# 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 \$,30,000 then we would calculate ROI as

(Net Profit / Cost of Investment) x 100

(2000/30000) x 100 = 6.67

For this project you have a ROI of 6.67%

### 20. Payback Period

Formula: Payback Period = Initial Investment / Periodic Cashflow

The Payback Period refers to the amount of time it would take to recover the investment in a project. This is again a simple calculation where if the Initial investment is \$20,000 and the periodic cash flow per month is \$1000, then you could calculate the Payback period as follows:

Initial Investment / Periodic Cashflow

20000/1000 = 20

Payback period in this case would be 20 months

### 21. Cost Benefit Ratio

Formula: Cost Benefit Ratio = Net Present Value of Investment / Initial Investment Cost

Cost-benefit ratio is a comparison between the funds invested in the project and the value that has come out of it. This is a measure of project success in financial terms. If the initial investment was \$20,000 and the Net Present Value is \$25,000 then the Cost Benefit Ratio could be calculated as follows.

Net Present Value of Investment / Initial Investment Cost

25000/20000 = 1.25

The Cost benefit ratio of 1.25 denotes that every dollar invested in the project is now worth 1.25 dollars.

## 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 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...