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Essential Formulas in Project Management: A PMP learner’s journey

Écrit par Alice Meley
Paru le 5 juillet 2024

formula

One of the first things you learn while preparing for the PMP exams is that project management is not just about processes and procedures, but also about people and environment.

I agree and have noticed throughout my career that the company environment and relationship between management and colleagues are key to success.

To succeed as a project manager, however, you also need solid practical skills, such as knowledge of different methods, tools, processes, and…formulas.

Formulas in project management are essential tools for planning, monitoring, controlling and closing projects. They provide a structured approach to managing the project effectively, ensuring that time, cost and scope objectives are met. Mastering these formulas improves your decision-making and problem-solving skills, so you can achieve better results for your projects.

In this article, I will discuss the main formulas to remember and use throughout the project management processes, i.e.

  • during preparation (which corresponds to the Initiation and Planning process groups in the PMP),
  • execution (Execution and Monitoring & Control process groups) and,
  • closure (Closing Process Group) of a project.

When relevant, I will try to provide examples drawn from my own experience to give greater depth to my explanations.

Before I Start a Project - Initiation and Planning process groups

FormulasBefore diving into project execution, you ought to set a solid foundation. Here are some key formulas that help me in planning and estimating.

Estimating Costs: Cost Estimation

Formula: Cost Estimate = ∑ (Cost of Activity + Contingency Reserve)

This formula mainly used in Predictive Projects helps you calculate the total estimated cost of the project by summing up the costs of all individual activities, including contingency reserves to manage risks.

When I worked for an international public institution, I managed the yearly budget, allocating expenses and preparing a comprehensive plan. This included overseeing the scholarship program's costs such as tuition, travel, and accommodation, with a contingency reserve for unforeseen expenses. This approach ensured a realistic and complete budget for the year.

Estimating Time: Three-Point Estimation

In waterfall, you need to draw up a fairly concrete and reliable schedule with a beginning, an end and major milestones. This involves estimating the time each activity will take and then adding them up.

The formulas I am going to show you use the following initials :

  • E is the expected time estimate
  • O is the optimistic time estimate
  • M is the most likely time estimate
  • P is the pessimistic time estimate

Formula: E = (O+M+P) / 3

This simpler average formula considers all three estimates equally, which might be useful when there's less certainty about the most likely scenario.

Alternative Formula: E = (O+4M+P) / 6

This weighted average formula provides a more realistic estimate by giving more weight to the most likely scenario.

Risk Assessment: Risk Score

Still in the context of a predictive project, it is essential to identify potential risks before the project starts, so as to be better able to deal with them at the time of execution. The risk register can be used to list risks and assess their probability of occurrence.

Formula: R = P × I

Where:

  • R is the risk score
  • P is the probability of the risk occurring
  • I is the impact of the risk if it occurs

This formula helps you quantify the risk by multiplying the probability of the risk event by its potential impact, allowing for prioritization of risk management efforts.

I had the opportunity to manage a multi-stakeholder program with a funder, a regulator and a partner in charge of executing the program. The three had different stakes and incurred their own risks. Clear identification and probability measurement of risks were essential.

Communication Channels

Effective communication, measured through the number of communication channels, is key throughout all phases to ensure stakeholder engagement and project success. The formula I use to calculate the number of communication channels is:

Formula: C = (n(n−1)) /2

Where:

  • C is the number of communication channels
  • n is the number of stakeholders

This formula helps you understand the complexity of communication within the project and plan accordingly to ensure clear and efficient information flow.

I had the opportunity to prepare a company move, which was going to turn working methods upside down. Generally speaking, such a change involves taking into account all the parties involved: the company's management, who know the project well, the managers, who will have to respond to their teams' expectations and concerns, and the employees, whose working habits will be turned upside down. But there are also all the support functions, the administrative staff and the team in charge of the project. All these different channels need to be mastered.

While I Execute a Project - Executing and Monitoring & Control process groups

During the execution phase, monitoring and controlling processes are vital.

formulasEarned Value Management (EVM) is a comprehensive project management technique that integrates scope, schedule, and cost variables to assess project performance and progress. EVM provides a quantitative measure of project performance and predicts future performance trends.

Before getting started, here are the different initials we'll be using:

  • EV is the Earned Value, it represents the value of work actually performed up to a specific point in time, expressed in terms of the budget authorized for that work.
  • PV is the Planed Value
  • AC is the Actual Cost
  • SV is the Schedule Variance
  • CV is the Cost Variance
  • SPI is the Schedule Performance Index
  • CPI is the Cost Performance Index
  • EAC is Estimate at Completion
  • VAC is Variance at Completion

 

Schedule control

Schedule Variance (SV) measures the schedule performance of the project. A positive SV indicates the project is ahead of schedule, while a negative SV indicates it is behind schedule.

Formula: SV = EV − PV

SPI indicates how efficiently the project is progressing compared to the planned schedule. An SPI greater than 1 means ahead of schedule, while less than 1 means behind.

Formula: SPI = EV / AC

When I was PMO for a major digital transformation project, these schedule control formulas helped us to demonstrate to contractors that their delay posed a risk to the project. This evidence meant that we could ensure that the service provider realized the importance of finding quick and effective solutions.  

 

Cost control

Cost Variance (CV) measures the cost performance of the project. A positive CV indicates the project is under budget, while a negative CV indicates it is over budget.

Formula: CV = EV − AC

CPI measures cost efficiency. A CPI greater than 1 indicates cost efficiency, while less than 1 indicates overspending.

Formula: CPI = EV / AC

 

Future Projection

Estimate at completion (EAC) provides a forecast of the total cost of the project at completion, useful for financial planning.

Formula: EAC = BAC/CPI

Estimate to complete (ETC) estimates the remaining cost required to complete the project.

Formula: ETC = EAC - AC

The Variance at completion (VAC) represents the amount of expected budget overrun or underrun at the end of the project. It allows the project manager to request additional funding as early as possible, or at least report the potential for an overrun.

Formula: VAC = BAC – EAC

One day I had to face up to the fact that the three-year program I was managing during COVID would need more time to achieve all its objectives. Going through this phase of concrete, rational calculations gave us the arguments we needed to request an extension to the program.

 

Let’s not forget Agile! Even though Agile or Scrum projects are much more flexible in terms of planning schedule and cost, performance measurement are fundamental to the project’s success.

Team Velocity

formulasTeam velocity helps you measure the amount of work your team can complete in a given iteration. It is useful for forecasting and planning future sprints.

Formula: Team Velocity = ∑ (Completed Story Points) / Number of Sprints

Where:

  • ∑(Completed Story Points) is the total number of story points completed by the team across all sprints.
  • Number of Sprints is the total number of sprints over which the story points were completed.

 

At Project Closure - Closing Process Group

At the project's closure, one formula comes in mind to ensure all objectives are met and to document the essential outcomes.

To-Complete Performance Index (TCPI)

formulasTCPI indicates the efficiency required to meet the budget at completion. A TCPI greater than 1 suggests a need for higher efficiency to stay within budget

Formula: TCPI = (BAC−EV) / (BAC−AC)

Where:

  • BAC – EV is the value of the remaining work
  • BAC – AC is the amount of funds remaining

I hope you've enjoyed reading this article and that it gives you some good ideas for better planning, execution and control of your projects! Don't forget that rational arguments are always a good way of making your voice heard, by your management or your teams!

Photo credit : ©denisismagilov©DmitriyDemidovich; ©duiwoy ; ©LessLemon; ©tarik_vision

Alice Meley

Based in Geneva, Switzerland, I am a passionate professional with over seven years of experience in project management across both public and private sectors. My unique background, combining diplomacy and management consulting, has allowed me to develop strong communication skills and the ability to solve complex problems. Driven by a deep interest in international relations and cultural exchanges, I constantly strive to broaden my horizons, whether by preparing for the PMP certification or engaging in various sporting activities.

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