Thursday, February 21, 2008

Passed PMP

Passed it on the September 2007. Interesting experience.. The most anxious moment was waiting between the second of completing the exam and seeing the result (about 45 seconds) and realizing that I have passed. That was a blessed feeling. Weeks of preparation has come to an end.

I used the study guide Project Management Professional Study guide from Sybex, though out the preparation. I can definitely vouch for this as a complete preparation guide. Ofcourse you must refer the PMBOK Guide as that is the standard prescribed by PMI.

For contact hours, I did not go to any separate classes. Instead I used whizlabs PMP Test kit product. I think I bought it when it had some offers. Now it is quite costly $199.

The exam was like very much in the same format but the difficulty level of the questions I would say is moderate. The questions makes us think and atleast 80% of the questions are analytical. The rest are straightforward.

Scores are not reported as a total score, but they are given based on Knowledge areas and objective wise. So you'll have to calculate your total scores if you are interested, which is not valid anyway.

We will find no difference between the scored questions and non-scored (those who help improve the exam), because these are seeded randomly and no indication given whatsoever of their type.

We are not allowed to bring anything inside the exam hall. Even the scientific calculators were replaced with ordinary ones.

Btw, now PMI is on its way in defining a new PMBOK Guide, so people who are currently in preparation finish your exams before they come up with the new guide.

Saturday, August 18, 2007

Cost Estimating for PMP

An interesting process within the Planning process group. This looks to be a small process with a few items to learn but it can be crucial when someone is doing a practical project planning. It gets more important when the project is a Fixed Bid project.

Cost Estimating is a part of the Cost Management Knowledge area as defined by the PMBOK Guide 2004 (Third Edition). This is an important part of project planning after the project scheduling and it usually precedes the Cost budgeting process.

A Guide to the PMBOK usually describes each process with inputs, tools and techniques and outputs. Every process in the PMBOK list follow the same convention in order to give a uniform idea about Project Management. Cost Estimating also has a list of such items. They are as follows.

The Inputs for Cost Estimating are,
  • Enterprise Environmental Factors
  • Organizational Process Assets
  • Project Scope Statement
  • WBS (Work Breakdown Structure)
  • WBS Dictionary
  • Project Management Plan
The tools and techniques of this process are of some specific interest and they need to be understood clearly. They are
  • Analogous Estimating: This is also called Top down estimating. This is calculated using some previous historical project data stored and kept for reference. This can be calculated easily if the referred previous project is similar to the current project. This type of estimating is particularly useful when we do not have enough or complete information about the project.
  • Resource Cost Rates: This can be found from the list of vendors and their published rate details maintained within the organization.
  • Bottom Up Estimating: This is exactly opposite to the Analogous Estimating. This relies on calculating estimates for individual or work package level activities and working upwards. This typically results in better and accurate estimates.
  • Parametric Estimating: This is a simple estimation using some previous measurements. For example if laying a 1 meter concrete road costs $100,000 dollars then we can workout and calculate for 10 kilometer projects.
  • Project Management Software: Using the PM softwares for calculating the estimates. Of-course they won't calculate the estimates if we don't provide the required input values depending on the project and the software.
  • Vendor Bid Analysis: Information can be gathered from different vendors for our estimatin
  • Two more are Reserve Analysis and Cost of Quality
Outputs of this process are the Cost Estimates and the Supporting Detail for the estimates. The supporting details should explain the assumptions, basis for calculating the estimates.

Sunday, August 12, 2007

Earned Value Formula

One of the important formulas, used in the Monitoring and Control Process group. Earned Value is a Performance Measurement technique. It is also called as "Budgeted Cost of Work Performed". It is used to evaluate the extent of work completed and take any corrective actions to put the project execution back on track.

PMBOK 2004 says "Earned value is the budgeted amount for the work actually completed on the schedule activity or WBS component".

It is calculated by comparing the actual amount of work against the budget. Earned value by itself cannot produce any useful evaluation report without the parameters like Actual Cost spent and Planned Value. It is calculated as follows.

Earned Value = Budget At Completion * Percent Complete

Budget At Completion - Total Budget of the Project
Percent Complete - is the percentage of work complete at the point of time of measurement.

As a performance measurement technique, Earned value is used to calculate 4 different measures for assessing the progress of the project. It is used for calculating Cost Variance, Schedule Variance, Cost Performance Index (CPI) and Schedule Performance Index (SPI). There is no need to define them here as the name of each of them clearly convey their definition and intent of their calculation.

To calculate the above values,

Cost Variance = Earned Value - Actual Cost
Schedule Variance = Earned Value - Planned Value
Cost Performance Index(CPI) = Earned Value / Actual Cost
Schedule Performance Index(CPI) = Earned Value / Planned Value

The above formulae results can be used to elucidate if the project is on track with its cost and schedule. If the Cost Variance is in the positive territory, it means the project is spending less than budgeted. To actually confirm that this is a really good news of cost savings we also need to check the schedule variance. If the schedule variance is also positive, it really means a good news. Sometimes a negative schedule variance could mean that the cost savings is because of some resource was absent or not available as planned etc., which may not really be good news.

The CPI and SPI should also typically give similarly suggestive results. For example if the CPI is greater than 1 it means that there is cost savings and less than 1 means the project is now over budget. SPI should also be looked at as similar to the Variance case to see if this is really good news. If SPI is also above 1, it all really means good news.

The caveat here is, if the Cost Variance or Schedule Variance on the Positive side is too high (also CPI and SPI are high), it means that there were some mistakes during estimation. It clearly means that the estimates and plans were on the conservative side. If it is very badly on the negative side, it means the estimates and plans were very aggressive.

Thursday, August 9, 2007

PV Formula for PMP Exam

Present Value:
Just thought of writing my understanding as a blog. Would be delighted if someone found this useful.

Present Value or PV is the value of the investment in today's terms. It is the value of future cash flows of the project in today's dollars.

This is a discounted cash flow technique and one of the Benefit Measurement Methods under the Project Selection Methods tool and technique which is used for creating a Project Charter.

Ouch, that was quite long. To repeat, the Project Charter creation process uses a tool and technique called Project Selection Methods. One of the techniques under the Project Selection Method is Discounted Cash Flow which calculates Present Value.

The formula for calculating a Present Value is
PV = FV/(1 + i)n
PV - Present Value to be calculated
FV - Expected Future Cash inflow
i - Notional Interest or Expected Rate of Interest

Net Present Value:
This is another interesting twist to calculate the Net future income/future cash inflow of the project in today's dollars. There is no big difference or additional concept to remember here. This is just a sum of all the expected Present values subtracted by the investment. For example, if we assume that the following are the given values.

Invested Amount : $5,00,000
Income Expected (Future Value)- 1 Year : $200000
Income Expected (Future Value)- 2 Year : $300000
Income Expected (Future Value)- 3 Year : $100000

Rate of Interest : 5% per annum

Now calculate the Present value for every year with the Present Value (PV) formula.

Future Value
1 $2000002,00,000/(1 + .05)190476.2

2 $3000003,00,000/(1 + .05)2 272108.84

3 $1000003,00,000/(1 + .05)3 86383.76

Total NPV (For 3 years) = 5,48,968.8

NPV for the project = Total NPV (For 3 years) - Original Investment = 5,48,968.8 - $5,00,000

So the final NPV is 48,968.8.

And the formula for calculating the Net Present Value is,
NPV = PV1 + PV2+ PV3 .. + PVn - Invested Amount

According to the theory of NPV if the calculation of NPV yields a positive value or more than zero, then it is expected to make profit. It can get a go recommendation if all other factors look good. Additional points to remember are like,
  • NPV assumes that the cash flows are re-invested at the cost of capital. ie, the same interest rate
  • If NPV calculation is greater than zero accept the project. Otherwise reject the project
  • Another note is that projects with high returns early in the project are preferred over the ones with lower returns early in the project.