Common Formulas Used in Project Management

Common Formulas Used in Project Management
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Whether you are a beginning project manager, a project management student, or someone who has been managing projects for years, it doesn’t hurt to become familiar with (or review) some of the most common formulas you will run across in project management. Below you will find a list of project management formulas and their definitions along with when you might want to use such a formula.

PERT Formula

The PERT Formula is likely to be something you have heard of before, that is useful when you want to estimate project durations. The formula is based upon a Beta distribution formula (Mean = (a+4m+b)/6) where Mean = estimated project duration, a = the optimistic estimate of duration, m = the most likely estimate, and b = the pessimistic estimate.

You will want to use the PERT Formula to help you crash project schedules, to perform risk assessments, and to fast track project schedules, in addition to using it to create the initial project schedule.

Calculated EMV

Calculated Expected Monetary Value (EMV) is the sum of all the products of various probabilities of events and the corresponding values to those events. Calculated EMV is utilized in risk analysis. In order to calculate the EMV for a project, the project manager needs to take into account a particular decision that has been made. From there, any risks associated with that decision should be considered along with their probabilities. Then, the amount of money associated with the risk is calculated. Finally, you will multiply the monetary value you came up with by the probability of that event happening. Take all values for a given event, add them up and you will have calculated EMV.

Standard Deviation

Standard deviation is referred to in Six Sigma and Lean Six Sigma methodologies. It is also used when finding the margin of error in any statistical analysis. The formula for standard deviation is the square root of variance. One formula for variance is [(b-a)/6]2. where b is the highest value on the distribution and a is the lowest value on the distribution.

Earned Value Analysis

Finally, a common formula you will use in project management is Earned Value Analysis. Earned value analysis helps project managers to evaluate current projects based upon calculations involving the budgeted cost and the actual cost of all work performed and budgeted. Here are the abbreviations that will be used in calculating Earned Value:

  • Budgeted Cost of Work Scheduled (BCWS) also known as Planned Value (PV)
  • Budgeted Cost of Work Performed (BCWP) also known as Earned Value (EV)
  • Actual Cost of Work Performed (ACWP) also known as Actual Cost (AC)

These three values form the basis for the rest of your calculations. The first four calculations are basic:

  • CV (Cost Variance) = EV - AC
  • SV (Schedule Variance) = EV - PV
  • SPI (Schedule Performance Index) = EV/PV
  • CPI (Cost Performance Index) = EV/AC

More calculations that can be done to complete an Earned Value Analysis can be found in Suketu Nagrecha’s An Introduction to Earned Value Analysis where the formulas associated with this helpful form of analyzing your project’s budget vs. actual cost are explained in depth.