2 of 100 Items Missing From the PMBoK

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Missing VAC FormulaVariance At Completion (VAC) is the difference between what the project was originally expected (baselined) to cost, versus what it is now expected to cost.

Every month, our vendor is required to report this total on the project as a whole and on key deliverables.  I’m used to seeing the numbers reported and how to calculate them.  I’m not asking for the Cost Performance Index (CPI).  I want to know how far over or under we’re going to be compared to the budget.

The formula I memorized for the PMP exam and the same formula I use to calculate VAC today is: Variance At Completion = Budget At Completion – Estimate At Completion
(VAC = BAC – EAC)

So, I ask myself, [1] why is there no VAC definition and [2] VAC formula in the PMBoK?

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Calculating Variance of Activity the PMP way

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When I was studying for the PMP exam, a few years ago, I remember memorizing a group of formulas.  One of those was the “Variance of Activity.”  At this point, don’t remember if it was even referenced in the exam.  There were no direct questions asking “what is the formula for…”  On my exam, I remember having numerous questions resulting from schedule variance calculations and cost variance calculations.  To my surprise, I went searching for the Variance of Activity formula in the PMBOK (4th Edition) and I can’t find it!  So as not to lead people astray when giving PMP study advice, I’m now researching each formula I was once told to memorize.  I’m very surprised PMI didn’t save us a lot of trouble and list known formulas in the back of the PMBOK.

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Formulas To Remember For The PMP Exam

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Use this formula on the PMP exam to calculate the variance of an activityI think back to when I sat for the PMP exam and remember taking the first few minutes to quickly write down the following formulas.  It was my cheat sheet.  There was enough to think about for the next few hours and worrying if I could remember some key formulas was not one of them.  So, here is a bit of advice.  If you’re preparing[1] to take the PMP exam, MEMORIZE these formulas.  The exam won’t come right out and ask you to identify the correct formula for a variance of an activity. Rather, it will offer a question like:  Your current activity was pessimistically estimated at 65 hours and optimistically estimated at 40 hours.  What is the variance of the activity?  (you can use this formula for both time and cost)

You can see how knowing the formula is going to make you or break you on this question.

Do yourself a favor.  Make flash cards, get a tattoo, it doesn’t matter.  Commit these formulas to memory and you’ll save yourself some pain and suffering (and a few points on the exam).

The Formulas

Acronym Title Formula
PERT Program
Evaluation and
Review
Technique
Use this formula on the PMP exam to calculate PERT
P = Pessimistic Estimate
M = Most Likely Estimate
O = Optimistic Estimate
Standard Deviation of Activity Use this formula on the PMP exam to calculate standard deviation of an activity
Variance of an Activity Use this formula on the PMP exam to calculate the variance of an activity
Total Float LS – ES or LF – EF
Communications
Channels
[N(N-1)] / 2
CV Cost
Variance
EV – AC
SV Schedule
Variance
EV – PV
CPI Cost
Performance Index
EV / AC
SPI Schedule
Performance Index
EV / PV
EAC Estimate
at Completion
BAC / CPI

AC + ETC

AC + (BAC – EV)

ETC Estimate
to Complete
ETC = EAC – AC
VAC Variance
at Completion
BAC – EAC
CPIc Cumulative
Cost Performance Index
Σ EV / Σ AC
TCPI To-Complete Performance Index Use this formula on the PMP exam to calculate TCPI
[1] This is a link to a product I created
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Calculating Initial Velocity On Day Zero

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VelocityWhile reviewing proposal documentation yesterday, I noticed the contractor’s predicted velocity rate was pretty high.  Being they are not experienced in using Agile and they haven’t even started the project, I was curious how they were able to calculate such a high velocity rate for the first iteration.  I know how many developers they intend to use and I know their proposed iteration durations.  I’m not going to get into the specifics as to how they estimated features (user stories, requirements, backlog items, etc.).  So, what did I expect?

Velocity is a very simple method for accurately measuring the rate at which teams deliver business value. To calculate velocity, simply add up the estimates of the features successfully delivered in the last sprint or iteration.  What about the initial iteration?

Terms to understand when calculating initial velocity:

[1] Number of Developers – How many developers will you have doing actual work?

[2] Capacity – What is the maximum amount of work one person can accomplish in an ideal situation during the iteration?

[3] Number of Iteration Days – How many work days are in the iteration?

[4] Load (Capacity) Factor – The ratio of the actual work output over a period of time and the output if the developer had operated at full capacity over that time period.  e.g. 1/3 = 2.4 Hours , 1/2 = 4 Hours, 1/1 = 8 Hours

[5] Velocity – How much Product Backlog value a team can deliver in one iteration.

Because you don’t know team velocity for the first iteration, plan initial velocity at one-third of total capacity in order to account for coffee breaks, design, email, meetings, rework, research, etc.  As an example, with seven (7) developers and at one-third (1/3) capacity, a total of 2.1 ideal developers are available.  Multiply the number of ideal developers by the number of work days to arrive at the total of ideal work days.  These ideal work days will be applied against your estimated features, to arrive at an initial velocity.

(7 [Developers] * 1/3 [Load Capacity Factor]) * 21 [Work Days] = 44.1 [Ideal Work Days]

Communications Channels

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I was at a vendor site yesterday, discussing how they were going to satisfy our needs on four upcoming projects.  There were four people in the meeting:  the technical lead from the vendor, the product manager from our organization, a director from our organization, and myself.  Since I am the project manager, I had to take into account each perspective of each participant.  Communications grows exponentially, every time you add another person to a meeting or project.  A project manager needs to realize the complexity and manage it accordingly.

The situation reminded me of a few questions that were on the PMP exam.  Communication Channels  can be calculated by using the following formula:  [N (N-1)]/2 where N equals the number of people involved.  Do not just memorize the formula, UNDERSTAND it.  Below is an illustration of the formula that should help you visualize it.

If on the PMP exam, I had been asked how many channels of communications existed in the meeting, I could either draw a picture with lines between the people or I could just use the formula.  Take my word for it, just memorize the formula and understand when it applies.

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Cost Variance and Project Management Terms

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If you’re looking to take the PMP exam, there are several definitions you need to know.  You MUST know and understand the definitions listed in the table below.

The exam won’t come right out and ask you “What does Actual Cost mean?”  The questions are more like:  “What kind of Variance do you have on a deliverable if the Earned Value is $75,000 and the Actual Cost is $77,000?�
I won’t tell you the answer. I will, however, tell you how to figure it out.
Cost Variance (CV) = Earned Value (EV) – Actual Cost (AC).
A negative cost variance means you are over budget.
A positive cost variance means you are under budget.

Term Acronym Definition
AC Actual Cost What is the actual cost realized from the work completed.
BAC Budget at Completion How much was budgeted for the total project?
EAC Estimate at Completion What is currently the expected TOTAL cost of the project?
ETC Estimate to Complete From this point on, how much MORE is it expected to cost to finish the project?
EV Earned Value What is the estimated value of the work actually completed?
PV Planned Value What is the estimated value of the work planned to be completed?
VAC Variance at Completion How much over or under budget is the project expected to be at the end?

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