The last three posts covered the formulas that cover earned value analysis. This last post in the series will cover some of the remaining formulas that are listed in the “cheat sheet” handout given to us by our PMI-OC chapter.
To clear up any possible confusion, “cheat sheet” is just an expression; it refers not to what you can take with you to the exam, because you cannot take ANYTHING with you to the exam, but rather what you need to memorize so that you can jot in down in the first 15 minutes of pre-exam activity known as the “brain dump.”
Here are the remaining formulas and how to memorize them by understanding them.
1. PERT = (O + 4M + P)/6
PERT is a weighted three-point average. Before we discuss the formula, let’s see what a normal three-point average would look like.
A three-point estimate takes the average of three estimates, the optimistic (O or ☺), most likely (M or K), and pessimistic (P or L):
Three-point average = (O + M + P)/3 or (J + K + L)/3. There are three terms in the numerator so there is a 3 in the denominator.
In the weighted average, you have more confidence in your “most likely” figure, 4 times as much confidence, in fact. So you take the M of the three-point average and replace it with 4M, to get
PERT = (O + 4M + P)/6 or (J + 4K + L)/6
Why the number six on the bottom? Because you have an equivalent of six terms in the numerator, one O, 4 M’s, and one P.
2. Standard deviation = (P – O)/6
Okay, if you understood the last formula, then this is in a cinch. The standard deviation is going to tell you how far apart your estimates are. The greater the standard deviation, the greater the distance between your estimates. What’s the difference between the greatest (the pessimistic or P estimate) and the least (the optimistic or O estimate)? That would be P – O or L – J. Just remember the six in the denominator is the same as the one in the other formula for PERT, and you’ve got it!
3. Total Float = LS – ES or LF – EF (Time Knowledge Area)
If you have done a forward-pass and backward-pass analysis to determine the critical path, then you know the following diagram for each activity.
Left to right it goes Start to Finish, like the direction the activities are written in a network diagram. Then the other axis, top and bottom, is the difference between the early (forward-pass) and the late (backward-pass).
Okay, you can start with either LS or LF, and then since you are trying to calculate the float, you just float up one box up above and subtract that quantity, giving you either
Total Float = LS – ES or LF – EF
Just remember that the last letter for the two terms in each of the two formulas is the same, S or F.
4. Communication Channels = n(n-1)/2
Let’s say there are 5 people in a group, and you’re one of them. How many other people than yourself can you talk to? Well, there are 4 others in the group, so you can talk to 4 other people. Since there are 5 people in the group, and each of them can talk to 4 others, then the number of people that can talk to each other is 5 x 4 or 20. But how many communication channels are there? Well, a communication channel is formed by you talking to me, and me talking back to you. So for every two people talking to each other, there is one communication channel (covering back AND forth communication between the two people). So there are actually 20/2 = 10 communication channels.
Generalize this to n people in the group. Each one of the n people can talk to one less than the number in the group or (n-1) people, and for every two people talking to each other, you have one communication channel. So the total of number of communications channels is n(n-1)/2.
Here’s a diagram to make this clearer visually. Okay, let’s say we have a group of six people. They are represented symbolically as the points of this hexagon (hexagon means a six-sided polygon). Each of the 6 points of the hexagon have 5 lines coming out of them. This represents the fact that each of the 6 people can talk to 5 others in the group. But you notice that every line that goes OUT of a point also goes INTO a point of the hexagon as well. If you counted the total number of lines, you would see that you would have to count the 6 x 5 lines coming out of the points, but then you realize that going around the center you end up counting each line twice. So the actual number of communication channels or lines is (6 x 5)/2.
5. PV = FV/(1 + R)t
This is the present value formula designed to figure out what the value TODAY is of FUTURE cash flows. In the formula PV = present value, FV = future value, R is the Rate of interest, and t = time in years.
I think this formula is easier if you do a little algebra, and start out this way
FV = PV * (1 + R)t
Let’s say you have $100 in a CD account, and you gain 5% interest in one year (ah, if only it were true!). Then at the end of year one, you would get a future value of $105. Using the formula,
FV = PV * (1 + R)t = 100 * (1 + 0.05)1 = 100 * (1.05) = $105.
Now the next year your CD earns 5% interest on this new value of $105, and so it would earn at the end of year two the following amount.
FV = PV * (1 + R)t = 100 * (1 + 0.05)2 = 100 * (1.05) (1.05) = $110.25.
Okay, you get the pattern. The FV is the PV increased by the interest rate (1 + R) multiplied times the number of years or t. Once you write down this formula, if you are required to do the backwards calculation and do PV = FV/(1 + R)t, then all you have to do is take the formula for PV and do one simple algebraic step to get the formula you need.
Those are all the formulas we were told would most likely be on the exam. I hope this series of posts was helpful to you.
The next posts are going back to the processes. Once you recognize their NAMES and a GENERAL DESCRIPTION of what they consist of, you now need to go on to memorizing their order, because project management has a certain flow of work to it.
This will be step 4 on the road to Process Mastery!