Dear PM Advisor, Feb 10, 2014

Dear PM Advisor, I struggle with all the Earned Value Formulae. Any hints for making this portion of the PMP test easier to study for?

Can’t see the value in Albuquerque

Dear Can’t,

Once you struggle with the more philosophical questions on the PMP exam you’ll see the calculations like those Earned Value ones as a breath of fresh air. But first let me give you some hints to make these easier for you.

You are usually given some numbers and asked to calculate the rest. I’m going to assume you know some elementary Algebra before you take the test. Here are the three numbers you are usually given: Planned Value (PV), Actual Cost (AC) and Earned Value (EV). If they are evil they will give you one of the below calculations and you will need to use that basic Algebra to determine the missing number from above. Either way, you’ll need to remember the following formulae and below I’ll show you the easy way to do this.

There are four rules to remember:

  1. EV always come first in the calculation
  2. AC goes with anything that says Cost
  3. Negative Variances are always bad
  4. Indexes less than 1.0 are always bad

So let’s use these rules. You are asked to calculate Cost Variance. You get Variances by subtracting one number from another. Rule 1 says EV always goes first. Rule 2 says AC goes with any Cost calculation.

Thus CV = EV –AC  Simple, right?

What does that leave you with for Schedule Variance?  EV goes first, Rule 2 is not in effect so the only thing left to put in the equation is PV.

Thus SV = EV – PV

The same two rules apply for the Index calculations.

Cost Performance Index requires EV to go first, only this time the EV goes in on top of the line. We’re talking about cost so AC goes on the bottom.

Thus CPI = EV/AC

Schedule Performance Index, SPI, must use PV since that’s all that’s left.

Thus SPI = EV/PV

Rules 3 and 4 help you convert formulae into reality. If you have a negative SV, you are behind schedule. A negative CV means you are OVER budget. Don’t get confused by the negative number. Negative is bad, being over budget is bad.

Same with the indexes. Less than 1 is bad so a SPI of 0.8 means you are behind schedule. Over 1.0 is good so a CPI of 1.2 means you are UNDER budget.

Remembering these hints will help you with about 5 of the 200 questions you will be faced with. For the one or two questions that require TCPI or ETC, you just have to memorize the formulae. More on these in a future post.

Good luck,

PM Advisor

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