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Project Management Formulae
Acronyms Used
AC Actual Cost of the Work Performed earlier name used ACWP
BAC Budget at Completion (Project budget)
CV Cost Variance
CPI Cost Performance Index
EAC Estimate At Completion (measures total work when the project is complete)
EF Early Finish
ES Early Start
ETC Estimate To Complete (measures work which is still outstanding)
EV Earned Value earlier name used - BCWP - Budgeted cost of work performed
IRR Internal Rate of Return
LF Late Finish
LS Late Finish
NPV Net Present Value
PV Planned Value earlier name used BCWS -Budgeted cost of work scheduled
SV Schedule Variance
SPI Schedule Performance Index

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VAC Variance at Completion


Cost Formulae

CV = EV - AC
CPI = EV / AC

CV also known as project progress measure formula.
CV (Cost Variance) measures money. Positive values indicates project is in good condition
(Project NOT over budget)
CPI indicates efficiency. Values grater than 1 (one) indicates project is in good condition

Schedule Formulae

SV = EV - PV
SPI = EV / PV

SV also known as Project progress measure formula.
SV (Schedule Variance) measures time. Positive values indicates project is in good condition
(Project NOT over time - ahead of schedule)
SPI also known as project efficiency indicator.
SPI indicates efficiency. Values grater than 1 (one) indicates project is in good condition

Forecasting Formulae

EAC = BAC / CPI (simplest formula: typical or no variances)
EAC = AC + (BAC - EV) (atypical variances)
EAC = AC + (BAC - EV) / CPI (typical variances)
EAC = AC + ETC
ETC = BAC - EV (atypical variances)
ETC = (BAC - EV) / CPI (typical variances)

EV = (% complete) * BAC
VAC = BAC - EAC
Description Formula Comments, assuming, at the time of calculation

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EV Estimated value of work
completed
Estimated value of work completed
CV EV AC Positive Good Under budget
Negative not good- Over budget
0 (zero) not bad on budget
CPI EV AC Values grater than 1 (one) indicates project is in
good condition - For every $1 spent, getting more
and $1.
PV (Time now total time ) x total
cost- BAC
What should be the present value of project
SV EV PV Positive Good Ahead of schedule
Negative not good- Behind schedule
0 (zero) not bad on schedule
SPI EV PV Values grater than 1 (one) indicates project is in
good condition
BAC Total budget for project Total budget for project
EAC BAC CPI (when no change in
total cost of project)

AC + ETC ( when extra
cost/time added to complete the
task)

AC + (BAC EV) (when there is
a non-uniform variance in original
estimates)


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AC + ((BAC EV) CPI) (when
there is an uniform variance in
original estimates)

ETC EAC AC Extra cost to original estimates
VAC BAC EAC Changes in original estimates

A project authorized for cost of $100,000 for duration of 1 year. The project just completed 6 months
and the amount spent so far is $60,000 and the work completed is 60%.
EV % Completed x BAC 60000
CV EV AC 0 (zero) not bad on budget
CPI EV AC 1 (one) not bad on budget
PV (6 16 ) x 100,000 $50,000
SV EV PV 10,000 Good Ahead of schedule
SPI EV PV 1.2 indicates project is in good condition
BAC 100,000 (Given) Total budget for project
EAC 100,000 1 100,000 on budget
ETC 100,000 60000 $40000 required to complete the project
VAC 100,000 100,000 No change in initial estimated cost



PERT Formulae for Activity Duration Estimating

Activity Length = (P+4M+O) / 6 ( Also called Three point Estimate)

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Activity Standard Deviation, (sigma) = (P-O) / 6 (also called, three-point estimate formula)

Activity Variance = ((P-O) / 6)
2


Where, P is the pessimistic estimate,
O is the optimistic estimate and
M is the most likely estimate.

PERT is probabilistic, using statistical estimates of durations. Whereas,
CPM is deterministic, using specific durations.


Critical Path Method Formulae for Activity Duration Estimating

Activity Duration = EF - ES or LF - LS
Activity Float = LS - ES or LF - EF

CPM is deterministic, using specific durations. Whereas,
PERT is probabilistic, using statistical estimates of durations.

Quality Formulae (Normal Distribution)

1 (sigma) = 68.26%
2 (sigma) = 95.46%
3 (sigma) = 99.73%
6 (sigma) = 99.99985% (say, out of 100,000 products less than 1.5 project will pave problem)
Financial Formulae (Used in budgeting and project selection)

Payback period (PP) Number of years until the sum of future cash flows equals the initial investment.
In other words PP represents the amount of time that it takes for a capital budgeting project to recover
its initial cost.

PP = The costs of project or investment Annual Cash Inflows

There are at least two major drawbacks associated with the Payback Period model:

1. PP ignores any benefits that occur after the Payback Period, and so does not measure total
incomes

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2. PP ignores the time value of money

Example of a Payback Period calculation:

A project costing a total of $400,000. The expected returns of the project amount to $50,000
annually.

Payback period (PP) would be $400,000 $50,000 = 8 years.
If project A has PP of 2 years and Project B has 4 years. Prefer higher lesser PP project

Net Present Value

The Net Present Value (NPV) of an investment (project) is the difference between the sum of the
discounted cash flows which are expected from the investment and the amount which is initially
invested.
NPV is an amount that expresses how much value an investment will result in. This is done by
measuring all cash flows over time back towards the current point in present time.
If the NPV method results in a positive or More amount, the project should be undertaken.
Although NPV measurement is widely used for making investment decisions, a drawback of NPV
is that it does not account for flexibility or uncertainty after the project decision.


NPV calculation in three steps:

1. Calculation of expected free cash flows ( per year) that result out of the investment
2. Subtract (discount) for the cost of capital (an interest rate to adjust for time and risk) - This gives
Present Value.
PV: The present value is the discounted value of a future cash flow. A "discount" is required
because the present value of money is greater than the future value (FV) of money.
PV = FV/(1 + r)
n
, where r is the interest rate (or cost of capital) and n is the years.
3. Subtract the initial investments.

Examples:
What is the present value of an investment which pays $400,000 eight years from now with an
interest rate of 20% ?


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Present Value = $400,000 (1 + 0.20) 8 $93027
What is the present value of $400,000 received eight years from now with an interest rate of
20% ? is PV is more, less or equal to $400,000.
Answer: Less (see above calculation)

A project cost of $400,000 and assume cost of capital is 20% NPV for eight (8) years

Year PV
Year 1 333333
Year 2 277778
Year 3 231481
Year 4 192901
Year 5 160751
Year 6 133959
Year 7 111633
Year 8 93027
Present Value is $1534864.
NPV = $1,534,864 $400,000 = $1134864
If project A has NPV of $1000 and Project B has $2000. Prefer higher NPV project
IRR - the Internal Rate of Return is the discount rate when the present value of cash flows is the same as
the initial investment. Higher IRRs are preferred to lower ones. IRR is determined by trial and error,
computing NPV with various interest rates.
If project A has IRR of 30% and Project B has 20%. Prefer higher IRR project
Communication Formula:
Communication Channels = (N * (N-1)) / 2
Where N is the number of stakeholders
Let us say, Your project has 10 member team (including you), the communication channels are:
(10 x (10 1)) 2 = (10 x 9) 2 = 45 channels
Note: This document is not review yet