2024-07-05 06:30:14
One of the first things you learn when preparing for the PMP exam is that project management is not only about processes and procedures, but also about people and environment.
I agree with this and have noticed throughout my career that the company environment and the relationships between management and co-workers are key to success.
However, to be a successful project manager you also need solid practical skills, such as knowledge of different methodologies, tools, processes and…formulas.
Formulas in project management are important tools for planning, monitoring, controlling, and closing projects. They provide a structured approach to effectively manage projects, ensuring that time, cost, and scope goals are met. Mastering these formulas can improve your decision-making and problem-solving skills, leading to better results for your projects.
In this article, I will discuss the main formulas you need to remember and use throughout the project management process, namely
- During the preparation (this corresponds to Initiating and Planning Process Group In PMP
- implement(Execution and Monitoring and Controlling Process Group) and,
- Closure(Closing process group).
When relevant, I will try to provide examples from my own experience to give my explanations more depth.
Before I start a project – Initiating and Planning Process Group
Before you start executing on a project, you should have a solid foundation. Here are some key formulas that help me with planning and estimating.
Estimated Costs: Cost Estimation
formula: Cost estimate = ∑ (activity cost + contingency reserve)
This formula is primarily used for forecasting projects and helps you calculate the total expected cost of a project by adding up the costs of all individual activities, including contingency reserves to manage risks.
| When I worked for an international public institution, I was responsible for managing the annual budget, allocating expenses and developing comprehensive plans. This included overseeing the costs of the scholarship program, such as tuition, travel and accommodation, and setting aside contingency reserves for unforeseen expenses. This approach ensured the realism and integrity of the annual budget. |
Estimating time: Three-point estimate
In waterfall development, you need to create a fairly concrete and reliable schedule with a start, end, and major milestones. This involves estimating the time required for each activity and then adding them up.
The formula I’m about to show you uses the following initials:
- E is the expected time estimate
- O is an 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 takes all three estimates into account equally, which can be useful when you are not sure about the most likely scenario.
Alternative recipes： 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 Scoring
Still in the context of predictive projects, it is crucial to identify potential risks before a project begins so that they can be better handled during execution. A risk register can be used to list the 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 when the risk occurs
This formula helps you quantify risk by multiplying the probability of a risk event by its potential impact, so that you can prioritize your risk management efforts.
| I have the opportunity to manage a multi-stakeholder project involving funders, regulators, and partners responsible for executing the project. Each of these three parties has different interests and each bears its own risks. It is critical to clearly identify and measure the probability of risk. |
Communication channels
Effective communication (measured by the number of communication channels) is key at all stages 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 can help you understand the complexity of communication within your project and plan accordingly to ensure that information flows clearly and efficiently.
| I had the opportunity to prepare for a company relocation that would completely change the way of working. In general, such a change requires taking into account all the parties involved: the company management that is familiar with the project, the managers who have to respond to the expectations and concerns of the team, and the employees whose working habits will be completely changed. But there are also all the support functions, administrative staff and the team responsible for the project. All these different channels need to be mastered. |
When I execute a project – Execution and monitoring process group
During the execution phase, monitoring and controlling the process is crucial.
Earned Value Management (EVM) Is a comprehensive project management technique that integrates scope, schedule, and cost variables to evaluate project performance and progress. EVM provides a quantitative measure of project performance and predicts future performance trends.
Before we begin, here are the different initials we will be using:
- EV is earned value, which represents the value of actual work completed up to a specific point in time, expressed in terms of the budget approved for that work.
- PV is the planned 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 the estimated value at completion
- VAC is the difference when done
Progress Control
Schedule variance (SV) is used to measure the project’s schedule performance. A positive SV means the project is ahead of schedule, while a negative SV means the project is behind schedule.
formula: SV = EV − PV
SPI indicates how efficiently a project is progressing relative to the planned schedule. An SPI greater than 1 indicates that the project is ahead of schedule, while an SPI less than 1 indicates that the project is behind schedule.
formula:SPI = EV / AC
| When I was the PMO for a large digital transformation project, these schedule control formulas helped us prove to contractors that their delays posed a risk to the project. This evidence meant we could ensure that the service provider was aware of the importance of finding a fast and effective solution. |
Cost Control
Cost variance (CV) measures the cost performance of a project. A positive CV means the project is under budget, while a negative CV means the project is over budget.
formula：CV = EV − AC
CPI measures cost efficiency. A CPI greater than 1 indicates high cost efficiency, while a CPI less than 1 indicates excessive spending.
formula: CPI = EV / AC
Future predictions
The Estimate at Completion (EAC) provides a forecast of the total cost of the project when it is completed, which aids in financial planning.
formula：EAC = BAC/CPI
The Estimate to Complete (ETC) estimates the remaining costs required to complete the project.
formula：Equivalent exchange = Equivalent exchange – Equivalent exchange
The Variance at Completion (VAC) indicates the amount of budget overrun or underrun that is expected at the end of the project. It allows project managers to request additional funds early, or at least report the possibility of overruns.
formula:VAC = BAC – EAC
| One day, I had to face the fact that the three-year project I was managing during the COVID-19 pandemic would require more time to achieve all its goals. After this phase of concrete, rational calculations, we found the reason to request an extension. |
Let’s not forget Agile! Although Agile or Scrum projects are more flexible in planning schedules and costs, performance measurement is critical to the success of the project.
Team Speed
Team velocity helps you measure how much work your team can accomplish in a given iteration. It is very useful for forecasting and planning future sprints.
formula: Team velocity = ∑ (story points completed) / number of sprints
Where:
- ∑(Story Points Completed) is the total number of story points completed by the team across all sprints.
- Sprint count is the total number of sprints in which story points are completed.
At the end of the project – Closing process group
At the end of the project, we come up with a formula to ensure all goals are met and the necessary achievements are documented.
Completion Performance Index (TCPI)
TCPI represents the efficiency required to meet the budget at completion. A TCPI greater than 1 indicates that a higher efficiency is required to stay within the 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 enjoyed reading this article and that it gave you some good ideas for better planning, execution and control of your projects! Don’t forget, a rational argument is always a good way to get your voice heard by management or the team!
Photo credits: © Denis Magilov ; © Dmitry Demidovich; © Duy Woj ; © LessLemon; ©tarik_vision
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