Blogs / 25 PMP Formulas you must remember to pass the PMP exam

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 the number of time periods. The period used should be the same for both variables. If the interest rate is 10% and the time period is 5 years. A Future Value of $20,000 will have a Present Value as calculated below

Future Value / (1 + i)n

20000/ (1+ 10%) 5

12418.43

This means a future value of $20,000 in 5 years has a present value of $12,418 as of now.

23. Future Value (FV)

Formula: FV = Present Value x (1 + i)n

Future Value is an estimate of what a fixed amount of money would be valued at a given point of time in the future. ‘i’ is the interest rate and ‘n’ is the number of time periods. If Present value is $20,000, ‘i’ is 10% and time period is 5 years. Then we can calculate the Future value as

Present Value x (1 + i)n

20000 x (1+0.1)5

=32210.2

The Future Value of $20,000 in 5 years if the interest rate is at 10 percent will be $32,210

24. Target Price

Formula: Target Price = Target Cost + Target Fee

This is a simple addition of estimated cost and an agreed fee that is given to the seller on top of the target cost. This is useful when calculating price per unit. If Target Cost is $100 and Target fee is $20 the Target price will be Target Cost + Target Fee

100 + 20

In this case we get a Target price of $120

25. Point of Total Assumption

Formula: PTA = [(Ceiling Price — Target Price) / Buyer’s Share Ratio] + Target Cost

Point of Total Assumption is the point at which the seller has incurred costs that have stopped the project from being profitable. Any expense beyond the PTA is an additional expense incurred by the seller. If Ceiling Price is $25, Target Price is $20, Buyer’s share ratio is 5 and Target cost is $15 then we could calculate PTA as follows

[(Ceiling Price — Target Price) / Buyer’s Share Ratio] + Target Cost

[[25-20)/5] +15

With the above details we get a PTA of $16

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 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...

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...