# Earned Value Management for the PMI-RMP Exam! Practice

**Earned Value Management for the PMI-RMP Exam! Practice **

*What are the Math Concepts included in the PMI-RMP Exam?*

- Cost / Schedule Variance (SV, CV) .
- Cost/ Schedule Performance Index (CPI, SPI).
- Estimate at completion (EAC).
- To Complete Performance Index (TCPI).
- Estimate To Complete (ETC).
- Variance at Completion (VAC).

Earned value is used in performance reviews to measure project performance against the scope, schedule and cost baselines, it integrates Cost, time and scope( work done ) and can be used to forecast future performance and project completion dates and costs, Earned Value measurements may also result in change requests to the project , measurements are performed in Monitor and control process group. When it comes to risk management, the earned value math is part of the monitor risks process within the trend analysis technique.

*Terms you need to know :*

- Planned Value (PV), As of today , what is the estimated value of the work planned to be done .
- Earned Value (EV), As of today , what is the estimated value of the work actually accomplished.
- Actual Cost (AC), As of today , what is the actual cost incurred for the work accomplished.
- Budget at completion (BAC), How much did we budget for the total project effort .
- Estimate at completion (EAC) , What do we currently expect the total project to cost …. Forecast .
- Estimate to Complete (ETC), From this point on, how much more do we expect it to cost to finish this project … Forecast
- Variance at Completion (EAC), As of today, how much over or under budget do we expect to be at the end of the project… Forecast

**Cost/Schedule ***Variances*

Variances: Difference between planned and actual , target value is 0 , positive is good , Negative is bad

Cost Variance (CV) = EV – AC

Schedule Variance (SV) = EV – PV

Variances :

If Cost Variance is Positive , Project under Budget

If Cost Variance is Negative , Project Above Budget

If Schedule Variance is Positive , Project ahead of schedule

If Schedule Variance is Negative , Project behind schedule

*Cost/Schedule Performance Indexes*

Ratio of planned to actual , target value is 1 , greater than one is good , less than 1 is bad

Cost Performance Index (CPI) = EV/AC

Schedule Performance Index (SPI) = EV/PV

Performance Indexes :

If Cost Performance index is above 1 , Project under budget

If Cost Performance index is below 1 , Project above budget

If schedule Performance Index is above 1 , Project ahead of schedule

If schedule Performance Index is below 1 , Project behind schedule

**Estimate At Completion ( EAC )**

As of today , How much we expect the total project to cost ?

*Estimate To Complete ( ETC)*

How much more will the project cost ?

*Variance at Completion ( VAC)*

As of today, how much over or under budget do we expect to be at the end of the project.

- Majority of Earned Value Measurement exam questions refers to this topic, there are many ways to calculate EAC depending on the assumptions made ,you should pay attention to information provided in the question to decide which formula to use
- In this lecture we will discuss 2 Formulas , the Next lecture will contain more 2 Formulas .
- Note that EAC , ETC & VAC looks forward , It forecast future performance based on what has actually occurred on the project .
- Once you have the EAC , It is easy to calculate the Variance at Completion

**VAC = BAC-EAC**

- It is the same formula used if you were asked to calculate ETC

**ETC = EAC – AC**

For the Estimate At Completion (EAC), there are four formulas you can use, the situation described in the question shall help you select the correct formula to use.

**Formula 1 **

- EAC = AC + ETC
- This formula calculate the actual costs to date plus a new estimate for the remaining work . It is used when the original estimates assumptions are no longer valid .

**Formula 2 **

EAC = BAC / CPI

This formula is used if there is no variances from BAC .have occurred or you will continue in the same rate of spending .

**Formula 3 **

EAC = AC + ( BAC-EV)

This formula calculate the actual costs to date plus remaining budget , it is used when current variances are through to be atypical of the future , It is the actual cost plus the remaining value of work to perform .

**Formula 4 **

EAC = AC + ( BAC-EV)/(CPI*SPI)

This formula calculate the actual costs to date plus remaining budget modified by performance , it is used when current variances are through to be typical of the future .

**To Complete Performance Index ( TCPI) **

The Formula divides the work remaining to be done by the money remaining to do it .

The only index with below 1 is good , above 1 is bad !!

TCPI = ( BAC-EV)/(BAC-AC)

= Work/Money

Below am listing 5 questions which will help you understand the nature of the questions you will see in the PMI-RMP exam.

**Question # 1 :**

You have been managing a project to build a new football complex , you want to forecast the new EAC to check if there is any variances , calculate TCPI of your project based on the new EAC , actual cost is $200,000 , Cost variance is $25,000 ,and the Budget at completion of your project is $350,000

Choice 1 : 1.125

Choice 2 : -1.4

Choice 3 : 1

Choice 4 : -1

**Solution :**

TCPI = (BAC-EV)/(BAC-AC)

But the Question is asking to consider the New EAC , So the formula becomes

TCPI = ( BAC-EV)/( EAC-AC )

= ( 350,000 – EV ) / ( EAC – 200,

CV = EV-AC

25,000 = EV – 200,000

EV = $225,000

EAC = BAC/CPI …….. As if there is no variances from BAC

CPI = EV/AC

= 225,000/200,000

= 1.125

EAC = BAC/CPI = 350,000/1.125

= 311.111

TCPI = (BAC-EV)/(EAC-AC)

= ( 350,000-225,000)/(311,111-200,000)

= 1.125

**Choice 1**

**Question # 2 : **

The actual cost of your project is $200,000 , budget at completion is $325,000 and the cost variance is -$25,000 , from this data calculate To complete performance index , given that senior management did not agree to revise the estimate at completion based on current performance .

Choice 1 : 1.0

Choice 2 : 1.1

Choice 3 : 1.2

Choice 4 : 1.3

**Solution : **

TCPI = ( BAC-EV)/(BAC-AC)

= ( 325,000-EV)/(325,000-200,000)

So we need to determine the EV

CV = EV-AC

-25,000 = EV – 200,000

EV = $ 175,000

TCPI = (325,000-175,000) / ( 325,000-200,000)

= 1.2

**Question # 3 :**

Assuming that the current variances are atypical and remaining work will be completed using original estimates , your project team prepared a forecast report for you with the following data , Variance at completion – $70 , Actual cost of $350 and total project budget of $500 , the report doesn’t include Earned value , using this information , what is the project EV ?

Choice 1 : 280

Choice 2 : 300

Choice 3 : 320

Choice 4 : 340

**Solution :**

VAC=BAC-EAC

-70 = 500 – EAC …… So EAC= $570

Based on the assumption made of current variances are atypical and remaining work will be completed using original estimates we will use formula # 3

EAC = AC + (BAC-EV)

570 = 350 + (500-EV)

220 = 500 – EV

EV = $ 280

**Question # 4 :**

In your project , there have been several changes in the cost and schedule estimates , the original estimations are no longer valid , calculate the EAC for your project based on the following information :

BAC = $300,000

AC = $100,000

EV = $150,000

CPI = 1.2

ETC = $120,000

Choice 1 : $250,000

Choice 2 : $220,000

Choice 3 : $280,000

Choice 4 : $300,000

**Solution :**

Key word ; Original estimating assumptions no longer valid

So the equation we are willing to use

Original estimating assumptions are no longer valid

EAC = AC + ETC

Current variances are atypical , similar variances will not occur

EAC = AC + BAC – EV

Current Variances are typical of future variations

EAC = AC + ( BAC-AC ) / (CPI*SPI)

As if there is no variances from BAC

EAC = BAC/CPI

EAC=AC+ETC

= 100,000 + 120,000

= $220,000

**Question # 5 :**

As a project manager , you have 2 projects to select from , project A that has an initial budget of $1,000 out of which $800 has already been spent , to complete this project , you need an additional $500 , Project B will requires $1,200 only for completion , which project would you prefer to manage and what will be the ETC

Choice 1 : Project A , ETC of $800

Choice 2 : Project B , ETC of $2,200

Choice 3 : Project A , ETC of $500

Choice 4 : Project B , ETC of $ 1,200

**Solution :**

Project A , $800 is sunk cost and it’s not considered in making decisions , so Project A ETC is $500

Project B , ETC is $1,200

So it’s more beneficial to select Project A

** **