pmp exam guide

PMP EXAM GUIDE Project Management Professional

PANKAJ SHARMA PMP,PRINCE 2 PRACTIONER

2011

PMP EXAM GUIDE

2

PANKAJ SHARMA

Project Management Body of Knowledge, Fourth Edition (PMBOK Guide) 2008

Project Management Institute, Inc.

PMP

EXAM

GUIDE

PMP EXAM GUIDE

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ABOUT THE AUTHOR

Pankaj Holds Master degree in computer engineering from Birla Institute of technology and

Science, Pilani (India) and is a certified PMP, ITIL v3 and a Prince2 practitioner. Enriched with

long industry experience, coupled with excellent professional track record, Pankaj is extremely

passionate about sharing his professional knowledge and experience. He has coached employees

from the companies IBM, Accenture, Deloitte, Birlasoft, HCL, TCS and Indian defense forces

(Army, Navy and Indian Air force). Presently he is Chief Technology Officer for Connoisseur

Consulting Solutions Pvt Ltd and in the current role he is responsible for IT and business

Strategy management.

An energetic and enthusiastic project management consultant and trainer with over 15 years of

practical hands-on project and program management experience in managing and directing mid

and large sized IT program/projects involving distributed teams in Manufacturing, HR and

healthcare verticals across US, Europe and UK geography.

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CONTENTS OVERVIEW

CONTENTS OVERVIEW ______________________________________________________________ 4

Introduction to PMP Examination _______________________________________________ 7

Introduction to PMI _______________________________________________________________ 8

Purpose of PMBOK Guide __________________________________________________________ 8

Why Become a Certified PMP ________________________________________________________ 9

PMP Examination _________________________________________________________________ 9

PMI Principles ___________________________________________________________________ 12

Project Management Framework _______________________________________________ 15

Project __________________________________________________________________________ 16

Why Projects Fail? ________________________________________________________________ 18

Project Management ______________________________________________________________ 18

Organizational Structure ___________________________________________________________ 22

The Project Life Cycle ______________________________________________________________ 24

Project Management Knowledge Areas _______________________________________________ 28

Project Integration Management _______________________________________________ 36

Project Integration Management ____________________________________________________ 37

Develop Project Charter ____________________________________________________________ 38

Develop Project Management Plan ___________________________________________________ 42

Direct and Manage Project Execution _________________________________________________ 43

Monitor and Control Project Work ___________________________________________________ 45

Perform Integrated Change Control __________________________________________________ 46

Close Project or Phase _____________________________________________________________ 48

Project Scope Management ____________________________________________________ 50

Project Scope Management _________________________________________________________ 51

Collect Requirements ______________________________________________________________ 52

Create WBS ______________________________________________________________________ 56

Verify Scope _____________________________________________________________________ 58

Control Scope ____________________________________________________________________ 59

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Project Time Management ____________________________________________________ 61

Project Time Management _________________________________________________________ 62

Define Activities __________________________________________________________________ 63

Sequence Activities _______________________________________________________________ 65

Estimate Activity Resources _________________________________________________________ 68

Estimate Activity Duration __________________________________________________________ 70

Develop Schedule _________________________________________________________________ 72

Control Schedule _________________________________________________________________ 77

Project Cost Management _____________________________________________________ 80

Project Cost Management __________________________________________________________ 81

Estimate Costs ___________________________________________________________________ 82

Determine Budget ________________________________________________________________ 85

Control Costs ____________________________________________________________________ 87

Earned value Management (EVM) ____________________________________________________ 88

Project Quality Management __________________________________________________ 93

Project Quality Management ________________________________________________________ 94

Plan Quality _____________________________________________________________________ 96

Perform Quality Assurance _________________________________________________________ 99

Perform Quality Control ___________________________________________________________ 101

Project Human Resource Management _________________________________________ 106

Project Human Resource Management_______________________________________________ 107

Develop HR Plan _________________________________________________________________ 108

Acquire Project Team _____________________________________________________________ 111

Develop Project Team ____________________________________________________________ 113

Manage Project Team ____________________________________________________________ 115

Organization Theories ____________________________________________________________ 118

Project Communication Management __________________________________________ 122

Project Communication Management _______________________________________________ 123

Identify Stakeholders _____________________________________________________________ 124

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Plan Communication _____________________________________________________________ 126

Distribute Information ____________________________________________________________ 128

Manage Stakeholder Expectations __________________________________________________ 130

Report Performance ______________________________________________________________ 132

Project Risk Management ____________________________________________________ 135

Project Risk Management _________________________________________________________ 136

Plan Risk Management____________________________________________________________ 137

Identify Risks ___________________________________________________________________ 139

Perform Qualitative Risk Analysis ___________________________________________________ 142

Perform Quantitative Risk Analysis __________________________________________________ 145

Plan Risk Responses ______________________________________________________________ 148

Monitor and Control Risks _________________________________________________________ 151

Project Procurement Management _____________________________________________ 154

Project Procurement Management __________________________________________________ 155

Plan Procurements _______________________________________________________________ 156

Conduct Procurements____________________________________________________________ 159

Administer Procurements _________________________________________________________ 161

Close Procurements ______________________________________________________________ 163

Professional Responsibility and Ethics___________________________________________ 166

Introduction ____________________________________________________________________ 167

Ensure Integrity _________________________________________________________________ 167

Contribute to PM Knowledgebase and Community _____________________________________ 167

Respect Diversity ________________________________________________________________ 168

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Introduction

Introduction to

PMP Examination

Introduction to PMP Examination

Introduction to

PMP

Examination

Introduction to PMI Purpose of Guide to PMBOK Guide Why Become a Certified PMP PMP Examination PMI Principles

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Introduction to PMI

PMI is headquartered in USA, founded in 1969

Worlds leading not-for-profit project management association

Over 288,000 Members across 170 countries

Advocates Best Practices in Project, Program and Portfolio Management

Credentials

Certified Associate in Project Management (CAPM)

Project Management Professionals (PMP)

Program Management Professional (PgMP)

PMI

Risk Management Professional (PMI-RMP

)

PMI

Scheduling Professional (PMI-SP

)

Purpose of PMBOK Guide

The SUM of knowledge within the profession of project management

Includes widely applied practices and innovations

Constantly evolving

The knowledge and practices are applicable to most projects

PMBOK Guide is used as a reference for professional development programs

Structure of PMBOK Guide

Section I The Project Management Framework

Section II The Standard for Project Management of a Project

Section III The Project Management Knowledge Areas

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Program based on Newly Launched Fourth Edition of PMBOK Guide

Why Become a Certified PMP

Widely recognized Project Management Certification

Worldwide Recognition of your knowledge of Project Management

Demonstrates Proof of Professional Achievement

Improves the way you manage your Projects

Increases your Marketability

Displays your willingness to pursue Growth

Increases Customer Confidence

Valued Globally across Industry Verticals & Companies

PMP Examination

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PMP Examination

Source: PMI Credential Handbook

PMP Examination Type of Questions

Scenario based

Situational

Using attached illustrations such as Network Diagram

Definitions

Fill in the Blanks

Formulas and Computing

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Negative descriptors such as Except

Two likely Answers

Roadmap to Become a PMP

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PMI Principles

A Project does NOT exists without a CHARTER

The Project Scope includes all of the work and ONLY the work

Activities are estimated by the Team

Lessons learnt are collected throughout the Project

Establish the extent of completion if the Project is terminated prematurely

Work Breakdown Structure is the basis for all planning activities

Quality is not an afterthought.it should be BUILT-IN

Project Management Plan drives how the Project work will be carried out

Risks are identified throughout the Project

Identify all Stakeholders to prevent Changes

Use Historical Information for Planning

Project Manager spends most of his/her time Communicating

Save Scope, Schedule and Cost baselines for comparison

Protect the Buyer and the Seller relationship to work as a Team

Set-up formal Change Control System

Prefer Preventive actions over Corrective actions

Project Manager should preserve his integrity

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Chapter 1

Project Management

Framework

Project Management

Framework

Projects and Operations Project Management Organizational Structure Project Life Cycle PMBOK Guide Knowledge Areas

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Project Management

Framework

Project Management Framework

Learning Objectives

After the completion of this chapter, the learner will be

able to:

Explain the PMBOK Guide project management concepts

Explain why projects are undertaken Describe the phases of the project life cycle Describe the five project management process groups Name the nine knowledge management areas Map the process groups and the nine knowledge areas

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Project

Definition

as per

PMBOK

Guide

A project is a temporary endeavor undertaken to create a unique product or

service.

All organizations perform work as projects or as operations. There is a thing line between the

two but still both share the following common characteristics:

Are performed by people Constrained by resources Are planned, executed and managed

Temporary

Temporary means that every project has a definite beginning and end. It does not mean that the

duration is short. Some projects can last for years. The projects end when the objectives of the

project have been achieved or it is clear that the project objectives cannot be met.

Unique

Unique means that the product or service or result is different from other product or service or

result. Projects are unique even if the category of the product it creates is a large domain. For

example, buildings are constructed but every such building that is created is unique because of

the difference in location, raw materials, contractors, and so on.

Progressive Elaboration

You learn about the project as it progresses. The specifications of the product become clear as

you move further and requirements become clearer. This is also called proceeding in steps.

Example of Projects

Building a new office Designing a new product or service Creating an advertisement campaign Creating a new process with a business unit

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Moving from one building to another Designing a space vehicle

Project

A temporary endeavor means that every project has a definite beginning and end.

Unique means that the product or service or result is different from other product or service or result.

Progressively elaborated - proceeding in steps

Projects versus Operations

Operations are ongoing and produce repetitive products, services, or results. Operations work is

ongoing that sustains the organization over time.

Operations and projects differ in the way that operations are ongoing but projects are

temporary.

Operations are repetitive in nature while projects create a unique product or service.

Operations objective is to sustain business while project closes after the objectives are

achieved.

Examples of Operations

Assembly line production

Call center operations Help desk, customer service, and so on

PROJECTS OPERATIONS

Temporary Ongoing

Unique Repetitive

Closes after attaining the objectives Objective is to sustain business

Prototyping the new car model Assembly line production

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Why Projects Fail?

Lack of clearly defined purpose Inexperienced project Managers Poor estimation of duration and cost Cultural and ethical misalignment Poor requirements and scope management Lack of coordination of resources and activities Poor communication Inadequate planning of scope, schedule, resources, cost, risk and quality Lack of progress and quality control

Project Management

Definition

as per

PMBOK

Guide

Project Management is the application of knowledge, skills, tools and

techniques to project activities to meet the project requirements.

The project team carries out the work needed to complete the project, while the project manager

schedules, monitors, and controls the various project tasks. The project manager requires

knowledge, performance, and personal skills to perform better at their jobs.

The typical work of a project manager involves:

Requirements gathering Managing stakeholder expectations Managing project constraints including scope, quality, schedule, resources, budget, and

risk.

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What is the role of a Project Manager?

The role of a Project Manager is to achieve project objectives. It is different from the role of a

functional or operations manager. The functional manager provides management oversight for an

administrative area. The operations managers are accountable for a facet of the core business.

A project manager should have knowledge and skills in the areas of Project Management,

Specific Application Area, and General Management.

For effective project management, the project manager should have:

1. Knowledge: This relates to what the project manager knows about project management.

2. Performance: This relates to what the project manager is able to accomplish by using this knowledge.

3. Personal Skills: This relates how the project manager behaves when managing the

project (attitudes, core personality characteristics, and leadership. To sum up the ability

to guide the project team while achieving project objectives and balancing the project

constraints.

A project manager spends about 90% of time communicating.

Project Stakeholders

Project stakeholders are individuals and organizations involved in the project that will be directly

or indirectly impacted by the project. The stakeholders may have positive or negative influence

on the outcome of the project.

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The stakeholders must be identified early in the project. This is often a difficult task. The project

manager needs to manage the expectations of the key stakeholders to successfully complete the

project.

Key stakeholders include:

Project Manager Customer / User Performing organization Project team members Project management team Sponsor Influencers PMO

Apart from the above, there are other categories of stakeholders such as external and internal

stakeholders, team members and their families, government agencies, and so on.

Project, Portfolio and Program Management

Definition

as per

PMBOK

Guide

Portfolio :

A portfolio refers to a collection of projects or programs and other work that

are grouped together to facilitate effective management of that work to meet

strategic business objectives.

Program:

A program is defined as a group of related projects managed in a coordinated

way to obtain benefits and control not available from managing them

individually.

Programs

Collection of related projects

Controls are implemented and managed in a coordinated way

Collective benefits are realized

Each project has a project manager

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Projects share resources and depends on the outcomes of other projects

Portfolios

Collection of programs and projects

Projects meet a specific business goal or objective

Includes weighing the value of each project against the portfolios strategic objective

Ensures efficient use of resources

Project Management Office (PMO)

Centralized units to oversee project and programs within the organization

Establishes and maintains the standards of project management methodologies

Support managers in planning, estimating, risk management and provide trainings

Project Management Office (PMO)

A project management office (PMO) is an organization body or entity assigned various

responsibilities related to the centralized and coordinated management of those projects

under its domain.

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Organizational Structure

Functional

Organization

Weak Matrix

Organisation

Balanced Matrix

Organisation

Strong Matrix

Organisation

Projectized

Organisation

PMs Title Expediter Expediter/

Coordinator

Project Manager Project

Manager

Project

Manager

Decision

Making

Power

Functional

manager

Functional

manager plays

a major role,

but PM will

make decisions

PM and the

Functional

Manager will

have equal

power

Project

Manager

Project

Manager

Resources From within

a Dept.

Project

members are

from different

departments

Project members

are from

different

departments

Project

members are

from different

departments

Project

based only

Resource

Allocation

As needed Only 25% will

be assigned to

the projects

About 50% will

be assigned to

the projects

About 80%

will be

assigned to the

projects

About

100% will

be assigned

to the

projects

Resources

Reports to

Functional

manager

Functional

manager

Two manager

(FM and PM)

Project

Manager

Project

Manager

PM Reports

to

Functional

manager

Functional

manager

Functional

manager and

his/her senior

manager

Company

Senior manager

Company

senior

manager/

higher

authority

After Project

Completion

Team go

back to their

Dept. (home)

Team go back

to their Dept.

(home)

Team go back to

their Dept.

(home)

Team go back

to their Dept.

(home)

No home

move to

different

project or

get laid off

Source: A Guide to the Project Management Body of Knowledge, Fourth Edition (PMBOK Guide) 2008 Project Management Institute, Inc.

All Rights Reserved.

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Organization Types Advantages and Disadvantages

Org. Type Advantages Disadvantages

Matrix Highly visible project objectives Not cost effective because of extra administrative

personnel

Better Project Manager control over

resources

More than ONE boss for project teams

Better coordination More complex to monitor and control

Team members maintain a home Higher potential for conflict and duplication of effort

and functional managers have different priorities

Functional Team members report to one supervisor

and clearly defined career paths

No career path in Project Management

Easier management of specialists People place more emphasis on their functional

specialty to the determent of the project

Projectized Efficient project organization No Home when project is completed

More effective communication than

functional

Duplication of facilities and job functions

Loyalty to the project Lack of professionalism in disciplines and less

efficient use of resources

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The Project Life Cycle

All projects, large or small, can be mapped to the following life cycle:

Starting the project

Organizing and preparing

Carrying out the project work

Closing the project

A typical life cycle shows the following characteristics:

Stakeholder influence and risk are more at the start of the project and decrease as project moves

towards closure.

Cost and staffing levels are low at the start, peak as project moves into execution and finally drop

as project inches towards closure.

The cost of changes increases and correcting errors increases as the project moves towards

closure.

Process Management Process Groups

The five process groups include:

1. Initiating - process group authorizes the project

2. Planning - process group plans the course of action to achieve objectives

3. Executing - process group uses the resources to carry out project tasks

4. Monitoring - process group measures progress to identify variances

5. Closing - process group formalizes product acceptance and closure

Though the five project management process groups appear as discrete elements, in

reality they overlap with each other.

The application of project management processes is iterative in nature and is repeated

during the project life cycle.

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Process Management Process Groups

Source: A Guide to the Project Management Body of Knowledge, Fourth Edition (PMBOK Guide) 2008 Project

Management Institute, Inc. All Rights Reserved.

Project Management Process Groups

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Project Management Process Groups Interaction



Initiating Process Group

Conduct cost-benefit analysis Determine and define the business needs and the project scope Know the project boundaries and constraints Identify high level risks Understand the required project organization structure Estimate budget and resource requirements Assign a project manager Obtain the project charter approval Formally authorize to start a new project or phase

Planning Process Group

Determine how you will plan and develop the project management plan Develop the project requirements in detail and agree the final scope Determine the required project activities and their sequencing Develop schedule using estimated resources and costs

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Agree what quality standards will be met by the project and how Define how project staffing will be done Establish the communication requirements and how it will be fulfilled Identify what can go wrong and the plans to deal with them Document what products or services will be acquired from outside the project Gain formal approval and buy-in from everybody involved in the project

Executing Process Group

Execute activities in the project plan Procure required project resources Complete work packages Document lessons learnt Implement approved changes, corrective and preventive actions Ensure processes are followed Hold team building activities and boost morale and efficiency Manage resource allocation and utilization Hold progress review meetings and distribute progress reports Keep everyone focused on the project goals

Monitoring & Control Process Group

Measure project performance using the documented technique in the plan Identify variances and recommend corrective actions to get back on track Approve changes, defect repair, corrective and preventive actions Resolve conflicts and issues Manages changes to scope, time and cost Perform impact analysis to approve or reject changes Obtain formal acceptance of deliverables from the customer Monitor the status of risks and identify new risks have emerged Measure team member performance

Closing Process Group

Confirm all project requirements are met Obtain formal acceptance of product from the customer Hand over the completed deliverables to the operations team Compile lessons learnt Measure customer satisfaction

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Archive project data and information for future reference Release resources

Project Management Knowledge Areas

The 42 Processes within the 5 Process Groups, are mapped into 9 Project Management

Knowledge Areas:

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Processes Initiation Planning Execution Monitoring &

Control

Close Out

Knowledge

Areas

Integration

Management

Develop Project

Charter

Develop Project

Management Plan

Direct and Manage

Project Execution

Monitor and

Control Project

Work

Perform Integrated

Change Control

Close Project or

Phase

Scope Management Scope Planning

Scope Definition

Create WBS

Scope Verification

Scope Control

Time Management Activity Definition

Activity Sequencing

Activity Resource

Estimating

Activity Duration

Estimating

Schedule Development

Schedule Control

Cost

Management

Estimate Costs

Estimate Budgets

Cost Control

Quality Management Quality Planning Perform Quality

Assurance

Perform Quality

Control

Human Resource

Management

Human Resource

Planning

Acquire Project

Team

Develop Project

Team

Manage Project

Team

Manage Project

Team

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Communication

Management

Identify

Stakeholders

Communications

Planning

Information

Distribution

Manage

Stakeholders

Expectation

Report Performance

Risk

Management

Risk Management

Planning

Risk Identification

Qualitative Risk Analysis

Quantitative Risk

Analysis

Risk Response Planning

Monitor & Control

Risk

Procurement

Management

Plan Procurement Conduct

Procurement

Administer

Procurements

Close

Procurement



Project Integration Management

Processes that integrates the different elements of project management Coordinates the project work is done correctly and in the right order Ensures changes are properly controlled and managed

Comprises of the following processes:

Develop Project Charter

Develop Project Management Plan

Direct and Manage Project Execution

Monitor and Control Project Work

Perform Integrated Change Control

Close Project or Phase

Project Scope Management

Ensures project includes all of the work and only the work required Identifies, defines and controls the project work Verifies that the deliverables meet the specified criteria

Comprises of the following five processes:

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Collect Requirements

Define Scope

Create WBS

Verify Scope

Control Scope

Project Time Management

Processes concerning with the timely completion of the project Determines the time and the order in which project work will be done Controlling to ensure everything gets done on time Comprises of the following six processes:

Define Activities

Sequence Activities

Estimate Activity Resources

Estimate Activity Durations

Develop Schedule

Control Schedule

Project Cost Management

Processes to ensure the project stays within the budget Determines the project budget Controls the changes to the project budget Comprises of the following three processes:

Estimate Costs

Determine Budget

Control Costs

Project Quality Management

Processes that ensures the project will satisfy the agreed quality standards Identifies the relevant standards and how they will be met Assurance activities to ensure the agreed processes are followed Monitoring project results to determine compliance Comprises the following three processes:

Plan Quality

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Perform Quality Assurance

Perform Quality Control

Project Human Resource Management

Processes that organize and manage the project team Identifies the required roles on the project Obtains the human resources needed to complete the work Enhance competencies and performance Comprises of the following four processes:

Develop Human Resource Plan

Acquire Project Team

Develop Project Team

Manage Project Team

Project Communication Management

Processes to ensure timely distribution of project information Determines the information needs of the project stakeholders Makes the information available in timely manner Collecting and distributing project performance information Comprises of the following processes:

Identify Stakeholders

Plan Communications

Distribute Information

Manage Stakeholder Expectations

Report Performance

Project Risk Management

Processes to deal with the unexpected when it does happen Identifying events that might affect the project Developing plan and actions to deal with those event

Comprises of the following six processes:

Plan Risk Management

Identify Risks

Perform Qualitative Risk Analysis

Perform Quantitative Risk Analysis

Plan Risk Responses

Monitor and Control Risks

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Project Procurement Management

Processes to purchase or acquire the products and services Selecting who will supply the required products and services Planning and administering the contracts

Comprises of the following processes:

Plan Procurements

Conduct Procurements

Administer Procurements

Close Procurements

Professional Responsibility

A PMP must follow the Project Management Institute Code of Ethics and Professional Conduct

The responsibilities includes:

Doing the right things

Making good choices

Keep learning and getting better

Respecting others culture

Covers legal, ethical and professional behavior of a PMP

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Chapter 2

Project Integration

Management

Project Integration

Framework

Develop Project Charter Develop Project Management Plan Direct and Manage Project Execution Monitor and Control Project Work Perform Integrated Change Control Close Project or Phase

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Project Integration

Management


Learning Objectives


able to:

List the various processes of Project Integration Management

Describe the process of Develop Project Charter Describe the process of Develop project plan Describe the process of Direct and Manage Project

Execution.

Describe the process of Monitor and Control Project Work

Describe the process of Perform Integrated Change Control

Describe the process of Close Project Or Phase Explain the various project selection methods Explain the components of a project management plan

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Definition

as per

PMBOK

Guide

Project Integration Management includes the processes and activities needed

to identify, define, combine, unify, and coordinate the various processes and

project management activities within the Project management process Groups.

Project Integration Management: Process Groups

Project Integration

Framework

Develop Project Charter Develop Project Management Plan Direct and Manage Project Execution Monitor and Control Project Work Perform Integrated Change Control Close Project or Phase

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Develop Project Charter

Definition

as per

PMBOK

Guide

The process of developing a document that formally authorizes a project or a

phase and documenting initial requirements that satisfy the stakeholder's

needs and expectations.

Key Points about Project Charter

The approved Project Charter formally initiates a project.

The Project Manager should be preferably assigned during creation of the Project

Charter.

Project Charter gives the project manager authority to spend and commit corporate

resources

It provides high-level requirements for the project.

Inputs: Develop Project Charter

Project statement of work A project statement of work (SOW) is a narrative

description of products, services, or results to be supplied. The SOW is provided by

the sponsor. In case of external customer, the SOW can be part of Request for

Proposal (RFP), Request for Information (RFI) or the contract. The SOW provides

the information on business need, product scope and how the project fits into the

strategic plan.

Business case: The business case document explains the importance of the project from

business standpoint. It involves cost-benefit analysis to find whether the project is worth

doing or not.

Contract: This is the input if project is being done for an external customer.

Enterprise environmental factors: These include organization structure, market

conditions, and so on.

Organization process assets: These include policies and procedures, templates,

historical information, and lessons learned database.

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Tools & Techniques: Develop Project Charter

Expert Judgment: Involves talking to all the experts on the project to identify inputs to

the charter. These can include the subject matter experts, external consultants, PMO and

other important stakeholders.

Outputs: Develop Project Charter

Project Charter: The Project Charter documents the business need and the following

information:

o Project purpose

o Project objectives and success criteria

o High-level requirements, project description, and risks

o Summary milestone schedule

o Summary budget

o Assigned project manager

o Name of the sponsor authorizing the charter

Project Selection Methods

Benefit Measurement Model (also called Comparative approach )

Payback Period Cost Benefit Analysis Scoring Models Net Present Value (NPV) Internal Rate of Return (IRR)

Mathematical Models (also called Constrained Optimization)

Use linear, dynamic, non-linear, multi-objective programming to solve problem

1. Payback period the amount of time to recover your cost. It compares the initial

investment to the cash inflows expected over the life of the product.

o For example, Initial investment on a project is Rs. 4,00,000, Expected cash

inflows: Rs. 50,000 per quarter for first two years, Rs. 100,000 per quarter

thereafter.

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o What is the payback period?

o Cash inflows = Rs. 50,000 x 4 (quarters in a year) = Rs. 2, 00,000 per year for

first two years. Hence, year 1 inflow = Rs. 2, 00,000, year 2 inflow = Rs. 2,

00,000. Total Rs. 4, 00,000 in 2 years

o So payback is reached in 2 years.

2. Benefit Cost Ratio (BCR) or profitability Index: This is the ratio of project benefit and

the project cost.

o BCR = Revenue / Cost

o Select the project with a higher BCR

3. Present Value (PV): is the expected future cash flows expressed in todays monetary

value

o PV = FV / (1+r) n

o For example, Calculate the Present Value of $ 100,000 received three years from

now. The interest rate is 10 percent.

o PV = 100000 / (1+10/100)3 = $ 75,131

4. Net Present value (NPV) is the sum total of the Present Value of Cash Inflows

Present Value of Cash Outflows

o If NPV > 0, accept the project

o Or select the project with the greater NPV

5. Internal Rate of Return: The rate of interest at which the revenues and costs are equal.

o Select the project with a higher IRR.

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6. Return on Investment (ROI): A return ratio that compares the net benefits of a project/

product, verses its total cost.

o ROI = Operating Income / Investments

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Develop Project Management Plan

Definition

as per

PMBOK

Guide

Develop Project Management Plan is the process of documenting the actions

necessary to define, prepare, integrate, and coordinate all subsidiary plans.

Inputs: Develop Project Management Plan

Project charter: explained earlier

Outputs from planning processes: Outputs from other project management planning

areas are used as an input to the project management plan. These include scope, cost,

time, quality, risk, human resource, communication, and procurement plans.

Enterprise environmental factors: explained earlier

Organizational process assets: explained earlier

Tools & Techniques: Develop Project Management Plan

Expert Judgment: explained earlier

Outputs: Develop Project Management Plan

Project management plan: The project management plan is a combination of subsidiary

plans. There is one sub subsidiary plan for each of the knowledge areas. These include

o Project scope management plan

o Schedule management plan

o Cost management plan

o Quality management plan

o Human resource management plan

o Communication management plan

o Risk management plan

o Procurement management plan

Note: The Project Management Plan is not the same thing as a project schedule.

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Direct and Manage Project Execution

Definition

as per

PMBOK

Guide

Direct and manage Project Execution is the process of performing the work

defined in the project management plan to achieve the project's objectives.

Inputs: Direct and Manage Project Execution

Project management plan: The project management plan is a combination of subsidiary

plans.

Approved change requests: These are authorized and documented changes to the

project scope.



Tools & Techniques: Direct and Manage Project Execution

Expert judgment: explained earlier

Project management information system: An information system consisting of the

tools and techniques used to gather, integrate, and disseminate the outputs of project

management processes. It is used to support all aspects of the project from initiating

through closing, and can include both manual and automated systems.

Outputs: Direct and Manage Project Execution

Deliverables: are anything that you produce during the course of project activities.

Work performance information: refers to the information generated as the project

progresses: These include status reports, progress reports and so on.

Change requests: Change requests are issued when there are issues during project.

These can result in change in scope, time, cost, quality and other factors.

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Project management plan updates: Update to the various subsidiary plans

Project document updates: Update to the various project documents.

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Monitor and Control Project Work

Definition

as per

PMBOK

Guide

Monitor and Control project Work is the process of tracking, reviewing, and

regulating the progress to meet the performance objectives defined in the

project management plan.

Inputs: Monitor and Control Project Work

Project management plan: explained earlier

Performance reports: explained earlier



Tools & Techniques: Monitor and Control Project Work


Outputs: Monitor and Control Project Work

Change requests: explained earlier

Project management plan updates: explained earlier

Project documented updates: explained earlier

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Perform Integrated Change Control

Definition

as per

PMBOK

Guide

Perform Integrated Change Control is the process of reviewing all change

requests, approving changes and managing changes to the deliverables,

organizational assets, project documents, and the project management plan.

Change Control Systems

Every documented change request must be either approved or rejected by an authorized

person.

Some changes require approval by the Change Control Board (CCB).

Any approved changes may required adjusting the scope, time, and resource requirements

Configuration Management

Configuration management system provides a standardized, effective, and efficient way to

centrally manage approved changes and baselines within the project.

Inputs: Perform Integrated Change Control


Work performance information: explained earlier




Tools & Techniques: Perform Integrated Change Control


Change control meetings: A change control board is responsible for meeting and

reviewing the change requests and approving or rejecting those change requests.

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Outputs: Perform Integrated Change Control

Change request status updates: Change requests, if approved are implemented and the

status is updated in change request log.

Project management plan updates: : explained earlier

Project document updates: : explained earlier

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Close Project or Phase

Definition

as per

PMBOK

Guide

Close Project or Phase is the process of finalizing all activities across all of the

project Management Process Groups to formally complete the project or

phase.

Inputs: Close Project or Phase


Accepted deliverables: The deliverables that have been accepted as part of Verify

Scope.


Tools & Techniques: Close Project or Phase


Outputs: Close Project or Phase

Final product service or results transition: Refers to the final product, service or result

that the project was authorized to produce.

Organizational process assets update: This includes updates to the various

organizational process assets that include the project files, project or phase closure

documents and lessons learned database.

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Chapter 3

Project Scope

Management

Project Scope

Management

Collect Requirements Define Scope Create WBS Verify Scope Control Scope

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50

Project Scope

Management


Learning Objectives


able to:

List the processes for project scope management Describe the process of requirements gathering Describe the process of defining project scope Decompose project scope into work breakdown structure Describe the process of verify scope Describe how to control the project scope changes

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Definition

as per

PMBOK

Guide

Project Scope management includes the processes required to ensure that the

project includes all the work required, and only the work required, to complete

the project successfully.

Project Scope Management: Process Groups

Project Scope

Management

Collect Requirements Define Scope Create WBS Verify Scope Control Scope

The term scope may refer to:

Product Scope: The features and functions in a product, service, or result.

Project Scope: The work that needs to be done in order to deliver a product, service or

result with the specified features and functions.

The product scope is measured against the requirement and project scope is measured against the

project plan.

The success of the project is dependent on how well the requirements are captured. These

requirements include the product requirements as well as the project requirements. Product

requirements include the technical and other specifications of the product whereas project

requirements include the business and project management requirements.

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Collect Requirements

Definition

as per

PMBOK

Guide

Collect Requirements is the process of defining and documenting stakeholders'

needs to meet the project objectives.

Inputs: Collect Requirements

Project charter: The Project Charter is a summary document of what the project is

supposed to accomplish. This serves as key document to create the requirements

document.

Stakeholder register: Is the list of all the stakeholders. You need to gather requirements

from the all the stakeholders using different techniques such as interviews,

questionnaires, surveys and so on.

Tools & Techniques: Collect Requirements

Interviews: This is a one-to-one interaction with the stakeholders to understand the exact

needs.

Focus groups: This involves a group of people to discuss their needs with you.

Facilitated workshops: This is a structured technique where a moderator leads a group

through brainstorming together. The cross-functional teams work together and decide on

a common understanding and goals.

For example, Joint Application Development (JAD) sessions are used in the software

development industry. In manufacturing sector, Quality Function Deployment (QFD) is

used to arrive the critical characteristics of anew product.

Group creativity techniques: Some of the group creativity techniques include:

1. Delphi Technique: In Delphi Technique, a group of anonymous users is asked to

provide answers to specific questions. A moderator shares the ideas with everybody

and the iterations continue to settle down on a list of requirements from all.

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53

2. Mind maps: This is a excellent technique to visualize how the ideas relate to each

other.

3. Affinity Diagrams: This is a way to group same kind of ideas together in a group.

4. Brainstorming: This is the most common way of collecting the requirements where a

group of people sit down together to think of new ideas.

5. Nominal Group technique: This is a way of brainstorming where you write down

the ideas and then all vote for the best ones.

Group decision making techniques: There are various methods of arriving at a decision.

These include:

1. Unanimity: Everyone agrees in this case.

2. Majority: More than half of the people decide.

3. Plurality: The idea that gets the most votes.

4. Dictatorship: One person decides here.

Questionnaires and surveys: Use this method to elicit response from a larger set of

people.

Observations: Sometimes just observing the users gives an idea of the needs or how to

solve the problem.

Prototypes: Prototypes are scaled down versions of the product.

Outputs: Collect Requirements

Requirements documentation: Requirements documentation includes the business

need, project objectives, functional requirements, non-functional requirements, and

quality and acceptance criteria. It also includes the assumptions and constraints.

Requirements management plan: The requirements management plan describes how

the requirements will be managed through the project.

Requirements traceability matrix: This document describes where the requirements

came from. This document helps in creation of specific test cases.

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Define Scope

Definition

as per

PMBOK

Guide

Define Scope is the process of developing a detailed description of the project

and product.

Inputs: Define Scope

Project charter: explained earlier Requirements documentation: explained earlier Organizational process assets: explained earlier

Tools & Techniques: Define Scope

Expert judgment: explained earlier Product analysis: It involves better understanding the product or the project.

Alternatives identification: This is about exploring different ways to do the project work. This might include licensing some part or outsourcing some part of the project to

external vendors.

Facilitated workshops: explained earlier

Outputs: Define Scope

Project scope statement: The scope statement tells you what to do (and what not to do). The scope statement covers the following important items:

Project Objectives

Product Scope Description

Project Requirements

Exclusions

Deliverables

Acceptance Criteria

Constraints

Assumptions

Project document updates: Any updates to the project documents.

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Progressive Elaboration Versus Scope Creep

Progressive elaboration should not be confused with scope creep.

Progressive elaboration: Adding more details to the already defined scope and

not increasing the project scope.

Scope creep: Adding features and functionality (project scope) without addressing the effects on time, costs, and resources, or without customer

approval.

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Create WBS

Definition

as per

PMBOK

Guide

The process of subdividing project deliverables and project work into smaller,

more manageable components.

Work Breakdown Structure (WBS): Deliverable-oriented hierarchical decomposition of work.

It organizes and defines the total scope of the project.

Work Package: The lowest level WBS components that contain planned work. A work package

can be schedules, cost estimated, monitored and controlled.

Note: Work outside the WBS is outside the scope of the project.

Figure: Work Breakdown Structure (WBS)

Project

Phase 1 Phase 2 Phase 3

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Inputs: Create WBS

Project scope statement: explained earlier Requirement documentation: explained earlier Organizational process assets: explained earlier

Tools & Techniques: Create WBS

Decomposition: Decomposition is the subdivision of project deliverables into smaller, more manageable components until the work and deliverable are defined at the work

package level.

Outputs: Create WBS

Work breakdown structure: is a deliverable-oriented hierarchical decomposition of work. It organizes and defines the total scope of the project. The WBS is decomposed

into smaller, more manageable components until the work and deliverable are defined at

the work package level. It is the lowest level WBS components that contain planned

work.

Control accounts are established at work package level. Control account is used to

integrate scope, cost and schedule. It is also used for earned value measurement.

Work breakdown structure dictionary: WBS dictionary provides detailed description of each WBS element.

Scope baseline: An approved version of the detailed scope statement, work breakdown structure (WBS), and its associated WBS dictionary.

Project document updates: explained earlier

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Verify Scope

Definition

as per

PMBOK

Guide

The process of formalizing acceptance of the completed project deliverables

Inputs: Verify Scope



Requirements documentation: explained earlier

Requirements traceability matrix: explained earlier


Tools & Techniques: Verify Scope

Inspection: Inspection includes measuring and verifying to determine whether work and

deliverables meet requirements and product acceptance criteria.

Outputs: Verify Scope

Accepted deliverables: Deliverables that meet the acceptance criteria are signed-off by

the customer.

Change requests: If the deliverables that are not accepted, a change request is raised.

The change request goes for approvals.

Project document updates

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Control Scope

Definition

as per

PMBOK

Guide

The process of monitoring the status of the project and product scope and

managing changes to the scope baseline.

Inputs: Control Scope

Project management plan: explained earlier Work performance information: explained earlier Requirements documentation: explained earlier Requirements traceability matrix: explained earlier Organizational process assets: explained earlier

Tools & Techniques: Control Scope

Variance Analysis: Variance analysis is used to measure the variation of key parameters

from the original scope baseline.

Outputs: Control Scope

Work performance measurements: explained earlier

Organizational process assets updates: explained earlier




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Chapter 4

Project Time

Management

Project Time

Management

Define Activities Sequence Activities Estimate Activity Resources Estimate Activity Duration Develop Schedule Control Schedule

PMP EXAM GUIDE

61

Project Time

Management


Learning Objectives

After the completion of this chapter, the learner will be able to:

List the various time management process Describe the process of Define Activities Describe the process of Sequence Activities Describe the process of Estimate Activity Resources Describe the process of Estimate Activity Durations Describe the process of Develop Schedule using various tools Describe the process of Control Schedule Apply Critical Path Method to create schedule

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Definition

as per

PMBOK

Guide

Project Time Management includes the processes required to manage timely

completion of the project.

Project Time Management: Process Groups

Project Time

Management

Define Activities Sequence Activities Estimate Activity Resources Estimate Activity Duration Develop Schedule Control Schedule

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63

Define Activities

Definition

as per

PMBOK

Guide

Define Activities is the process of identifying the specific actions to be

performed to produce the project deliverables.

Inputs: Define Activities

Scope Baseline: The scope baseline consists of project deliverables, assumptions and

constraints which are important inputs to the activities.

Enterprise Environmental Factors: explained earlier

Organizational Process Assets: It includes various templates and the lessons learned

databases.

Tools & Techniques: Define Activities

Decomposition: Decomposition refers to subdividing the work-packages to activities.

Rolling Wave Planning:

o Rolling wave planning is the process of planning for a project in waves as the

project becomes clearer and unfolds. It is a multi-step, intermittent process,

like waves - because we cannot provide the details very far out in our

planning.

o Work packages that are further in the future are planned at only a high level.

o Work packages that are closer in time are planned in detail.

o We end up saving a lot of planning time by not planning things that have a

relatively high chance of never reaching execution.

o Helpful in large or long-term projects where there is some uncertainty about

continuing with the project beyond a certain point in time.

Templates: Templates refers to using the WBS of the similar projects that are being

used in the organization.

Expert Judgment: using the opinion of the project managers who have done similar

projects earlier.

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Outputs: Define Activities

Activity List: This is the list of activities that need to be done to complete the project.

Activity Attributes: Activity attributes comprise of the information required for each

activity. This includes the description of each activity, predecessor activities, successor

activities, and any constraints.

Milestone List: A milestone is an important event in a project. These are important from

the point of tracking the project.

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Sequence Activities

Definition

as per

PMBOK

Guide

Sequence Activities is the process of identifying and documenting relationships

among the project activities.

Inputs: Sequence Activities

Activity List: explained earlier

Activity Attributes: explained earlier

Milestone List: explained earlier

Project Scope Statement: explained earlier

Organizational Process Assets: explained earlier

Tools & Techniques: Sequence Activities

Precedence Diagramming Method (PDM):

o Also called Activity on Node (AON)

o Uses boxes or rectangles as Nodes to represent Activities

o Connect boxes with Arrows which represent Dependencies

o Does not use dummy activities

o Includes all 4 relationships (FF, FS, SS, & SF)

These four relationships include:

1. Finish-to-Start. The initiation of the successor activity depends upon the completion

of the predecessor activity.

2. Finish-to-Finish. The completion of the successor activity depends upon the

completion of the predecessor activity.

3. Start-to-Start. The initiation of the successor activity depends upon the initiation of

the predecessor activity.

4. Start-to-Finish. The completion of the successor activity depends upon the initiation

of the predecessor activity.

In PDM, finish-to-start is the most commonly used type of precedence relationship. Start-

to-finish relationships are rarely used.

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Task Relationships

Dependency Determination:

1. Mandatory dependencies are those that are inherent in the nature of the work being

done. They often involve physical limitations. For example, Superstructure after the

foundation.

Mandatory dependencies are also called hard logic dependencies.

2. Discretionary dependencies are those that are defined by the project management

team.

Discretionary dependencies are usually defined based on knowledge of:

o Best practices within a particular application area.

o Some unusual aspect of the project where a specific sequence is desired, even

though there are other acceptable sequences.

o Discretionary dependencies may also be called preferred logic, preferential logic,

or soft logic.

3. External dependencies are those that involve a relationship between project

activities and non-project activities.

o For example, Regulatory dependencies

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Applying Leads and Lags: A lead allows acceleration of the successor activity

whereas, lag allows a delay in the successor activity.

Schedule Network Templates: Standard schedule network templates can be used for

expediting the creation of schedule network templates.

Outputs: Sequence Activities

Project Schedule Network Diagrams: Project schedule network diagrams are

schematic displays of the projects schedule activities and the logical relationships

among them, also referred to as dependencies.

o Can be produced manually or by using project management software.

o Can include full project details, or have one or more summary activities.

o Summary narrative accompanies the diagram and describes the basic approach

used to sequence the activities

Project Document Updates: Updates to any project documents.

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Estimate Activity Resources

Definition

as per

PMBOK

Guide

Estimate Activity Resources is the process of estimating the type and quantities

of material, people, equipment or supplies required to perform each activity.

Inputs: Estimate Activity Resources



Resource Calendars: It includes the availability of the resources during various time

periods of the project.



Tools & Techniques: Estimate Activity Resources


Alternatives Analysis: Alternatives analysis refers to the evaluation of various

alternatives available of estimating activity resources. These can include skill and

experience of the resources and also the different tools available for project execution.

Published Estimating Data: This includes published data for estimation available for

different industries.

Bottom-up Estimating: Involves subdividing large subset into smaller activities and ity

estimating each activity. Aggregation of all the activity estimates leads to the final

estimate.

Project Management Software: Involves estimating using software tools such as

spreadsheets and other automated tools.

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Outputs: Estimate Activity Resources

Activity Resource Requirements: It is the type and number of resources required for

each activity.

Resource Breakdown Structure: It is the hierarchical structure of resource category and

resource type. For example for labour category, high-skilled and medium-skilled.

Project document Updates: Updates to various related project documents.

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Estimate Activity Duration

Definition

as per

PMBOK

Guide

Estimate Activity Durations is the process of approximating the number of

work periods needed to complete individual activities with estimated resources.

Inputs: Estimate Activity Duration



Activity Resource Requirements: explained earlier

Resource Calendars: explained earlier



Organizational Pocess Assets: explained earlier

Tools & Techniques: Estimate Activity Duration


Analogous Estimating: explained earlier

Parametric Estimating: Parametric modeling involves using project characteristics in a

mathematical model to calculate project costs. These models can be simple or complex

depending on the project.

Three - point Estimates: Also called Program Evaluation and Review Technique

(PERT). PERT uses three estimates to arrive at a range for activity time.

o Most Likely - The activity duration based on the realistic effort assessment.

o Optimistic - The activity duration based on the best-case scenario for the

activity.

o Pessimistic - The activity duration based on the worst-case scenario for the

activity.

Expected Time = (Optimistic + 4 * Most Likely + Pessimistic) / 6

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Reserve Analysis: Reserve analysis means keeping some reserve time or buffer for time overruns. This duration is the percentage of overall duration and called contingency

reserve.

Outputs: Estimate Activity Duration

Activity Duration Estimates: are the quantitative assessments of the likely number of

work periods that will be required to complete an activity.

Project Document Updates: Updates to various related project documents.

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Develop Schedule

Definition

as per

PMBOK

Guide

Develop Schedule is the process of analyzing activity sequences, durations,

resource requirements, and schedule constraints to create the project schedule

Inputs: Develop Schedule



Project Schedule Network Diagrams: explained earlier

Activity Resource Requirements: explained earlier

Resource Calendars: explained earlier

Activity Duration Estimates: explained earlier



Organizational Process Assets : explained earlier

Tools & Techniques: Develop Schedule

Schedule Network Analysis: It is a analytical technique that uses critical path method,

critical chain method, what-if analysis, and resources leveling to calculate the early and

late start and finish dates for the uncompleted portions of project activities.

Critical Path Method: Critical Path is the path with the longest duration. A delay in any

one of the activities on the critical path activities leads to the delay in the entire project.

Float: The float for an activity is the amount that its duration can slip without causing the

project to be delayed. The float for any activity on the critical path is zero.

Calculate the early start, early finish, late start, and late finish using forward pass and

backward pass.

When two paths intersect, for the forward pass use the larger value, and for the

backward pass use the smaller value.

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Critical Chain Method: Critical chain is a schedule network analysis technique that

modifies the project schedule to account for limited resources.

Resource Leveling: Resource leveling is necessary when resources have been over-

allocated, has been assigned two activities at the same time, or a critical resource is

available only during certain times.

Resource leveling causes the critical path to change in most cases.

What-if Scenario Analysis: What-if analysis involves using various scenarios and

finding their impact on the schedule.

Applying Leads and Lags: explained earlier

Schedule Compression: Schedule compression involves shortening the project schedule

without affecting the project scope. The techniques are:

1. Crashing: This is done by adding more resources along the critical path. Crashing

does not always produce a viable alternative and often results in increased cost.

2. Fast-tracking: It involves doing activities in parallel that would normally be done in

sequence. Fast tracking often results in re-work and increase risk.

Scheduling Tool: Using scheduling tools and software programs to create network

diagrams.

Outputs: Develop Schedule

Project Schedule: It includes the project start and end dates and provides the prediction

of duration of the entire project. Project schedule can be represented in tabular form or

the following graphical formats:

o Milestone Chart

o Bar Chart

o Schedule Network Diagram

Schedule Baseline: It is an approved version of the schedule that is used to compare the

planned and actual progress.

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Schedule Data: Schedule data includes the supporting data apart from the milestones,

activities, assumptions and constraints.

Project Document Updates: Updates to the various project documents.

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Network Diagram Development

Critical Path Method

Forward Pass Early Start, Early Finish

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Backward Pass Late Start, Late Finish

Critical Path Longest Path, Zero Float

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Control Schedule

Definition

as per

PMBOK

Guide

Control Schedule is the process of monitoring the status of the project to

update project progress and managing changes to the schedule baseline.

Inputs: Control Schedule

Project Management Plan: explained earlier

Project Schedule: explained earlier

Work Performance Information: This includes the project status and progress reports.


Tools & Techniques: Control Schedule

Performance Reviews: Performance reviews involve measuring the Earned Value

Calculations Schedule Variance (SV) and the Schedule Performance Index (SPI).

These values provide valuable information on the performance of the project.

Variance Analysis: This involves comparing the planned versus actual dates. This is

very important. In case of any problems, corrective action can be taken.

Project Management Software: explained earlier

Resource Leveling: explained earlier

What-if Scenario Analysis: explained earlier

Adjusting Leads and Lags: explained earlier

Schedule Compression: explained earlier

Scheduling Tools: explained earlier

Outputs: Control Schedule

Work Performance Measurements: explained earlier

Organizational Process Assets Updates: explained earlier

Change Requests: explained earlier

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Project Management Plan Updates: explained earlier

Project Document Updates: explained earlier

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Chapter 5

Project Cost

Management

Project Cost

Management

Estimate Costs Determine Budget Control Costs

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80

Project Cost

Management


Learning Objectives

After the completion of this chapter, the learner will be able to:

List the various cost management process Describe the process of Estimate Costs Describe the process of Determine Budget Describe the process of Control Costs Apply the concept of Earned Value Management in given scenarios

PMP EXAM GUIDE

81


Definition

as per

PMBOK

Guide

Project Cost Management includes the processes involved in estimating,

budgeting, and controlling costs so that the project can be completed within the

approved budget.

Project Cost Management: Process Groups

Project Cost

Management

Estimate Costs Determine Budget Control Costs

Project Cost Management Plan

Subsidiary plan of the Project Management Plan

Produced during Develop Project Management Process

Defines how the project costs will be planned, managed and controlled

Documents how the cost management processes will be planned

Provides guidance on how the cost estimates should be developed

Determines how cost performance will be measured

Defines how cost variances will be determined and managed

Identifies how costs progress reporting will be done

Documents cost change control procedure

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Estimate Costs

Definition

as per

PMBOK

Guide

Estimate Costs is the process of developing an approximation of the monetary

resources needed to complete project activities.

Inputs: Estimate Costs

Scope baseline: The scope statement lists the project objectives and deliverables along

with other information required for the project. The information is required in creating

the cost estimate.

Project schedule: The project schedule provides the information on the duration of the

project, which is another input for cost estimate.

Human resource plan: Information about the cost of various resources adds to the cost

estimate.

Risk register: Keeping track of the risks and hence the costs required to tackling them.

Enterprise environmental factors: Published commercial information, supplier

databases help in the costing for various material and resource costs.

Organizational process assets: Historical information about projects and company

costing policies are used in estimating the project costs.

Tools & Techniques: Estimate Costs

Expert judgment: Expert judgment involves using historical information as well as

talking to experts on the subject matter.

Analogous estimating: Also called Top-down Estimating. In bottom-up estimating,

first you break down the project into activities and then add them up. Top-down is the

opposite of this. You compare the project as a whole with a similar project and arrive at a

cost estimate. This is less accurate than bottom-up estimation.

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Parametric estimating: Parametric modeling involves using project characteristics in a

mathematical model to calculate project costs. These models can be simple or complex

depending on the project.

Bottom-up estimating: This involves adding up the cost of individual activities or work

packages and rolling up to get the total costs. This is a much more accurate estimating

method than analogous estimating.

Three - point estimates: Also called Program Evaluation and Review Technique

(PERT). PERT uses three estimates to arrive at a range for activity cost.

o Most Likely - The cost of activity based on the realistic effort assessment.

o Optimistic - The cost of activity based on the best-case scenario for the activity.

o Pessimistic - The cost of activity based on the worst-case scenario for the activity.

Reserve Analysis: Reserve analysis means keeping some reserve cash for cost overruns.

These costs that are the percentage of overall costs are also called contingency costs.

Cost of Quality: Cost of quality refers to the costs associated with quality related

activities.

PM Estimating Software: Project Mangers also use specialized estimating software like

spreadsheets to calculate costs.

Vendor Bid Analysis: Vendor bid analysis is required when projects are awarded based

on bids under competitive processes. Arriving at a cost estimate for individual modules /

sub-projects becomes important if part of the project is being outsourced to a vendor.

Outputs: Estimate Costs

Activity Cost Estimates: This is the cost of all the activities in the project. It includes the

cost of labor as well as the material costs.

Basis Of Estimates: This lists the rates and reasoning for arriving at various cost

estimates for the resources.

Expected Cost = (Optimistic + 4 * Most Likely + Pessimistic) / 6

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Project Document Updates: The project plan documents are updated with the cost

estimates.

Some Important Cost Definitions

1. Benefit Cost Ratio: This is the ratio of project benefit and the project cost.

2. Net Present Value (NPV): NPV takes the time value of money into account and is

used to decide if it is worth doing the project.

3. Opportunity Cost: When there is a decision to be made between two opportunities, the

opportunity cost is the value / money forgone for the not doing the project.

4. Internal Rate of Return: The amount of money the project will return to the company

funding it.

5. Depreciation: This is the rate at which the project loses value over time.

6. Lifecycle Costing: Life Cycle Costing takes into account not just the cost of

development of a project but also the cost of supporting during the lifecycle.

Rough Order of Magnitude (ROM) The cost estimation with an accuracy of + 50 %, -50 %.

Types of Cost

Direct Cost- any cost that is identified specifically with a particular final cost objective.

Indirect Cost: any cost not directly identified with a single, final cost objective (more

than one project).

Fixed Cost: A periodic charge that does not vary with business volume.

Variable Cost : Cost that fluctuates based on the business volume

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Determine Budget

Definition

as per

PMBOK

Guide

Determine Budget is the process of aggregating the estimated costs of

individual activities or work packages to establish an authorized cost baseline.

Inputs: Determine Budget

Activity Cost Estimates: explained earlier

Basis Of Estimates: explained earlier

Scope Baseline: explained earlier

Project Schedule: explained earlier

Resource Calendars: Resource calendars provide information on the resources

availability. This is also used to arrive at project duration.

Contracts: If the project work is contracted, then contract is an important input to the

budget.


Tools & Techniques: Determine Budget

Cost aggregation: The individual activity estimates are rolled up into work package

levels which are further rolled till the project level. This is used to arrive at the project

budget.

Reserve analysis: Budget reserve analysis can help in arriving at both the management

and the contingency reserve.


Historical relationships: Historical relationships (for example used in Parametric

Modeling and Analogous Estimates) are also used in budget estimates.

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Funding limit reconciliation: Since the funds are limited, the project manager needs to

complete the project within the budget. If this cannot be achieved, a scope change might

be required or funding limit increased.

Outputs: Determine Budget

Cost performance baseline: This is a snapshot of the planned budget. The cost

performance baseline is used to compare the actual performance against the baseline.

Project funding requirements: The total funding requirements are the baseline cost and

the management reserve. It is important for the project manager to understand the funding

requirements during different phases of the project and how to secure them as well.

Project document updates: The various documents such as the cost management plan

need to be updated.

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Control Costs

Definition

as per

PMBOK

Guide

Control Cost is the process of monitoring the status of the project to update

project budget and managing changes to the cost baseline.

Inputs: Control Costs


Project funding requirements: explained earlier



Tools & Techniques: Control Costs

Earned value management: EVM is used to measure the performance of the project

against the plan. (explained under the section EVM)

Forecasting: Forecasting uses the EVM numbers to decide on preventive or corrective

actions.

To-complete performance index (TCPI): TCPI calculation is used to figure out how

well the project needs to perform in future to stay within the planned budget.

Performance reviews: These are project team meetings where the various variances are

analyzed. EVM is used to calculate the variances.

Variance analysis: The variance between the planned the actual project performance.

Project management software: There are software available that help the project

manager to keep track of their budgets.

Outputs: Control Costs

Work performance measurements: These include the CV, SV, SPI, and CPI.

Budget forecasts: Estimate at Completion (EAC) value is calculated for budget forecast.

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Organizational process assets updates: explained earlier




Earned value Management (EVM)

EVM is used to measure the performance of the project against the plan.

Important Terms

Planned Value (PV) also called Budgeted Cost of Work Scheduled (BCWS)

Earned Value (EV) also called Budgeted Cost of Work Performed (BCWP)

pmp exam guide

Documents

project management institute

project integration

project management framework

project management plan

project execution

close project

project charter

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