If you’re studying for the PMP® exam, you have probably already learned that you need to know some frequently used project management formulas—along with where to use them, how to use them, how to compute them, and most importantly, how to derive the values. In fact, many say that the most difficult part of the exam is learning all the PMP formulas.

We’ve put together a list of cost management formulas that you’ll need to know, along with a breakdown of how and when to use them.

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Cost Management Knowledge Area PMP Formulas

Although there are more than 25 project management formulas that you might need to tackle during the exam, there are a few cost management formulas that are very important, and which you’re likely to encounter more than once during the exam. Further, many of the calculation-based questions are based on these top 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)]

Formulas 1 – 4

Take a look at the first four formulas above and try to find out the commonalities in them. Not getting it yet? Yes, the easiest part is Earned Value (EV). It appears above in all the formulas, which means you have to derive the values of cost variance, schedule variance, cost performance index, and schedule performance index, keeping Earned Value in mind at first.

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Earned Value comes before any other value. Most importantly, if you are working cost-related questions; think about actual cost with Earned Value. If the question is about a schedule, think about planned value along with earned value. If it is a matter of variance, you need to subtract actual cost and planned value from earned value—depending on the situation.

Similarly, if it is a question of getting index values, actual cost and planned value will be divided from earned value. If it is a matter of cost performance index; actual cost will be divided from earned value and if it is schedule performance index; planned value will be divided from Earned Value. So, in all these circumstances, Earned Value plays a huge role, which is why it’s at the top of the list.

Formula 5

5

EAC = AC + Bottom-up ETC

Since you will derive the estimate at completion, you need to focus on the actual costs incurred; only then can you obtain the future value you need for processing the project. See the above formula; it is used when the original estimate is fundamentally flawed. You use this formula to calculate actual plus new estimate for the remaining work.

Formula 6

6

EAC = BAC / Cumulative CPI

If you were asked during the examination whether you are a good project manager, working on the project as planned—i.e., are you able to maintain positive values in both CPI and SPI—in this case, you would use the above-mentioned formula. This formula is used when the original estimation is met without any deviation.

Formula 7

7

EAC = AC + (BAC – EV)

If you find yourself in bad shape during the project execution and have incurred more money on the project than expected or planned, use this formula to calculate the estimate at completion value. Again, your actual cost will be used first.

Formula 8

8

EAC = AC + [BAC – EV / (Cumulative CPI ´ Cumulative SPI)]

This formula is used to calculate actual to date plus the remaining budget changed based on performance—used when we believe the current ratio is typical as planned. In order to meet the schedule as decided earlier, we calculate the EAC accordingly to meet that schedule.

Preparing for the Exam

In order to best decide which formula to use and where, make sure you’re reading the question carefully and consider the hypothetical situation, a project manager would be in when faced with this sort of problem.

In addition to these important cost management formulas, you’ll want to stay current with any updates on the Project Management Institute website. Simplilearn offers online training for the PMP certification that delivers hands-on projects in scope management, time and cost Management, and risk assessment, designed to prepare you as much as possible for the PMP® exam.

Christina is a marketing communications and project management leader with over a decade of demonstrated experience and expertise. As a certified Pragmatic Marketer and Project Management Professional, Christina brings together the art and science behind these two disciplines to drive awareness and visibility to brands, while creating a functional environment that fosters creativity, operational effectiveness and high performance within teams. Her enthusiasm to work on strategic marketing initiatives and develop integrated campaigns really brings to life the creativity and interdisciplinary skills required to engage customers, prospects and business partners.