# Example with formular Cost plus Fixed Fee, Cost plus Award Fee and Cost plus Incentive Fee

### 16. Cost plus Fixed Fee

Formula: Cost plus Fixed Fee = Cost + n

This is done in a contract where the buyer agrees to pay all the costs plus a pre-decided amount to the seller. ‘n’ stands for the fixed amount that is to be paid apart from the costs. With the cost at 50 and ‘n’ at 5 that calculation will be a simple addition.

Cost + n

= 50 + 5

While the buyer pays 55, if the cost increases to 70, the buyer will pay 75.

### 17. Cost plus Award Fee

Formula: Cost plus Award Fee = Cost + n

In this method the seller does get paid for the cost incurred with the addition of a fixed fee called an award fee. This is a more dynamic type of scenario where n is calculated based on pre decided guidelines. If the Cost is 50 and ‘n’ is 8, then the Cost-plus award fee would be

Cost + n

50 + 8

The buyer pays 58 in this scenario.

### 18. Cost plus Incentive Fee

Formula: Cost plus Incentive Fee = Cost + n

This is like the cost-plus award fee model; the key difference is that the incentive is paid only when the project is completed within the estimated period. In this model the magnitude of incentive will depend on the speed with which the project gets completed. This is also a scenario where ‘n’ depends on how quickly the project got completed. The incentive might be 8 if the project is finished within 8 weeks. For 8 to 10 weeks the incentive drops to 4. For more than 10 weeks there is no incentive. If the cost is 50 and the project is finished in 9 weeks, then the Cost-plus incentive fee would be.

Cost + n

=50 + 4

The buyer pays 54 in this case, if the cost remains constant and the project is completed in 11 weeks the buyer pays only 50.

## Example with formular Present Value (PV), Future Value (FV), Target Price and Point of Total Assumption

22. Present Value (PV) Formula: PV = Future Value / (1 + i)n   Present Value (PV) considers the time value of money. This is useful to calculate what a future amount of money would mean today if adjusted for time. ‘i’ represents the interest rate or the discounting rate. ‘n’ represents t...

## Example with formular Return on Investment (ROI), Payback Period and Cost Benefit Ratio

19.  Return on Investment (ROI) Formula: ROI = (Net Profit / Cost of Investment) x 100   Return on Investment is the measurement of the rate at which the amount invested in a project gets recovered. This is expressed as a percentage. If net profit is \$2000 and the Cost of Investment is ...

## Example with formular Standard Deviation, Communication Channels and Cost plus Percentage of Cost

13. Standard Deviation Formula:  Standard Deviation (σ) = (Pessimistic – Optimistic) / 6  Standard Deviation expressed by the character ‘ σ’ represents the degree to which the values can change within a project. Let's imagine a task that takes 4 days to complete in the best case and 16 d...

## Example with formular Variance at Completion, Estimate to Complete (ETC) and To Complete Performance Index (TCPI)

10. Variance at Completion Formula:  Variance at Completion = Budget at Completion – Estimate at Completion   Variance at Completion calculates how much the project budget is accurate to the planned budget. This will help you to plan and estimate requirements more accurately.   If ...

## Example with formulas Beta Value in PERT, Expected Monetary Value (EMV) and Risk Priority Number

1. Beta Value in PERT Formula: Beta = (Pessimistic + 4 Most Likely + Optimistic) / 6   Beta value in PERT (Program Evaluation and Review Technique) is a weighted average taken from three values. Optimistic Value, Most Likely Value, and Pessimistic Value. Suppose a task takes 5 days to fi...

## Example with formular Cost Performance Index (CPI), Schedule Performance Index (SPI) and Estimate at Completion (EAC)

7.  Cost Performance Index (CPI)   Formula CPI = Earned Value / Actual Cost   The Cost Performance Index measures the cost efficiency of the project in utilizing the funds invested in it.  It is calculated through dividing earned value by actual cost. A higher CPI means that you are exce...

## 25 PMP Formulas you must remember to pass the PMP exam

Purpose Formula Description Calculate Beta Value in PERT (Program Evaluation and Review Technique) Beta = (Pessimistic + 4 Most Likely + Optimistic) / 6 This equation finds the expected value by giving weightage to the most likely Value. Calculate Estimated Monetary ...

## Example with formulas Earned Value, Cost Variance and Schedule Variance

4. Earned Value Formula:  EV = % Complete x Budget at Completion   Earned Value estimates the amount of work done in terms of monetary value.   It is calculated by multiplying the percentage of work completed and the project value represented by budget at completion.   If the Bu...