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]]>Cost of quality, or COQ, refers to the total costs needed to bring products or services up to standards defined by project management professionals. To determine the cost of quality, combine the costs of conformance and the costs of non-conformance. A closer look at both these costs will help you better prepare for the cost of quality PMP exam questions.
The costs of conformance are ones needed to complete various activities that help the project meet quality requirements and avoid failing. There are two categories under the costs of conformance umbrella: prevention costs and appraisal costs.
Less favorable than costs of conformance are costs of non-conformance. If you discover that your products or services are defective after they’ve been on the market, you need to spend money in order to remedy the situation. Therefore, you’re going to incur costs of non-conformance.
Similar to costs of conformance, there are two categories for costs of non-conformance: internal failure costs and external failure costs.
As a project manager, prevention is of utmost importance. If you can detect problems early on, it’s going to save you time and money. So, to limit the cost of quality, focus on costs of conformance so you don’t incur more costs of non-conformance.
While preparing for the exam, consider the times that you’ve applied these ideas in your profession. Draw from this experience as you prepare to answer cost of quality PMP questions.
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]]>A trend analysis, in its simplest terms, is a tool and technique you can use within the project management process. Okay, do you feel like you’ve got it now? Just joking – of course you don’t, let’s spend some time discussing trend analysis and why it is a good PMP topic to know.
Beyond the simple definition provided above, a trend analysis is a mathematical tool you can use to assess your project data to determine how it is doing and forecast how it will continue to do.
It is common to see a trend analysis represented in graphical form. This way you can easily see the way your project is trending. See that trending – this means is your project on track, improving, or falling behind, as we discussed above.
Please, disregard the subject of the analysis, but here is a sample of a trend analysis as well as thorough discussion on what the data indicates. Again, this is just a helpful example, the content is not relevant to the PMP exam.
Remember in addition to understanding what a trend analysis is, it is equally important to understand how each topic relates back to the overall project management processes.
A trend analysis is a tool and technique used during the monitor and control phase of the project life-cycle (or process group). You will use it in the integration, time, cost, and risk knowledge areas.
If you are asking yourself, what is a tool and technique? These are the actions or items that are applied to an input to get the intend output.
Think about it, the integration knowledge area wants to understand how the 47 processes of project management work together – thus it would make sense that you want to analyze how that work is progressing.
Same with time, cost, and risk. You will want to know if your project is tracking in the direction you planned. You would not want your schedule or budget to be falling behind and know nothing about it.
Back to the definition of tool and technique, if we use the time knowledge area, we can use a trend analysis to assess our project schedule and create an output of a project change request if our project is currently falling behind schedule.
Using the trend analysis is critical to help your project complete on time, within budget, with the intended scope.
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]]>PMBOK describes reserve analysis as “an analytical technique to determine the essential features and relationships of components in the project management plan to establish a reserve for the schedule duration, budget, estimated cost, or funds for a project” (558). Hmm… well that doesn’t really do it for us, does it?
There’s really two parts that you need to know about reserves, and those are contingency and management reserves.
Here’s where you’ll find reserve analysis in the PMBOK Guide. It’s always a Tool & Technique!
Side note: this is why I enjoy and recommend looking at the PMBOK guide in different ways — you start to notice patterns. Try using “Control + F” to search for all of the instances of the term “reserve analysis” in the PMBOK guide.
As you can see, reserve analysis is primarily related to cost, but it also relates to integration, time, and risk management. Projects always have reserves to cover all those little things that come up, especially unanticipated costs. You know and document as many risks a possible, and those items are included in your contingency reserves. For those items you can’t know, you set aside management reserves that senior management can decide to release at the project manager’s request.
Of course, you know you aren’t really done studying Reserve Analysis — you are just getting starting. As this article shows, you’ll encounter it again and again as you study for the PMP exam. Having a basic understanding of it will allow you to relate to it better, and you have to go back and look up the definition each time anymore. Hooray!
What part of reserve analysis is toughest? Share in the comments below.
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]]>The post Topics on the PMP: Parametric Estimating appeared first on Magoosh PMP Blog.
]]>Although the first word parametric might be new, estimating is something you have likely done before. Typically in planning any activity there is a level of estimating that occurs. When you go on your family trip to the beach, do you estimate how many times you will stop during your 8 hour drive? Or do you estimate how much money you will spend on gas to get to your destination?
Parametric estimating is a certain type of estimating, and one of a few different estimating techniques you will see on the PMP exam. Parametric estimating, like all other estimating techniques, helps you determine how long something will take or how much something will cost for a project.
This means for exam purposes you will find this topic associated with Time Management and Cost Management questions. Thus, the outputs of using parametric estimating are a complete schedule and budget for the project.
Let’s spend some time discussing parametric estimating and why a project manager might use it. As well let’s wrap up this blog by providing a few processes and tasks you might see in relationship to parametric estimating.
Parametric estimating looks at how long a task will take to complete or how much it will cost, based on a relationship of variables.
Okay, what does a relationship of variables mean. I think it is easier to explain with an example. If we look at our cost for gas, from our example above, as our task – a relationship of variables would be miles (1 variable) per gallon (1 variable). We could determine exactly how many miles we get per gallon of gas, thus allowing us to more precisely determine how much gas would cost on our trip, because we could multiple the cost of gas and the precise number of miles we will get per gallon.
Parametric estimating is strictly used for quantitative measures. There needs to be a way to get to hard numbers, not just a qualitative estimate on how long something will take.
For example, as a project manager, you could quantify how long it would take to type a document if you could understand words typed per minute, and you knew exactly how many words would be used.
However, if you were assessing how long it would take to conduct an interview with someone, there might be less hard numbers you could rely on, thus using qualitative data.
For the purpose of parametric estimating, you can only use the quantitative measures.
As I noted above you use parametric estimating within the Time and Cost management knowledge areas. You rely on items you produced in the Scope Management knowledge area, such as the work breakdown structure (WBS) to determine the most precise estimates.
Additionally, you use parametric estimating within the Planning process group, or project phase. You will sometimes reestimate in the Monitor and Control process group when the cost and schedule vary.
Remember as you study any topic for the exam, it is always important to understand how it relates back to the PMP Process Chart. Having a firm grasp of how all of this works together will allow you to excel on the exam.
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]]>Do yourself a favor, and understand the Determine Budget outputs better than I did. Avoid making the Cost Management chapter of the PMP exam feel like you’re running a 5K with obstacles!
The wordy definitions for cost management in the PMBOK guide really didn’t do it for me when I was studying for the PMP exam. Before reading this article, I recommend reading the Project Cost Management chapter in the PMBOK guide, beginning on page 193. Specifically, we’ll be talking about the outputs of the Determine Budget process, which are a little arcane. This description is found on pages 212 to 214 of the PMBOK Guide.
Once you have your brief understanding, read through this article to understand more about the outputs of the Determine Budget process. Figure 7-8 on page 213 is a good supplement to this article as well.
Without further ado, here are the main definitions you need to know:
What better way to understand than to put this information in context? Read on for an example.
You are using your project management skills for a party! If you are throwing a party, you’ll need cocktails, appetizers, and dinner. You develop Activity Cost Estimates for each of these items. But what if everything goes wrong?
But wait, one of your friends who is coming to the party is gluten free! So you need to adjust your costs to make sure there is an entrée and dessert that meets his needs. Your activity contingency reserve covers this risk that one of your guests might be gluten free. You thought that someone might tell you at the last minute that they had dietary restrictions, so you planned for this risk.
Now your party has begun, and everything is going great. After dinner, you realize you’ve made a horrible mistake! You didn’t think folks would want dessert, but everyone is still hungry. So you run out to grab some brownies from the grocery store and spend from your contingency reserve.
The next morning, you realize that an unforeseen risk has occurred. Your friends partied a little too hard, and you can’t get the food and drink stains out of your carpet and couch. You didn’t plan for this unforeseen risk, so now you need to use your management reserves to cover the cost of a cleaning service or a new couch!
So let’s take our definitions and put them into the context of your party.
I apologize that your party went so awry, but the good news is that it helped you learn the key parts of the Determine Budget outputs! It’s a silly example, but can you see how it relates to a larger project. Once you are able to draw that larger connection, then you are really getting somewhere with this chapter.
I found this particular portion to be one of the toughest parts of studying for the PMP exam, because the even though we are in the cost management section, there were not a lot of formulas. Here are a few tips to make these concepts stick.
Project cost management can be a familiar chapter for some, but for me, it wasn’t. I found that contextualizing everything and coming up with examples was a great strategy for me to do really well in this area on my PMP exam.
Are you ready for the Determine Budget process? If you’ve got more questions, share ‘em below!
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]]>The post 10 PMP Math Questions You Should Be Able to Answer appeared first on Magoosh PMP Blog.
]]>You can use this article in two ways:
Also, when you’re studying, you’ll want to use these resources:
For the first three questions, assume you are managing the following project:
You are the project manager of a project that is budgeted to cost $1 million at completion. The project will last ten months and its budget is spread evenly across each month. It is currently 50% complete and has so far cost $750K but only produced value of $500K.
1. What is the schedule variance (SV) of the project?
A. $0
B. $200K
C. $500K
D. $750K
2. What is the cost performance index (CPI) of the project?
A. 0.67
B. 1
C. 1.5
D. 2
3. If the variance is not expected to continue, what is the expected estimate at completion (EAC) of the project?
A. $500K
B. $750K
C. $1 million
D. $1.25 million
4. You want to estimate the duration of an activity on your project. Your pessimistic estimate is 10 days, your most likely estimate is 5 days, and your optimistic estimate is 3 days. Using a triangular PERT distribution, what is your duration estimate?
A. 4.6 days
B. 5 days
C. 6 days
D. 9.3 days
5. You are the project manager for a medium-sized project. There are 14 team members, and everyone communicates with everyone else on the project team. How many communication channels are there?
A. 91
B. 105
C. 182
D. 210
6. You are negotiating an FPIF contract. The ceiling price is $2 million, and the target price is $1.8 million. The buyer’s share ratio is 75% for overruns. What is the target profit for the seller if the target cost for the buyer is $1.5 million?
A. $150K
B. $200K
C. $300K
D. $1.5 million
7. Activity X takes 4 days and is followed by Activity Y, which takes 3 days. The early start of Activity X is day 20, and the early start of Activity Y is day 27. What is the free float of Activity X?
A. 0
B. 3
C. 7
D. 10
8. A project is expected to result in $2 million in five years. The current interest rate is 5%. What is the PV of the project?
A. $1,359,252
B. $1,567,398
C. $1,784,972
D. $2 million
9. You must select one and only one project to take on on for your company. The net present value (NPV) for each project is as follows: Project A’s NPV is $10K, Project B’s NPV is $20K, and Project C’s NPV is $30K.
A. Project A
B. Project B
C. Project C
D. This problem cannot be solved without knowing the interest rate for each project.
10. A new state-of-the-art computer for your project costs $10K. You expect for it to last for four years and to sell it for $1K for parts. How much should you book in depreciation each year for the computer? Assume you are using straight-line depreciation.
A. $1250
B. $2000
C. $2250
D. $2500
The toughest of your PMP math will relate to EVM, or earned value management. That’s why the first three questions are on EVM. These questions weren’t so tough, but you can visit 7 Example PMP Earned Value Questions for more information. Get to know it really well!
1. A. $0 – Schedule Variance = Earned Value – Planned Value, or SV = EV – PV. The project’s current value at 50% completion is stated in the problem as $500K. To determine the Planned Value, use the project’s original BAC times percentage complete: $1 million * 50% = $500K. SV = EV – PV = $500K – $500K = $0. The project is on schedule.
2. A. 0.67 – Cost Performance Index = CPI = EV/AC. You determined EV in the previous problem at $500K. The problem tells you that the project has so far cost $750K, which is the AC. CPI = EV/AC = $500K/$750K = 0.67. The project is over budget.
3. D. $1.25 million – The variance is expected to go away, so use the formula AC + BAC – EV = $700K + $1 million – $500K = $1.2 million.
4. C. 6 days – Your typical PERT estimate is shown by the formula (P + 4L + O)/6, but this problem wants you to use the triangular PERT estimate instead. (P + L + O)/3 = (10 + 5 + 3)/3 = 18/3 = 6 days. Did you use the wrong formula because you were moving too fast? Remember to slow down!
5. B. 105 – The formula for determining the number of communication channels on a project is [n(n-1)]/2, where n is the number of project team members. Don’t forget to include the project manager! In this problem, n=15, but you may have accidentally said n=14 if you forgot the PM.
6. C. $300K – This problem is a good example of (1) not just memorizing the formula but knowing what goes into it and (2) avoiding extraneous information. The problem sets you up to think that you’ll be using this formula: PTA = [(Ceiling – Target)/Buyer’s Share Ratio] + Target. Actually, you just need to know that the Target Price is made up of both the Buyer’s Target Cost and the Seller’s Target Profit. $1.8 million – $1.5 million = $300K in target profit for the seller.
7. B. 3 – Network diagram math questions can be tricky, because they are almost like logic questions rather than math. For this one, know that free float (which is float on an activity) = ES of following activity – ES of present activity – present activity duration. We are determining the free float for Activity X. ES of following is easy because it is stated as 27. The duration of Activity X is also stated as four days. You need to use the ES information (day 20) and the duration (4 days). So since free float = ES of following activity – ES of present activity – present activity duration = 27 – 20 – 4 = 3.
8. B. $1,567,398 – Get those PV & FV formulas on your brain dump. Again, this is one of those problems that may or may not surface on your exam. It did for me! (But depreciation didn’t.) Present Value = FV / [(1 + r)^n], where r is the rate of return and n is the number of years = $2 million / [(1 + .05)^5].
9. C. Project C – For project evaluation dealing with internal rate of return (IRR), return on investment (ROI), and net present value (NPV), simply pick the greatest value. Easy!
10. C. $2250 – (Asset Cost – Scrap Value) / Useful Life = ($10K – $1K) / 4 = $2250 per year. It is possible, though not certain, that you will encounter a depreciation problem on your PMP exam, though I happened not to encounter one. Add the formulas to your brain dump anyway — a point is a point.
Still feeling queasy about the PMP math questions? Let us know what’s stressing you out — we’re here to help!
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]]>The post 10 Cost Estimation Techniques in Project Managment appeared first on Magoosh PMP Blog.
]]>This article on cost estimation techniques in project management (1) will help you remember the tools and techniques in the PMBOK guide for the estimate costs process and (2) can be used as a reference later when you are working on projects to estimate costs. After all, your goal in studying for the PMP is not only to pass the exam but also to sharpen your project management skills.
I have broken down this article into three sections: Brief Definitions, When to Use It, and Memory Tricks. If you need more background on any of the tools and techniques listed here, take a look at pages 204-207 in the PMBOK guide. At the end of this article is a one-page grid of all of the information presented here.
Remember to use this list of brief definitions in conjunction with the PMBOK Guide. It is not enough to know just the short definitions!
It’s just as important to know when to use certain estimation techniques as it is to know the estimation techniques themselves.
Use these or adapt them to your own to help remember the cost estimation techniques. It is definitely not important to memorize each of these. Rather, use your understanding of the definition, when to use it, and a memory trick to help your brain piece everything together when you need it.s
If you want to see all of this information together, you are in luck! I made a PDF table that describes the 10 tools & techniques for estimating cost. Print it out or save it to your study folder here.
Have a better way to remember one of the cost estimation techniques? Share it in the comments below.
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]]>The post PMP Formula Questions to Study appeared first on Magoosh PMP Blog.
]]>As you prepare for the PMP exam, some of the most important things you should know are the PMP formulas. Although, PMI does not give a specific breakdown on the number of formula questions you can expect, as a former tester, I can assure you, if you do not know these formulas, a magic 8-ball might warn, “Outlook Not So Good.”
Having a firm grasp on the PMP formulas themselves will serve you well, as there are a number of straightforward questions to assess your general understanding of the formulas. However, it is arguably more important to understand why you would use a formula and what each number represents.
Let’s take some time and review the most common PMP formula questions to study for the exam. We will break the formula down to understand the name, the actual formula, the terms used within that formula, an explanation of the answer, what knowledge area the formula is used for, and finally a sample question you can expect to see on the exam.
The answers to the formula questions can be found after the table.
Name | Formula | Terms | Explanation of Solution | Knowledge Area | Sample Question |
---|---|---|---|---|---|
Numbers of Communication Channels | n (n-1)/2 | n is the number of project members | The solution provides you the amount of communication channels your project has with a given number of project members. A quick hint, n includes the PM. | Communication Management | 1. Jerry recently took over a project after another project manager left. He needed to determine how many communication channels existed to ensure he was effectively reaching all his stakeholders. Looking through his stakeholder registry and removing the prior PMP, the project has 43 members. How many communication channels exist? |
Pert Estimation (aka Beta Distribution) | E= (O+4M+P)/6 | E is the best estimate of the time it will take to complete a task O is the optimistic estimate M is the most likely estimate P is the pessimistic estimate. | The solution provides you the best estimate on how long a task will take to complete. Hint: Pert or beta is the most common estimation formula, as it is more exact. Additionally, this could also be referred to as weighted estimation. | Time Management | 2. If the task has an estimate of 13 days, an optimistic estimate of 10 days, and a pessimistic estimate of 20 days. What is the weighted estimate to complete this task? |
Triangular Estimation | E= (O+M+P)/3 | E is the best estimate of the time it will take to complete a task O is the optimistic estimate M is the most likely estimate P is the pessimistic estimate. | The solution provides you the best estimate on how long a task will take to complete. Hint: On the exam this formula could also be referred to as straight estimation. | Time Management | 3. If the task has an estimate of 6 days, an optimistic estimate of 4 days, and a pessimistic estimate of 10 days. What is the straight estimate to complete this task? |
Standard Deviation | (P-O)/6 | P is the pessimistic estimate O is the optimistic estimate | This formula helps you determine the possible range an activity could take. Once you determine the standard deviation, add it and subtract it from the estimated duration you found using Pert or Triangular estimation. This will give you the range in activity. | Time Management | 4. If the task has an optimistic estimate of 7 days and a pessimistic estimate of 15 days, what is the standard deviation of the task? |
Cost Variance | CV=EV-AC | EV is earned value, or the actual value of the work completed to a certain point in a project AC is the actual cost, or the actual amount spent to a certain point in a project. | CV, cost variance, helps you determine the difference in the actual cost to date to what work is complete to date. If CV 0, the project is within budget In the simplest of terms, if CV 0, things are good! | Cost Management | 5. If planned value is 400, earned value is 350, and actual cost is 450, what is the cost variance? |
Schedule Variance | SV=EV-PV | EV is earned value, or the actual value of the work completed to a certain point in a project. PV is planned value, or the budgeted value of the work at a certain point in a project. | SV, schedule variance, helps you determine the difference in the actual work completed for the project from what was planned. If SV 0, the project is ahead of schedule In the simplest of terms, if SV 0, things are good! | Cost Management | 6. If planned value is 500, earned value is 575, and actual cost is 450, what is the schedule variance? |
Cost Performance Index | CPI= EV/AC | EV is earned value, or the actual value of the work completed to a certain point in a project AC is the actual cost, or the actual amount spent to a certain point in a project. | CPI, or cost performance index helps you determine the amount of work you are getting based on the money spent. If CPI 1, the project is within budget In the simplest of terms, if CPI 1, things are good! | Cost Management | 7. If planned value is 500, earned value is 575, and actual cost is 450, what is the cost performance index? |
Schedule Performance Index | SPI= EV/PV | EV is earned value, or the actual value of the work completed to a certain point in a project EV is earned value, or the actual value of the work completed to a certain point in a project. PV is planned value, or the budgeted value of the work at a certain point in a project. | SPI, or schedule performance index helps you determine the percentage of work complete based on the planned work rate. If SPI 1, the project is ahead of schedule. In the simplest of terms, if SPI 1, things are good! | Cost Management | 8. If planned value is 400, earned value is 350, and actual cost is 450, what is the cost variance? |
Estimate at Completion (EAC) (There are four variations of this formula based on what the question asks for. This is why it is important to understand what the numbers mean.) | 1. AC + Bottoms - up ETC 2. BAC/CPI 3. AC + (BAC - EV) 4. AC + (BAC - EV)/ (CPI x SPI) | AC is the actual cost, or the actual amount spent to a certain point in a project. EV is earned value, or the actual value of the work completed to a certain point in a project. ETC is the estimate to completion, or how much more money the project will cost to complete. BAC is budget at completion, or what was budgeted for the entire project at completion. CPI is the cost performance index, or the evaluation of work completed for the money spent. SPI is the schedule performance index, or the evaluation of work completed to work planned. | EAC, or estimate at completion helps you determine from this date forward how much you can expect the project to cost at completion. The word “at” is very important for this formula! Let’s discuss why you would use these four formulas to assess this estimate. Formula 1 uses the actual cost to date and adds the new estimated cost to completion. You would use this formula if there was a flaw in the original estimate. Formula 2 is used if the project is on target, tracking to the budget at completion and there are no variations in rate of spending expected. Formula 3 is used when there have been atypical differences in the actual cost of the project, but those differences are believed to be corrected and the remaining expenditures should be inline with what was budgeted Formula 4 is used if there are differences in the project that are expected to continue. The main difference with this formula and formula 2 is the project schedule is critical and must be met, so all expenses will need to be flexible to meet the deadline. | Cost Management | Let’s test if you can pick the right formula with these two examples: 9. In your current project the planned value is 400, earned value is 350, and actual cost is 450. Based on the work effort needed to date the team determined the original $1000 estimate is no longer valid. A reestimate of the remaining tasks is 750. What is the current estimate at completion for this project? 10. In your current project the planned value is 400, earned value is 350, and actual cost is 450. The project budgeted 1,500 at completion. Considering the challenges experienced early in the project are resolved, what is the current estimate at completion? |
To-Complete Performance Index (TCPI) | (BAC-EV)/(BAC-AC) | AC is the actual cost, or the actual amount spent to a certain point in a project. EV is earned value, or the actual value of the work completed to a certain point in a project. BAC is budget at completion, or what was budgeted for the entire project at completion. | TCPI, or to-complete performance index helps you understand what pace the remaining tasks must be completed to keep the project within budget. TCPI 1, the project does not need to change speed to complete within budget. In the simplest terms, TCPI 1 things are good! | Cost Management | 11. The project was originally budgeted to spend $2,000. At this point your actual cost is 1,500 and 1,200 worth of work is complete. What is the TCPI for the project? |
Estimate to Complete (ETC) There are two ways to find ETC | EAC - AC Reestimate | EAC, or estimate at completion helps you determine from this date forward how much the project is expected to cost at completion. AC is the actual cost, or the actual amount spent to a certain point in a project. Reestimate, means just what the name implies, use the same strategies that you used during project planning to reestimate the cost of the work remaining. | ETC, or estimate to complete helps you understand the cost remaining to complete the project. | Cost Management | 12. Your project, with a budget at completion of $1,500, currently has a planned value of 400, earned value of 350, and actual cost of 450. The current work and all variances to date are expected to continue; based on this, what is the estimate to complete the project? |
Variance at Completion (VAC) | BAC - EAC | BAC is budget at completion, or what was budgeted for the entire project at completion. EAC, or estimate at completion helps you determine from this date forward how much you expect the project to cost at completion. | VAC, variance at completion is the difference in what the budgeted cost of the project was to what we now expect the project to cost. If VAC 0, the project is within budget In the simplest terms, VAC 0 things are good! | Cost Managment | 13. Your project, with a budget at completion of $1,500, currently has a planned value of 400, earned value of 350, and actual cost of 450. The current work and all variances to date are expected to continue; based on this, what is variance at completion? |
1. There are 946 communication channels. Did you remember to add yourself back into the equation? Remember the PM is always included and you removed the other PM from the team member total.
2. The PERT estimate is 13.667. Did you use the PERT formula? Remember weighted, beta, and PERT all mean the same thing.
3. The Triangular estimate is 6.667. Did you use the triangular formula? Remember straight and triangular are the same thing.
4. The Standard Deviation is 3.667. Note, you might get some PMP exam questions that ask you to find the range. Don’t let these fool you. You’ll need to find both the estimate and the standard deviation.
5. The CV is -100. Considering this answer is this a good thing or a bad thing? Since CV is <0, the project is over budget – which is a bad thing.
6. The SV is 75. Considering this answer is this a good thing or a bad thing? Since SV is >0, the project is ahead of schedule – which is a good thing.
7. The CPI is 1.278. Considering this answer is this a good thing or a bad thing? Since CPI is >1, the project is tracking within budget – which is a good thing.
8. The SPI is 0.875 Considering this answer is this a good thing or a bad thing? Since SPI is <1, the project is tracking off schedule and not getting as much work complete for the money spent – which is a bad thing.
9. The EAC is $1,200. Did you catch that the budget was no longer valid? This should have clued you into using formula one. The additional information you need was the new estimate to completion (ETC), which was 750.
10. The EAC is $1,600. Did you catch that the challenges are corrected? This should have clued you into using formula three.
11. The TCPI is 1.6. Did you realize when the question stated work complete of 1,200 that was the earned value of the project? Remember we need to quantify work and the easiest way is using a dollar amount. Considering the answer, is this a good thing or a bad thing? Since, TCPI is > 1, the project is tracking on pace and no adjustment is need – which is a good thing.
12. The ETC is $1,478. To find ETC you probably noticed that you first need to find EAC. Reading this question, the information that variances are expected to continue should have alerted you to use formula two for EAC. Finding out that EAC is $1,928 allowed you to then find ETC.
13. The VAC is -$428. This question used the same logic as above. You must first find EAC and with the variances continuing you knew to use formula two. Finding out that EAC is $1,928 allowed you to then find VAC. Considering the answer is this a good thing or a bad thing? Since VAC is <0, the project is overspending – which is a bad thing.
Overall this is a helpful overview of the PMP Formulas to expect on the exam.
However, if this is your first time through this blog, I would suggest spending some time reviewing the entire communication, cost, and time M=management knowledge areas. Once you review these areas and have a better grasp of why and when you use these formulas, let’s work through them again! I promise with a better understanding of what these numbers mean and why they are important, you will soar through your future attempts completing these formulas.
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]]>The post 7 Example PMP Earned Value Questions appeared first on Magoosh PMP Blog.
]]>Hold up! This article is only for folks who consider themselves intermediate at PMP earned value questions and want to test their knowledge. If you’re just getting started with EVM, check out our brief overview of PMP Topics here.
Let’s do a brief review before diving into the sample questions.
Cost & Schedule
Remember that the variance calculations require that you subtract, while the indexes require that you divide. Here is the key takeaway and best way to remember variances and indexes. Know it!
Earned Value (EV) is your key indicator. To understand cost performance, compare EV to actual costs (AC). To understand schedule performance, compare EV to planned value (PV).
For cost, compare EV to AC, because that will tell you how efficiently you are spending your money. For schedule, compare EV to PV, because that will tell you how far along you are compared to what you planned.
Some folks choose to memorize whether CPI & SPI greater or less than 1 is good or bad. We recommend that you really learn the material, rather than relying on memorization. That said, it is crucial to know some basic formulas before you interpret them. Here are some additional key formulas to know. (For all formulas, including non-EVM-related ones, visit our How to Do a PMP Brain Dump article.)
Estimate At Completion (EAC) & Estimate To Complete (ETC)
Note: I like to do this one in a table format because the EAC & ETC formulas are closely related, and it is easy to complete the table by relating ETC to EAC and vice versa.
EAC | ETC | |
---|---|---|
If there’s no variance at all | BAC | EAC - AC |
If there is variance and it is expected to continue | BAC/CPI | BAC/CPI - AC |
If there was variance, but now it’s gone | AC + BAC - EV | BAC - EV |
If your original estimates are fundamentally flawed | AC + new ETC | new bottom-up estimate |
If you are over budget and past due | [(BAC - EV) / (CPI * SPI)] + AC | [(BAC - EV) / (CPI * SPI)] |
Additional Cost Formulas
Depending on your particular situation, you may or may not refer to the formulas while practicing these questions. When I was studying for the PMP exam, I found it helpful to reference formulas and then wean myself off them later.
Although it is important that you practice difficult EVM questions to ensure that you thoroughly understand the concept, I encountered few, if any, difficult EVM questions on my particular PMP exam.
Given a project with the following characteristics, answer the following questions:
1. How is the project performing?
A. Over budget and ahead of schedule
B. Under budget and ahead of schedule
C. Over budget and behind schedule
D. Under budget and behind schedule.
2. What is the actual cost of the project right now?
A. $1800
B. $2000
C. $2200
D. $2400
3. Assuming that the COST variance experienced so far in the project will continue, how much more money will it take to complete the project?
A. $400
B. $440
C. $2800
D. $2840
4. If the variance experienced so far were to stop, what is the project’s estimate at completion?
A. $2400
B. $2440
C. $2600
D. $2800
5. What is the project’s TCPI using the project’s budget at completion?
A. .5
B. 1
C. 1.5
D. 2
6. Senior management wants to the percentage of the project that is complete. What should you report?
A. 75%
B. 83%
C. 92%
D. 95%
7. Imagine if instead of 10 months and costing $2200, the project was in month three and costing $4000. What formula might you use for BAC?
A. [(BAC – EV) / (CPI * SPI)] + AC
B. new bottom-up estimate
C. AC + new ETC
D. AC + BAC – EV
1. A – Over budget & ahead of schedule. The problem tells you that your CPI is .9091, and we know that CPI = EV/AC. Applying that, a CPI less than 1 means that we aren’t getting enough value for each dollar that we put into our project, so it is over budget. However, the project is ahead of schedule because we have built 20 birdhouses and after 9 months, we had expected to build only 2 birdhouses per month * 9 months = 18 birdhouses.
2. C – $2200. If you weren’t quite sure whether the project was over budget in the last question, you can use this problem to strengthen your knowledge. In this problem, we need to determine the AC. In the body of the problem, you are given the CPI and can determine the EV, so you can use the CPI formula to back out the AC. EV = 20 birdhouse & $100 per birdhouse = $2000.
3. B – $440. First, use the context of the problem to determine that you need the ETC when a variance exists and it is continuing. Based on that information, we know to use ETC = BAC/CPI – AC. We already know the CPI from the problem and AC from the solution to #2, so let’s find BAC.
4. C – $2600. A few of the EMV questions you encounter on the PMP exam will be fairly straightforward. This question is asking you for the EAC if a variance that was encountered on a project is expected to stop, so use EAC = AC + BAC – EV.
I should take a moment to point out that this problem wouldn’t be so straightforward if it were standing on its own. Based on our answers to the previous three questions, we already knew AC, BAC, and EV. The real PMP doesn’t have answers that build upon each other, so your steps to solving this problem on its on would be less straightforward. Instead you would first determine which equation to use, then calculate AC using the CPI (as in question #2), then BAC as in question #3, then EV as in question #2.
5. D – 2. Fortunately, PMI has to tell you which TCPI formula to use. This one says use BAC, so TCPI = (BAC – EV)/(BAC – AC) = (2400 – 2000) / (2400 – 2200) = 400/200 = 2.
6. B – 83%. If you have the percent complete formula in front of you, then this problem is really easy. Just plug EV & BAC into (EV/BAC)*100%, and you’re all set. If you got this problem wrong, then review this article on EV, PV, and AC.
7. C – AC + new ETC. It may be tempting to pick A, but remember that the EAC formula is for when a project is past due. If you find that your estimates are wildly wrong at the beginning of a project, it is best to develop a bottom-up estimate to complete and then add that to your actual costs.
Beginning your studies for the EVM portion of the exam can be challenging, especially if math isn’t your strong suit. If you easily mastered these and tougher questions, you may be ready for the Cost Management portion of the PMP exam. If you need more help, I recommend really understanding the basics of EV, PV, and AC first.
How is studying for the EVM portion of your PMP exam going? Whether it’s going great or you’re feeling terrible, please share below! We can all work together to find a solution that works for you.
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]]>The first time you read the PMBOK guide, you encounter a tidal wave of information about earned value management. Instead of giving you all of the information, we’re going to focus on the most basic information so that you can have a solid foundation of knowledge.
PV is your baseline. PMBOK calls it the “authorized budget assigned to scheduled work” (218). It is the definitive number to which you compare AC and EV.
AC is the actual cost of your project so far. Use it when you are measuring costs. Re-read that sentence — it sounds silly, but compare it what PMBOK says. AC “is the realized cost incurred for the work performed on an activity during a specific time period” (219). PMBOK, by being technical, actually makes something as simple as “actual cost” confusing at first glance.
When you’re just getting started with EVM, just remember that actual cost is what you have actually spent.
EV “is a measure of work performed expressed in terms of the budget authorized for that work” (PMBOK, 219). In other words, EV tells you how far along your project is. Let’s use an example to illustrate these three terms:
Because you’re one cool dude and future PMP, your friend asks for help in building his motorcycle from scratch. After planning, you determine that the motorcycle will cost $100,000 at completion. You plan for the project to last from July 1 to December 31 and have allocated costs and schedule equally across duration of the project. On October 1, you realize that the motorcycle is only 25% complete and has cost $75,000. What are the PV, EV, and AC of the motorcycle?
Try it yourself, then scroll down for answers.
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….
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..
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PV = $50,000. You planned for the motorcycle to cost $100,000 after six months, and you are three months into the project. Additionally, you allocated cost and schedule equally across months, so 3/6 months * $100,000 = $50,000.
EV = $25,000. The motorcycle is only 25% complete. 25% * $100,000 = $25,000.
AC = $75,000. The easiest one — the problem tells you that the motorcycle has so far cost you $75,000.
Ready for more formulas? Check out our advanced article on Sample Questions on PMP Earned Value Management.
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