Cost Formulas & Variables – Important Formulas and Variables for PMP

Cost Formulas & Variables – Important Formulas and Variables for PMP

Preparing for the PMP credential examination requires frequent use of many key variables and formulas. Like other aspirants, your concerns are primarily about how to use, where you can use, and most importantly, how do you derive the correct values from these formulas.
A standard way of handling variables/formulas is essential, as incorrect methods of remembering them often lead to wrong results. This chapter is based on Chapter 7.
Important Formulas–Cost Management
Cost Variance (CV = Earned Valu (EV) – Actual cost (AC)

Cost Performance Index (CPI = EV/AC)

Schedule Variance (SV), = Earned Valu (EV) – Preplanned Valu (PV).

Schedule Performance Index (SPI = EV/ PV)

Glossary Terms
Sunkcost – These are costs that have occurred in the past but cannot be recovered.

Opportunity cost – This is the difference between the value achieved by choosing one path and 100percent of the value of the next best alternative.

Value engineering/analysis – This is a way to reduce costs without reducing the scope of a project.

Cost Benefit Analysis (CBA/BCA) – Determines feasibility and other variables of BCR.

Payback Period – The total time it takes to recover the investment.

(Gain-Cost/Cost = Return On Investment (ROI) less profitability/effectiveness of investment

Time Value of Money – Present Value (PV), value / (1+interest rates)*year, Future Valu (FV), value / (1+interest rates)*year.

NetPresent Value = PV of cash inflows – PV cash outflows (cost).

Funding for project – refers to funding with equity, self funding, or funding with debts.

Discount rate -This is the rate used to calculate the present value of the projected yearly benefits/costs.

ITTOs – Project Cost Management
Plan Cost Management
Project Management PlanProject CharterEnterprise Environment FactorsOrganization Process Assets Expert JudgmentAnalytical TechniquesMeetingsess Assets Cost Management Plan Estimate Costs
Cost Management PlanHuman Resource Management PlanScope BaselineProject ScheduleRisk RegisterEnterprise Environment FactorsOrganization Process Assets Expert JudgmentAnalogousEstimatingParametricEstimatingThree PointEstimatesReserve AnalysisCost of QualityProject Management SoftwareVendor Bid AnalysisGroup Decision Making Techniques Activity Cost EstimatesBasis of EstimatesProject Document Updates Determine Budget
Cost Management PlanScope BaselineActivity Cost EstimatesBasis of EstimatesProject ScheduleResource CalendarsRisk RegisterAgreementsOrganization Process Assets Cost AggregationReserve AnalysisHistorical RelationshipsFunding Limit ReconciliationExpert JudgmententsOrganization Process Assets Cost BaselineProject Funding RequirementsProject Document Updates Control Costs
Project Management PlanProject Funding RequirementsWork Performance DataOrganization Process Assetstml> entsOrganization Process Assets Earned Value ManagementForecastingTo Complete Performance Index (TCPI)Performance ReviewsProject Management SoftwareReserve Analysiss Cost ForecastsChange RequestsWork Performance InfoOrganization Process Assets UpdatesPM Plan UpdatesProject Document Updates Plan Cost Management
The Cost Management Plan addresses:
Level of accuracy / level ofprecision

Unit of measurement

WBS procedure links to control account (CA).

Limit of control

Reporting and earned value rules