAC

As of today, how much over or under

budget will we be at the end of the
project ?

VAC VAC = BAC - EAC

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 To Complete Performance Index =
TCPI

In order to stay within budget, what

rate must we meet for the remaining
work?
TCPI
(BAC – EV)
TCPI =
(BAC - AC)
o It divides the work remaining to be done by
the money remaining to do it

o Greater than 1 is bad; less than 1 is good

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 Connect with me

If you like the Flashcards, please give

a ”Like” on SlideShare. It’s much
appreciated !

Twitter.com/donadosays

Jonathan Donado

Bilingual senior general management

Linkedin.com/in/jonathandonado
executive with expertise in international
business and Mergers & Acquisitions (M&A)
o Education:
- Senior Executive Fellow – Harvard University
- MBA – IESE

o Certifications:
- Six Sigma Black Belt (CSSBB) – ASQ Certified
- PMP THANK YOU
- Agile (ACP) – PMI Certified
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