Studying for PMP® exam requires knowledge of key project management formulas, including usage, calculation, and derivation of values.
PMP formulas are known to be challenging, but we’ve compiled a list of cost management formulas for your convenience. This list includes usage instructions and when to apply each formula.
8 Cost Management Formulas
| 1 | Cost Variance (CV) = Earned Value (EV) – Actual Cost (AC) |
| 2 | Schedule Variance (SV) = Earned Value (EV) – Planned Value (PV) |
| 3 | Cost Performance Index (CPI) = EV / AC |
| 4 | Schedule Performance Index (SPI) = EV / PV |
| 5 | EAC = AC + Bottom-up ETC |
| 6 | EAC = BAC / Cumulative CPI |
| 7 | EAC = AC + (BAC – EV) |
| 8 | EAC = AC + [BAC – EV / (Cumulative CPI ´ Cumulative SPI)] |
Formula 1-4
To understand the first four PMP formulas, examine the common elements. The simplest among them is Earned Value (EV). It appears in all formulas, meaning you must consider EV when deriving values for cost variance, schedule variance, cost performance index, and schedule performance index.
EV takes priority. When solving cost-related questions, think about actual cost with EV. If it’s about the schedule, consider planned value and EV. If you’re calculating variance, subtract actual cost and planned value from EV as appropriate.
When computing index values, divide actual cost or planned value from EV. For cost performance index, divide actual cost from EV, and for schedule performance index, divide planned value from EV. Thus, EV plays a crucial role in all cases and that’s why it’s at the top of the list.
| 1 | Cost Variance (CV) = Earned Value (EV) – Actual Cost (AC) |
| 2 | Schedule Variance (SV) = Earned Value (EV) – Planned Value (PV) |
| 3 | Cost Performance Index (CPI) = EV / AC |
| 4 | Schedule Performance Index (SPI) = EV / PV |
Formula 5
To calculate the estimate at completion, concentrate on actual costs incurred. Only then can you determine the necessary future value for project processing. The formula mentioned above is used when the original estimate is flawed. It helps calculate an updated estimate for remaining work by combining actual costs and a new estimate.
| 5 | EAC = AC + Bottom-up ETC |
Formula 6
During the exam, if you’re asked if you’re a skilled project manager who executes projects as planned (positive values in both CPI and SPI), use the formula mentioned above from the PMP formulas. This formula is used when the initial estimate is achieved without any variations.
| 6 | EAC = BAC / Cumulative CPI |
Formula 7
When facing difficulties during project execution and incurring more cost than anticipated, use this formula to calculate the estimate at completion. It relies on actual cost and is one of the most useful PMP formulas.
| 7 | EAC = AC + (BAC – EV) |
Formula 8
This PMP formula calculates the current actual cost plus the remaining budget, adjusted based on performance. It’s used when the current performance is believed to be as planned. To stick to the previously agreed schedule, we calculate the EAC accordingly.
| 8 | EAC = AC + [BAC – EV / (Cumulative CPI ´ Cumulative SPI)] |
12 Project Management Formulas
Here are 12 project management formulas that you might need to tackle during the exam.
1. Beta Value in Pert
When planning a project, budget and timeline are crucial elements. PERT (Project Evaluation and Review Technique) calculates these two factors by taking into account three reference points: optimistic estimate, pessimistic estimate, and most likely estimate. The formula is expressed as:
Beta = (Pessimistic + 4 Most Likely + Optimistic) / 6
The most likely estimate receives higher consideration in the formula as it’s considered the most probable outcome.
2. Estimated Monetary Value Formula (EMV)
The EMV formula calculates the financial value of a project. Project management often involves unknown variables, and the EMV formula calculates the impact of these risk factors on the project. The formula is:
EMV = P x I
‘P’ represents the likelihood of an event happening.
‘I’ represents the monetary impact of the event.
3. Risk Priority Number Formula
The Risk Priority Number formula determines the priority of project risks based on the severity, occurrence, and detectability of the risks. The formula is calculated as RPN = Severity x Occurrence x Detection, using values from FMEA tables for Severity, Occurrence, and Detection.
4. Earned Value Formula
EV formula calculates the project’s cost and schedule perspectives through the earned value. This is done by multiplying the total budget with the percentage of project completion. The formula is: EV = % Complete * Budget at Completion.
5. Cost Variance Formula
Cost Variance (CV) is a simple calculation to measure project cost deviation from the planned budget. The formula is: CV = Earned Value (EV) – Actual Cost It determines if a project is over or under budget by subtracting the actual cost from the planned earned value.
6. Schedule Variance Formula
The Schedule Variance formula measures the difference between the planned schedule and the actual schedule of a project. It is expressed as:
SV = Earned Value (EV) – Planned Value (PV)
It shows the deviation of the work accomplished from the work planned to be done.
7. Cost Performance Index Formula
The Cost Performance Index (CPI) measures the cost efficiency of a project by dividing the earned value by the actual cost. The formula is:
CPI = EV / AC
Where: EV = Earned Value AC = Actual Cost
A CPI value of 1 or higher means the project is on budget.
8. Schedule Performance Index Formula
The SPI formula determines the project’s progress by dividing the earned value (EV) by the planned value (PV). A value of 1 or higher indicates the project is on schedule.
9. Estimate at Completion Formula (EAC)
The EAC formula calculates the estimated cost to complete a project. Four methods can be used: (1) Actual Cost + Bottom-up Cost to Complete, (2) Budget at Completion / Cost Performance Index, (3) Actual Cost + [(Budget at Completion – Earned Value) / (Cost Performance Index x Schedule Performance Index)], and (4) Actual Cost + (Budget at Completion – Earned Value). Project managers use EAC to determine the budget needed to finish the project.
10. Variance at Completion Formula (VAC)
The Variance at Completion formula calculates the difference between the projected budget for the project and the estimated budget to complete the project. It is expressed as:
VAC = BAC – EAC, where
BAC = Budget at Completion EAC = Estimate at Completion
A positive VAC indicates a surplus budget, a negative VAC indicates a budget overrun, and a zero VAC means the budget was exactly as estimated.
11. Estimate to Complete Formula (ETC)
The ETC (Estimate to Complete) formula provides a projection of the remaining cost needed to finish a project. There are two ways to calculate it:
TCPI = (Budget at Completion – Earned Value) / (Estimate at Completion – Actual Cost)
TCPI = (Budget at Completion – Earned Value) / (Budget at Completion – Actual Cost)
with variables: BAC = Budget at Completion EV = Earned Value EAC = Estimate at Completion AC = Actual Cost
12. Standard Deviation Formula
The standard deviation formula is used in project planning to measure the variability of projected values. It determines the accuracy of the statistics generated during project planning. The formula is:
σ = (Pessimistic – Optimistic) / 6
This formula calculates the standard deviation by subtracting the optimistic value from the pessimistic value and dividing the result by 6.