If you’re studying for the PMP® exam, you’ve probably already discovered that you’ll need to know a few commonly used project management formulas, as well as where to use them, how to use them, how to compute them, and, most importantly, how to derive the values. In fact, many people say that learning all of the PMP formulas is the most difficult part of the exam.
We’ve compiled a list of cost management formulas that you’ll need to know, as well as an explanation of how and when to use them.
Cost Management Expertise Formulas for PMPs
Although there are more than 25 project management formulas that you may encounter during the exam, there are a few cost management formulas that are extremely important and that you will most likely encounter more than once. In addition, many of the calculation-based questions are based on these top eight cost management formulas.
Formulae 1–4
Examine the first four PMP formulas above and try to identify the commonalities between them. Still don’t get it? Yes, Earned Value is the simplest part (EV). It appears above in all of the formulas, implying that you must first calculate the values of cost variance, schedule variance, cost performance index, and schedule performance index while keeping Earned Value in mind.
Earned Value takes precedence over all other values. Most importantly, when working with cost-related questions, consider the actual cost in conjunction with Earned Value. If the question is about a schedule, consider both planned and earned value. If there is a variance, subtract actual cost and planned value from earned value—depending on the situation.
Similarly, when calculating index values, actual cost and planned value will be subtracted from the earned value. If it is a cost performance index, the actual cost is divided by the earned value, and if it is a scheduled performance index, the planned value is divided by the earned value. So, in all of these circumstances, Earned Value is extremely important, which is why it is at the top of the list.
Formula 5
Because you will derive the estimate at completion, you must concentrate on the actual costs incurred; only then will you be able to obtain the future value required for processing the project. See the formula above; it is used when the initial estimate is fundamentally flawed. This formula is used to compute an actual plus new estimate for the remaining work.
Formula 6
If you were asked during the exam whether you are a good project manager who is working on the project as planned—that is, are you able to maintain positive values in both CPI and SPI—you would use the above-mentioned formula from other PMP formulas. When the original estimate is met with no deviation, this formula is used.
Formula 7
If you find yourself in a bind during project execution and have spent more money than expected or planned, use this formula to calculate the estimated at completion value. Once again, your actual cost will be considered first. one of the most effective PMP formulas
The Formula 8 racetrack
This pmp formula is used to calculate the actual to date plus the remaining budget changed based on performance—it is used when we believe the current ratio is typical and as planned. To meet the previously agreed-upon deadline, we calculate the EAC in accordance with that deadline.
Conclusion
To determine which PMP formulas to use and where to use them, carefully read the question and consider the hypothetical situation that a project manager would be in if faced with this type of problem.
In addition to these crucial cost-cutting formulas, you should keep up with any updates on the Project Management Institute’s website. SPOTO Learning provides online PMP certification training that includes hands-on projects in scope management, time and cost management, and risk assessment, all of which are designed to prepare you as much as possible for the PMP® exam.
