SPI

2 of 100 Items Missing From the PMBoK

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?

Impress Your PMP Friends By Understanding SPI and CPI

Variance ChartsAre you studying for the PMP exam and struggling with the concept of Schedule Performance Index (SPI) and Cost Performance Index (CPI)? Are you just bored and want to impress your friends with your knowledge of SPI and CPI?  Well, I'm going to try to make it easy for you. To the left you'll see two charts.  Both are displaying variances on a monthly basis.  The first chart is displaying variances in thousands of dollars, both in schedule and cost.  The second chart is displaying the variances as they relate to a performance index.

Definitions and Formulas

  • Earned Value (EV) - The estimated value of the work actually accomplished
  • Actual Cost (AC) - The actual cost incurred from the work accomplished
  • Planned Value (PV) - The estimated value of the work planned to be done

    [Chart 1 - Variance (In Dollars)]

  • Scheduled Variance (SV)=EV - PV a NEGATIVE schedule variance is behind schedule and a POSITIVE schedule variance is ahead of schedule
  • Cost Variance (CV)=EV - AC a NEGATIVE cost variance is over budget and a POSITIVE cost variance is under budget

    [Chart 2 - Variance]

  • Schedule Performance Index (SPI)=EV ÷ PV You are progressing at __% of the rate originally planned
  • Cost Performance Index (CPI)=EV ÷ AC You are getting $_____ worth of work out of every $1 spent

Practical Application

So, where does that leave us?  Your goal is to have a $0 (zero dollar) cost and schedule variance, resulting in a SPI and CPI of 1.0.  That would mean you estimated correctly, leading into your project.  Going into the PMP exam, you should know these formulas and how to calculate all of the above.  Here are a 2 simple questions you should be able to answer:

1.  Is a 1.3 CPI a good thing or a bad thing?  Why?

This is a good thing!  A 1.3 CPI translates to you getting 1.3 dollars of results for every dollar you put into the project.

2.  Is a 0.90 SPI a good thing or a bad thing?  Why?

This is a bad thing!  A 0.90 SPI translates to your project progressing at 90 percent of the rate originally planned.


Here is the moment of truth. What kind of question is going to be on the PMP exam?

Example Question: Based on the charts listed above, what would you be more concerned with, schedule or cost, if you were taking over this project from another project manager?

Answer: The answer is cost.  As of August, CPI is closest to 1.

Formulas To Remember For The PMP Exam

Use this formula on the PMP exam to calculate the variance of an activity
Use this formula on the PMP exam to calculate the variance of an activity

I 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
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
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
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

CPI

c

Cumulative Cost Performance Index

Σ

EV /

Σ

AC

TCPI

To-Complete Performance Index

Use this formula on the PMP exam to calculate TCPI
Use this formula on the PMP exam to calculate TCPI