Project Management Professional Study

Studying for the PMP exam is time consuming and demanding. The following are some suggestions on how to make the test preparation process easier and more enjoyable.

Description Formula Comments
NPV Present value of benefit - present value of cost

Method for financial evaluation for long term projects. 
+ve NPV is good, -ve NPV is bad

The project with higher NPV is better project.

# of channel of communication N(N-1)/2 where N is the number of project members
PERT   (Program Evaluation & Review Technique)
EAD (Expected Activity Duration) [P + O + 4M]/6 O= Optimistic, M = Most Likely, P = Pessimistic
You use the PERT calculation (P + 4M + O)/6 to compute a weighted average of the totals. This number represents the mean (or 50 percent point)
SD (Activity Standard Deviation) [P-O]/6  
Activity Variance [(P-O)/6]2 Standard Deviation Squared
Standard Deviation Squared EAD +/- SD Start of Range = EAD - SD, End of Range = EAD + SD
Range for an overall project Project EAD +/- Project SD Project EAD = Sum of all individual activity EAD on critical path
Project SD = √Sum of all individual activity variances (√=Square root)
Activity on critical path has 0 or no float
Late Start - Early Start
Late Finish - Early Finish
Both formula returns the same result
If network diagram has only two paths then the difference between the two paths is the float
EV (Earned Value) Estimated value of work actually accomplished Cost to date as per the original baseline (if there are variance don't include those).  EV is the cost incurred to date if we would have worked as per baseline.
CV (Cost Variance) EV - AC -ve = Above Budget = Bad, +ve = Under Budget = Good
SV (Schedule Variance) EV - PV -ve = Behind Schedule = Bad, +ve = Ahead Schedule = Good
CPI (Cost Performance Index) EV/ AC = 1 = Good = On Target, > 1 = Good , <1 = Bad
SPI (Schedule Perf Index) EV/PV = 1 = Good = On Target,
> 1 = Ahead Schedule , <1 = Behind Schedule
If project is close & SPI is <1 means the project got terminated
EAC (estimate at completion) 1) AC + ETC
3) AC + (BAC-EV)
There are many ways to calculate EAC
1) Actual + new estimate for remaining work. This is used when the original estimate is fundamentally flawed.
2) This formula is used if no variances from the BAC have occurred or you continue with the same rate of spending.
3) Actual to date + remaining budget.
TCPI (To Complete Performance Index) (BAC-EV) / (BAC - AC) Work remaining to do divided by the money remaining to do. Values for the TCPI index of less than 1.0 is good because it indicates the efficiency to complete is less than planned. How efficient must the project team be to complete the remaining work with the remaining money?
It answers the question "In order to remain within the budget what rate must be met for the remaining work?"
ETC (Estimate to Complete) (EAC-AC) How much more does the project cost?  Re-Estimate is the estimate from bottoms up
VAC (Variance at Completion) BAC - EAC How much under or over budget will be at the end of the project
Median   The middle value that separates the higher half from the lower half of data. Exam:
4 is the median in 2,4,6 (middle value)
5 is the median in 2,4,6,8 ([4+6] /2)
Mode   The most frequent value in a given data set.
Exam: 2 is the mode of 1,2,2,3
EMV (Expected Monetary Value) P(Probability) * I (Impact) P = Probability , I =Impact
PTA (Point of Total Assumptions) - Procurement PTA= ([Ceiling Price - Target Price] /  Buyers Share Ratio) + Target Cost

Refers to the amount above which the seller bears all the loss of a cost overrun

Est. To Complete (Percentage) EV/ BAC  
Present Value PV FV / (1 + r)^n  
Internal Rate of Return Bigger is better (IRR)  
Benefit Cost Ratio  

Bigger is better ((BCR or Benefit / Cost) revenue or payback VS. cost)

Or PV or Revenue / PV of Cost
Payback Period Net Investment / Avg. Annual cash flow. Less is better
Sigma σ
  • 1σ = 68.27%
  • 2σ = 95.45%
  • 3σ = 99.73%
6σ = 99.99985%
Return on Sales ( ROS )


Net Income Before Taxes (NEBT) / Total Sales OR
Net Income After Taxes ( NEAT ) / Total Sales

Return on Assets( ROA )

NEBT / Total Assets OR
NEAT / Total Assets

Return on Investment ( ROI ) NEBT / Total Investment OR
NEAT / Total Investment
Working Capital Current Assets - Current Liabilities  
Discounted Cash Flow Cash Flow X Discount Factor  
Contract related formulas   Savings = Target Cost - Actual Cost
Bonus = Savings x Percentage
Contract Cost = Bonus + Fees
Total Cost = Actual Cost + Contract Cost
  • Project Plan Execution Tool:

    • Work Authorization System
    • It is the most important tool for the project plan execution process. It is a formal system for getting the work done at the right time and the right order. Most important pages of PMBoK are Page numbers 47, 55, 60 and 70
  • Be aware of tools and techniques used in Time, Cost, Quality, and Risk Response Planning.
  • There are certain questions that contain extra information. This information is irrelevant and it does not relate to the correct answer. Beware of such questions and remember it isn't necessary to use all the information provided to answer the question.
  • Each question has only one correct answer. You need to select the most correct or the one which is close to a given situation. Beware of choices that represent true statements but are not relevant. Be sure to read all the options before you select any one.
  • While answering the question remember that the first priority should be given to the option which is proactive and in favor of the project. The second priority should be given to the project stakeholders.
  • Avoid the answers which are in favor of the seller's organization which could not be favorable to the project.
  • Any conflict should be resolved in favor of the project and/or project stakeholders.
  • Beware of the following words in questions: at least, at the most, not true, not false, except.
  • Look for the words, "detail", "high-Level" etc. before choosing the right answer.
  • You need to answer the questions from a PMI perspective—not from your own perspective, which you acquired through experience. Remember that PMI is trying to present an ideal environment for Project Managers that might be different from your own experience.
  • Beware of answer choices that represent generalizations, which may be characterized by words such as always , never, must or completely; these are often the incorrect choices.
  • Look out for choices that represent special cases. These choices tend to be correct and are characterized by words such as often, sometimes, may, generally, and perhaps.
  • Beware of answer choices containing words like primary and overall responsibility.
  • Remember the option choice "Discuss with Senior Management" will be incorrect in most of the cases. Once the project charter is issued by senior management, the Project Manager is responsible for all the decisions.
  • The correct questions may not be grammatically correct.
  • Please note that there are hardly any straightforward questions appearing in the exam, like asking for a definition or asking the Input/Output for a particular process. Instead, these questions will be in a form of a scenario/story in which these processes will be integrated. You need to study the scenario and concentrate on the PMI KEY WORDS appearing in it.  And figure out what exactly is the question and its correct answer.
  • The Project Manager takes an active approach to the job by not waiting until a risk materializes and becomes a problem. This is an extremely important concept that might affect many questions on an exam. The Project Manager does not escalate problems to upper management or to the customer before fully analyzing them and identifying options. When answering a question related to what the Project Manager should do in a specific situation, you should rephrase the question to: What is the first thing the Project Manager will do, given such a situation and given his or her proactive nature?
  • Assume that lessons learned and historical databases are available.
  • PMI® does not approve adding extra functionality without benefits or gold plating.
  • Project Managers have all kinds of soft and hard skills.
  • The Work Breakdown Structures (WBSs) are wonderful tools.
  • Roles and responsibilities need to be properly defined.
  • Practice eliminating the completely implausible options first.
  • There will always be those situations where you have no idea what the question is asking. Use educated guesses to select the most appropriate option. Remember, you have only 80 seconds for each question. If you do not know the answer to a question, mark it and move on and revisit it later if you have time.
  • Answer the questions based on the PMBOK® concepts first, and then consider your experience. If they are in conflict, the PMBOK® wins.
  • Remember your rough work should be fare particularly for Numericals. There could be multiple questions on the same numerical for CPM & EVM
  • Do not mark the answers for review selected purely by educated guess. Generally the first instinct is right.
  • The exam typically does not identify the form of organization you're in.  When it does not specify a form, assume you're in a matrix form.
  • If the question doesn't state what it is comparing to, it is comparing to a functional organization.
  • The project coordinator reports to a higher-level manager and has authority to make some decisions.  The project expediter has no authority to make decisions.
  • Manufacturing is generally considered as a process, not a project as it is not temporary.  Project charter is not appropriate in processes.
  • Program is a group of related projects.  If you see 'unrelated' projects it cannot be a program.
  • Answers with words such as "always", "never", "must", "completely" are often the incorrect answers
  • A change request is the most effective way of handling the disconnect between what users actually want and what management thinks they want. 
  • Differences in objectives are resolved in favor of the customer.
  • The stakeholders determine the project requirements and decide whether the project was a success.
  • Verify scope is closely related to perform quality control.  Perform Quality Control checks for correctness, Verify Scope checks for acceptance. Verify Scope does not deal with time, but rather acceptance.
  • The heuristic (rule of thumb) we use in project decomposition is 80 hours. It doesn't matter how experienced the team members are. You need this level of reporting to manage the project effectively. 
  • You have a responsibility to refrain from accepting inappropriate forms of compensation for personal gain.
  • Administrative closure activities should be carried out at the completion of each phase of a project. This is particularly important and has a significant role in assessing whether the project can be continued into its next phase.
  • One has no conflict of interest as long as he is not speaking for a specific supplier. Honorariums and expenses are a common incentive for speakers.  Accepting an honorarium and expenses is neither illegal nor unethical.
  • Break-even capacity is reached when the total profits equals total expenses.
  • Per the PMBOK guide, the project charter should be published under the name of a manager external to the project.  The charter is NOT published under the Project Manager's name. According to the PMBOK the sponsor is considered to be external to the project, and thus is usually the name in which the charter is published. 
  • During the initiation of a project - Staff Levels are low and the costs are low but stakeholder influence is high and the risks are high so the chances of success are lower.
  • The Project Manager is responsible for predicting materials, equipment, and work required for a project but not predicting project performance; it should be a pre-defined requirement determined by the stakeholders and should fall within a specific set of parameters.
  • Standards are optional and may sometimes be called guidelines. Regulations are not optional and are typically enforced by laws.
  • Lessons learned are best completed by the stakeholders, as their input is critical for collecting all the lessons learned on each project. The term "stakeholders" includes all the other groups.
  • A project is complete when all work, including all project management work, is complete and the product of the project, not just deliverables, accepted. The lessons learned are project management deliverables.  So even if the client accepts deliverables the project is not complete unless lessons learned are also completed.
  • Triple Constraint: Triple Constraint being quality (scope), cost (resources) and schedule (time). These three elements of a project are known to work in tandem with one another. Where one of these elements is restricted or extended, the other two elements will then also need to be either extended/increased in some way or restricted/reduced in some way.
  • Administrative closure — generating, gathering, and disseminating information to formalize phase or project completion.
  • The project life cycle differs from the product life cycle in that the project life cycle is different for each industry.
  • One way the Close Project/Phase process differs from Close Procurement is - Procurement closure means verifying that the project is complete or terminated; Close Project or Phase is the process of tying up all of the activities for every management process group
  • A stakeholder is anyone who is affected by the cost, time, or scope of your project. And that includes unions - if you have team members who are in a union, then you always need to consider that union as a stakeholder and make sure their needs are met. However, you don't need to consider the needs of your company's competitors and or Media professionals.
  • The most effective type of power for a Project Manager is Expert power. That's when your team respects you because they know that you know what you are talking about.
  • An important part of identifying stakeholders is reviewing lessons learned from prior projects (because they may help you identify stakeholder issues early), perform stakeholder analysis (which often involves a power/interest grid), and review procurement documents (because a contract often brings extra stakeholders with it). However, you don't create the change control system in the Initiating phase - that's something that you do as part of your project planning activities.
  • Obtaining formal acceptance of all deliverables from all stakeholders is NOT part of the Close Project or Phase process as by the time the Close Project or Phase process happens, you should have already gotten formal written acceptance for the deliverables. That's what the Verify Scope process is for
  • What are the 5 kinds of power? - Legitimate, expert, reward, referent, and punishment
  • When is the BEST time to have project kickoff meetings? - At the start of each phase.  If your project is broken up into phases, you should have a Kickoff meeting at the start of each phase.
  • Customers can be satisfied even when a project is not profitable - customer satisfaction isn't always about money. Rather, customer satisfaction is about making sure that the people who are paying for the end product are happy with what they get.
  • When someone is given the job of Project Manager they will have formal, reward, and penalty power. But just having the position does not make the Project Manager either a technical or project management expert. 
  • From the seller's perspective if the project team has finished all the work as per procurement SOW and the final deliverable has been sent to the customer (waiting signoff) then the project is considered to be in the closing process group and not yet completed.
  • Changes are not listed in the scope management plan.
  • Stakeholder's expectations are unspoken requirements and are often more critical to a project's stakeholders than the stated ones. Unless these expectations are identified and recorded, there is likely to be a high level of dissatisfaction with the project. We know personality conflicts are the least frequent sources of conflict so this choice cannot be the best.   
  • Matrix Organization is best for managing complex projects involving "Cross Disciplinary Efforts".
  • Project Selection Methods.

Benefit Measurement Methods

  • Murder Board
  • Peer Review
  • Scoring Models
  • Economic Model
    • Present Value
    • Net Present Value (If NPV is positive the investment is good choice. Project with highest NPV is selected.)
    • Internal Rate of Return (IRR)
    • Payback Period (Time period to recover the investment)
    • Benefit Cost Ratio (BCR > 1 means revenue is more than cost, <1 means cost is more than revenue, =1 means revenue and cost are equal).
      When you're asked to use benefit-to-cost ratios (BCR) to select a project, always choose the project with the highest BCR because that's the project that gives you the most benefit for the least cost. An easy way to do it is to divide, as in: Project A has a BCR of 5:2, and 5 / 2 is 2.5. Do that with all four projects, and you find that project C has the highest BCR.
  • Constrained Optimization Methods

    • Linear Programming
    • Integer Programming
    • Dynamic Programming
    • Multi-Objective Programming
  • Economic Value Added (EVA) - Amount of added value the project produces above the cost.
  • Opportunity Cost - Opportunity given up by selecting one project over another (this does not require calculation, the left project value is the opportunity cost and not the difference)
  • Sunk Cost - The money is already spent. Sunk cost should not be considered when deciding whether to continue with the project or not.
  • Law of Diminishing Returns - After a certain point, adding more input (eg. Programmers) will not produce proportional increase in productivity. (e.g. modules per hour)
  • Working Capital = Current Assets - Current Liabilities.
  • Depreciation - Large Asset purchased losing value over time:

    • Straight Line Depreciation - Same amount of depreciation taken each year
    • Accelerated Depreciation - Accelerated depreciation depreciates faster than straight line.
  • Performance Measurement Baseline (Together Scope, Schedule and Cost baselines are called Performance Measurement Baseline).
  • Monitoring and controlling means measuring against the project management plan.
  • If the exam asks about monitoring and controlling work, it may NOT be talking about the entire monitoring and controlling process group, just the integration process.
  • If the exam asks what should you do if a work activity on the project takes longer than estimated, the answer is to take corrective action to make up for the delay to keep the project on or close to schedule.
  • For the exam, assume that all the projects have change control boards.
  • The tip to answer questions that asks about the process for making changes is to know that the Project Manager should follow these steps:

    • Evaluate the impact
    • Create options
    • Get change request approved internally
    • Get customer buy-in (if required)

    Be careful to read such questions. Sometimes the evaluation has been done, so the best/next thing is to create options. Sometimes evaluation and looking for options have been done, so the next/best thing is to meet the sponsor or change control board.

    Does the change fall within the project charter or is the change beneficial to project or really needed? If the answer is no for both questions then it should not be a change to your project and rather should be a new project. Project Manager can reject such changes.
  • One of the ways to check if a change should be approved is to determine whether the work falls within the project charter. If not, it should be rejected, assigned to a more appropriate project, or addressed as a project of its own.
  • If a change does not affect the project management plan, baselines, company policies, procedures, the charter the contract, the scope, then the company change management policies may allow Project Manager to approve the change otherwise this often goes to a change control board.
  • Changes are always evaluated first.
  • Scope management involves both Product Scope and Project Scope. Be careful here to notice which word is used on the exam as the answer to either will be different.
  • Requirements collection techniques (inputs):

    • Interviewing
    • Focus Groups
    • Facilitated Workshops - (various stakeholders with different ideas come to a consensus)
    • Brainstorming
    • Nominal Group Technique
    • Delphi Technique - Experts participate anonymously. The rules of the Delphi technique are: keep the expert's identities anonymous, do not bring the experts together in the same room, and build consensus.
    • Mind Maps
    • Affinity Diagrams - various ideas sorted into groups by similarities
    • Questionnaires and Surveys
    • Observation - Job Shadowing
    • Prototype
    • Group Decision Making:
      • Dictatorship - single person make decision for entire group
      • Plurality - Majority Approach
      • Consensus Technique
  • Resolving Competing Requirements - The Project Manager should facilitate the resolution of competing requirements by accepting those that comply with the following:

    • The business case stating the project was initiated (market demand, legal requirement etc.)
    • The project charter
    • The scope statement
    • The project constraint
  • Verify Scope process is done during the Monitoring and Controlling process group, not the closing process group.
  • In define activity process, the WBS is decomposed into activities (schedule activities) and not work package. WBS is used for estimating activities, costs, and resources.
  • A WBS does not show dates or responsibility assignments. It can be used communicating with customer.
  • WBS can be used (but does not need to be used) as a communications tool for all stakeholders to "see" what is included in the project.
  • What are the valid ways to breakdown the work in a WBS; by project phase or project deliverable.
  • Project Manager role during execution: During project execution, the Project Manager should be focused on integrating the work of others into a cohesive whole.
  • Only a work authorization system helps with integrating work packages into a whole. A work authorization system helps ensure that work is done at the right time and in the right sequence.
  • The work authorization system is a part of your company's Enterprise Environmental Factors, and it's generally part of any change control system. It defines how work is assigned to people. If work needs to be approved by specific managers, the work authorization system will make sure that the right people are notified when a staff member's work assignments change.
  • Rules for when a change should formally be made are discussed or set up during project planning and must follow any company policies. These plans would be included or referenced in the project's change control system.
  • A project is considered closed when the archives are completed.
  • Whenever a large number of changes occur on a project, it is wise to confirm that the business case, as stated in the project charter, is still valid.
  • Project Integration is a key responsibility of the Project Manager, not the team.
  • The sponsor issues the project charter and so he or she should help the Project Manager control changes to the charter. The primary responsibility lies with the sponsor.
  • Who does each activity is managed with the schedule and responsibility assignment matrices.
  • When each activity is done is managed with the project schedule.
  • A work authorization system is used to coordinate when and in what order the work is performed so that work and people may properly interface with other work and other people.
  • Delphi technique leads to consensus of expert opinion and is therefore the best technique to determine project objectives.
  • Did you know that adding milestones is a control feature? If a milestone is completed on time and on budget, the Project Manager has some measure of the status of the project.
  • The project scope statement defines the total scope of the project (what is in scope and what is out of scope). According to the PMBOK® Guide, it is used as a baseline for evaluating change requests and for guiding the project team's work through the executing processes.

Time Estimation Techniques

Time Estimation Techniques
One Point Estimation  
Analogous or Top Down Estimation Uses Expert Judgment and Historical Information to predict future
Analogous estimating uses a similar past project to estimate the duration or cost of your current project, thus the root of the word: analogy.
Used when there is limited information regarding your current project, an analogous estimate is considered "top-down" and is generally not as accurate as other estimating techniques.
Parametric Estimation
Regression Analysis or Scatter Diagram
Learning Curve
A more accurate technique for estimating cost and duration, uses the relationship between variables to calculate the cost or duration.
Essentially, a parametric estimate is determined by identifying the unit cost or duration and the number of units required for the project or activity.
Heuristics Means a rule of thumb.  80/20 rule is an example
Three point Estimation or PERT (Program Evaluation & Review Technique) With the three point technique estimator give an Optimistic (O), pessimistic (P) and most likely (M) or Realistic (R) estimate for each activity.
(Most Likely or Realistic are the same)
Reserve Analysis  
Schedule Network Analysis
Critical path method The longest duration path through the network diagram and determine the shortest time to complete the project.
Identify all the paths through the network diagram and add the activity duration along each path. The path with the longest duration is the critical path.
Near Critical Path Path which is closest in duration with critical path. Something could happen that shortens the critical path or lengthens the near critical path to the point where near critical path becomes the critical path.
The closer in length the near critical path and critical paths are, the more risk the project has.
Schedule compression  
What -if scenario analysis Monte Carlo Analysis
Resource Leveling Produce resource constraint schedule, let the schedule slip and increase cost
Critical Chain Method Adds buffer to the schedule
Float or Slack -ve float = you're behind, schedule compression required to get back on track
Total float - Amount of time activity can be delayed without impacting project/milestone end date
Free float - Amount of time activity can be delayed without delaying the early start of successor activity
Project Float - Time the project can be delayed without delaying the externally imposed project end date.

Path Convergence


Path convergence is characterized by an activity with more than one predecessor activity.
The merging or joining of parallel schedule network paths into the same node in a project schedule network diagram.
Milestone chart Tool to report to management and customer
Bar chart Tool for progress reporting and control. To report to team
Network diagram Tool to show dependencies
  • In sequence activity process activities are sequenced into network diagrams.
  • Scope baseline involves = Scope statement, WBS, WBS Dictionary.
  • The scope baseline is not a particularly useful thing once a project's done. A baseline is what you use to measure any changes to the project - whenever there's a change, you always want to compare it against the baseline. But once the project is done, the baseline isn't necessary any more.
  • The WBS dictionary should be documented with the code of account identifier, a statement of work, the responsible organization, and a milestone schedule for the WBS components.
  • Methods to draw a network diagram:
    • Precedence Diagramming Method (PDM) or Arrow On Node (AON)
    • Arrow Diagramming Method (ADM)
    • GERT - A modification to network diagram drawing method allows loops between activities
  • Dependencies - The sequence of activities are determined based on the following dependencies:
    • Mandatory Dependencies (Hard Logic)-
    • Discretionary Dependencies (also known as Preferred, Preferential and Soft Logic); this is determined by the project team and can be changed if required. These dependencies are important to determine the fast track for projects.
  • The team must approve the final schedule.
  • Logical relationship between activities:
    • Finish to Start (FS), Start to Finish (SF), Start to Start (SS), Finish to Finish (FF)
  • Lead - Added to start an activity before the predecessor activity is completed.
  • Lag - Inserted waiting time between activities.
  • Adjusting Leads or Lags does not alter the relationship (start to finish etc) of the activities, but applies a delay or head start to activities.
  • Estimation has two parts:
    • Estimate Activity Resources
    • Estimate Activity Durations
  • Crashing: employ more resources to meet the deadline, often results in increased cost.
  • Fast tracking: doing tasks in parallel, often results in reworks and usually increases risk. You would want to fast track activities on the critical path in order to save time. Fast tracking the project adds risk since more activities are done in parallel.
  • Contract closeout happens before administrative closure.
  • More interdependencies on a project increase the need for communication.
  • You do not necessarily need to change the schedule; unless, of course, the delay is more than the activity's float.
  • The critical path does not change if the scope is the same.
  • Since the resource is 50 percent as productive, he will take twice as long to do the same work. This makes the duration of activity G 16 instead of 8 and increases the critical path by 8 to a total of 52

Cost Estimation

Cost Estimation  
Life Cycle Costing Concept of looking at the cost of the entire life cycle of product, not just the cost of project
Value Analysis or Value Engineering Finding a less costly way to do the same work.  If a team is looking at decreasing project cost maintaining same scope they perform value analysis
Rough Order of Magnitude +/- 50% of accuracy.  Happens in initiation phase
Budget Estimate Made during planning phase and in range of -10 to +25 % from actual
Definitive Estimate Made during project.  Range of +/- 10% or -5 to +10% from actual
Progress Reporting 50/50 Rule - 50% credit when work begin and remaining 50% on completion
20/80 Rule - 20% credit when work begin and remaining 80% on completion
0/100 Rule - no credit when work begin and until completion
PV (Planned Value) Original cost baseline
EV (Earned Value) Estimated cost of work completed to date per baseline (without considering any deviation). Earned value measurement is a great reporting tool. With it, you can show where you stand on budget and schedule, as well as provide forecasts for the rest of the project.
AC (Actual Cost) Actual cost incurred for work completed to date
Actual cost incurred for work completed to date Total Budget
EAC  (Estimate At Completion) Current forecast; an estimate at completion is an output of the Control Costs process
ETC (Estimated To Complete) Remaining work
VAC (Variance Actual Cost) Variance (over or under budget) from today until end of project

There are five types of costs in a typical project:

Fixed - A fixed cost is a non-recurring cost that will not change as the project progresses. For example, if you are constructing a road, the excavators and bulldozers are fixed costs. For software development projects, the physical development space and development computers are fixed costs to the project.

Variable - Variable costs are costs that change during the project lifecycle. Construction projects usually have a long duration and can easily span several years. e.g During the construction of this project there were several variable costs, such as fuel costs and labor rates, number of resources etc

Direct - Direct costs are expenses that come out of the project budget directly. For example, if you have outsourced some of your development work, the developers are expected to put in a specific amount of time, which is then billed for. The developer salaries are direct costs.

Indirect - Indirect costs are those that are shared across multiple projects. Indirect costs are sometimes also referred to as Oversight costs.
Project Managers are usually an indirect cost to the project. This is because there work is to supervise. They don't actually do the work! The people that do the work, like developers and designers, are Direct Costs to the project.

Sunk - Sunk costs are those that have been incurred in a project, but have not produced value towards the project's objectives. For example, if you are making a cup of tea and spill the milk that was to be used in the tea, then the value of the milk is your sunk costs.

Indirect Cost Indirect costs are costs that are not directly related to the project or project deliverables, but can provide tangible benefits to the project.
  -Indirect costs are used in the make or buy calculations
- e.g Sarah feels that buying lunch for her team every week is a great way to keep them motivated.
- Fringe benefits are included in overhead and are part of indirect costs.
- Indirect costs are usually computed as a percentage of direct costs.

Process Input Tools Output
Estimate Cost Scope Baseline
Project Schedule
Human Resource plan
Risk register
Analogous estimating
Parametric estimating
Bottom-up estimating
Three-point estimates
Reserve analysis
Cost of quality
Estimating software
Vendor bid analysis
Activity cost estimates
Basis of estimates
Determine Budget Activity cost estimates
Basis of estimates
Scope Baseline
Project schedule
Resource calendars
Cost aggregation
Reserve analysis
Historical relationships
Funding limit reconciliation
Cost performance baseline
Project funding requirements
Project document updates
Control Cost Project Management Plan
Project funding requirements
Work performance information
Earned Value Management (EVM)
To-complete performance index
Performance reviews
Variance analysis
Project Management software
Work performance measurements
Budget forecasts
Change requests
Project management plan updates
Project document updates

  • More variance or standard deviation means more risk in an activity or project
  • Reserves

    • Contingency Reserve -To address the cost impact of the risk remaining during risk response planning
    • Management Reserve - Extra funds to cover for any unforeseen risks or change in project
  • Cost Baseline - Cost + Contingency Reserves
  • Cost Budget - Cost Baseline + Management Reserves
  • With normal distribution, the mean indicates you have a 50 percent chance of being over or under your estimate. Since you have only a 15 percent chance of being over, you are above (or to the right of) the mean.
  • A cost management plan contains a description of - The WBS level at which earned value will be calculated.
  • Procedures for the rental and purchase of supplies and equipment are found in the organizational policies, part of organizational process assets.
  • A change control system is not required to obtain estimates, but you need the WBS to define the activities, the network diagram to see the dependencies, and the risks to determine contingencies.
  • EV is determined from a total budget of $10,000 and a five week duration. Each week would be $2,000. Therefore, for two weeks of completed work, we have an EV of $4,000. CV = EV - AC, CV = $4000 - $2000 = $2,000. Positive means you are under budget.   
  • The variable and direct costs are most affected by the size and scope of the project. Indirect costs are usually computed as a percentage of direct costs.
  • Funding limit reconciliation most likely will affect the project schedule, since work will need to be moved to when funds will be available. Final funding limit reconciliation is done after fast tracking.   
  • Wasted Cost - A full-time team member who completes her work sooner than planned could be forced to wait for the start of her next activity.
  • When both SPI and CPI are less than 1 = To answer this question, you must look for a choice that would take longer and cost more. (eg. A critical path activity took longer and needed more labor hours to complete)
  • You are the new Project Manager tasked with taking over for a Project Manager who left 6 weeks ago. Some of the numbers that you find in your initial research are as follows: Estimated project cost is $675,000 and the project timeline is 24 weeks. This is week 16 and accumulated costs are $300,000. Additionally, only 25% of the work has been completed. What is the planned value?
    • Planned value (PV) or budget cost of work schedule (BCWS) equates to the percentage of work that should have been completed according to the plan. In this case, you divide the 16 weeks by the 24 in the original plan; this equals 67%. You then multiply $675,000 (the budget at completion) by 67% and get $452,250.
  • Cost Performance Baseline is often said to be displayed as an S-Curve.


Gold Plating Extra functionality, higher quality, extra scope, better performance
Prevention over Inspection Quality must be  planned in and not inspected.
Quality must be  planned in and not inspected. Looking for the point where revenue to be received from improvement of quality is equal to the incremental cost to achieve that quality.
In other words point where paying attention or money to improve quality doesn't bring any added value. Quality improvement stops at this point.
Continuous Improvement (Kaizen) Continuously looking for small improvements in quality.  Kaizen technologies comprise approaches to make small improvements in an effort to reduce costs and achieve consistency
Just in  Time JIT seeks attention on quality.
e.g. Ordering raw materials just before they needed
Total Quality Management (TQM) Focus on identify ways for continuous quality improvements
Responsibility for Quality The Project Manager has ultimate responsibility of quality but each team member should also check before submitting their work
Senior manager has ultimate responsibility for quality in the organization as a whole.
CBA (Cost Benefit Analysis) Weighs the benefits vs the cost of meeting quality requirements
COQ (Cost of Quality)
The cost of conformance should be less than cost for non-conformance
To ensure that project is not spending too much to assure quality. It involves looking at what the cost of conformance and non conformance to quality will be on project and to maintain balance:
Cost of Conformance:
Quality Training, Studies, Surveys, Efforts to ensure everyone knows the process to use to complete the work.
Cost of Non-Conformance:
Rework, Scrap, Inventory Cost, Warranty Cost, Lost Business
Control Charts They are SETUP in planning process and UTILIZED in Perform Quality Control.  Control charts ploy out the result of samplings to determine if projects are 'in control' or 'out of control'
Upper and Lower Control Limits also called as Normal and Expected variation Performing organization specification for quality.  Shown as dotted line on the control charts
Specification Limits Customer expectation or contractual requirements for quality and performance.  Usually outside of upper/lower control limits
Out of Control "Rule of 7"
Rule of 7 Rule of thumb or Heuristic - Non random data points grouped together in a series that total 7 on one side of the mean.  Indication that the process may be out of control.
Benchmarking Looking at past projects
DOE (Design of Experiments) Experimentation to statistically determine what variable (or combination of variables) will improve quality.  Design of experiments helps determine the combination of variables that most improves quality.  
Statistical Sampling Inspect a sample of population (instead of just one or all deliverables)
Take too long and can be costly. It is used to reduce ?
Flowcharting Flow charts show the relationship between components and the flow of a process through a system
Mutual Exclusivity Two events that cannot occur in a single trial (coin flip either has head or tail not both)
Probability Probability density distribution chart (shown as bell curve)
Normal  Distribution Statistical Independence
Standard Deviation or Sigma A measure of range is its standard deviation.
Sigma is measured on both side of the mean (the middle)
+/- 6 Sigma (or 6 standard deviation) = 99.99% accuracy
+/- 3 Sigma (or 3 standard deviation) = 99.73% accuracy
+/- 2 Sigma (or 2 standard deviation) = 95.46% accuracy
Ishikawa's Seven basic tool of quality Each used during Control Quality
o Cause & Effect (Fishbone or Ishikawa) Diagram
o Flowchart
o Histogram
o Pareto Chart (Type of Histogram)
o Run Chart
o Scatter Diagram
o Control Chart
Cause & Effect Diagram

Exam has used following phrases to describe cause and effect

- A creative way to look at the cause of a problem
- Helps simulate thinking, organize thoughts and generate discussion
- Can be used to explore the factors that will result in desired future outcome

Pareto Chart Type of Histogram but arrange results from most frequent to less frequent.
80/20 rule - 80% of problems are due to 20% of root cause

Exam has used following phrases to describe Pareto
- Help focus attention on the most critical issues
- Prioritize potential "causes" of the problems
- Separate the critical few from uncritical many
  • Quality assurance activities should be performed throughout the project life cycle
  • If the situation is looking forward in time, it is most likely a planning function, if it is looking back in time at project results it is most likely a part of quality control and if it is back in time at standards it is most likely quality assurance
  • Any instance where there is an evaluation of the quality standards is part of Perform Quality Assurance.
  • Even though project is occurring during the execution of the project, determining what standards to use is part of quality planning. We sometimes need to fall back into planning during other parts of a project.
  • A data point that requires you to determine the cause of the problem calls for a special cause.
  • Quality attributes are the measurements that determine if the product is acceptable. They are based on the characteristics of the product for which they were designed.
  • Benchmarking involves comparing actual or planned project practices to those of comparable projects to identify best practices, generate ideas for improvement and provide a basis for measuring performance. For example: Reading project management journals each month and looking for past projects to help determine quality measures for future projects
  • Any activity that helps you find, prevent or fix defects in your product is included in the cost of quality. The activities you do to build the product don't count towards that number

Rules based on numbers

8/80 rule is a heuristic which allows a work package to be no larger than 80 hours and no smaller than hours duration

80/20 rule is a reference to Pareto's law where 80% of the problems come from 20% of the causes

0/50/100 is a method to track completion of work packages. It allows no credit for the work until it is 50% complete, and no additional credit until it is 100% complete

Human Resource

Human Resource  
Halo Effect Tendency to rate a team member high/low on ALL FACTORS due to impression of high/low rating on SOME FACTORS
e.g. A great programmer cannot be just promoted to a manager and expect to be great manager
Team Forming Stages Forming, Storming, Norming, Performing, Adjourning
Ground Rules Setting ground rules is most important when the team is managed virtually.
Conflicts Conflict is best resolved by those involved in the conflict. The Project Manger should try to resolve conflicts as long as he has the authority over those conflicts; if not, the sponsor or functional manager may be called in to assist.

1) schedule
2) Project priorities
3) Resources
4) Technical Opinions
5) Administrative procedures
6) Cost
7) Personality
Schedule conflict is the number one source. Know the top four: schedules, project priorities, resources, and technical opinions.
Conflict Resolution Technique - Confronting (or Problem Solving) - win win situation
- Compromising- lose lose as none party gets 100% satisfaction
- Withdrawal (Avoidance) - Not the best option as per PMI. There is no technique called ignoring in conflict resolution.
- Smoothing (Accommodating) - This emphasizes focus on agreements rather than on differences of opinion
- Collaborating - Incorporate multiple viewpoints to lead to consensus
- Forcing - forcing one viewpoint at the cost of another

Compromising is lose-lose, but it is not the worst choice. Smoothing does not solve the problem. Do you wonder if forcing is worse than withdrawal? Withdrawal is a good thing to do when people need time to contemplate or calm down. Forcing demands that others do what one person thinks should be done and, therefore, breeds animosity.
Arbitration A neutral party hears and resolve the dispute
Motivation Theory McGregor Theory of X and Y -
Theory X - 'X' are lazy, don't want to work, and need to be micromanaged

Theory Y- 'Y' people are self-led, motivated, and can accomplish things on their own.

Maslow's Hierarchy of needs: - Self Actualization
See figure below

David McClelland's Theory of Needs (or Aquired Needs Theory) -
This theory states that people are motivated by one of the following three needs:
Need for Achievement, Need for Affiliation, Need for Power

Herzberg's Theory of Motivation: there are two catalysts for workers: hygiene agents and motivating agents

Hygiene agents: these do nothing to motivate, but their absence demotivates workers. Hygiene agents are the expectations all workers have: job security, a paycheck, clean and safe working conditions, a sense of belonging, civil working relationship, and other basic attributes associated with employment

Motivating agents: these are the elements that motivate people to excel. They include responsibility, appreciation of work, recognition, opportunity to excel, education, and other opportunities associated with work other than just financial rewards. According to Herzberg's Theory, salary is not a motivating agent.

Achievement Theory: people need three things: achievement, power and affiliation
  • Maslow's Hierarchy of needs 


  • Project performance appraisals deal with how each team member is performing work, rather than how well the team is working together.  

  • The responsibility assignment matrix maps specific resources against the work packages from the WBS. On a resource histogram, the use of resources is shown individually or by groups over time. 

  • When someone is given the job of Project Manager they will have formal, reward, and penalty power. But just having the position does not make the Project Manager either a technical or project management expert. 

  • It is the sponsor's role to prevent unnecessary changes and to set priorities between projects.

  • Staffing management plan describes when and how resources will be added and taken off the team.

  • Negotiation is key in acquiring staff for a project. It can include salary, benefits, and job responsibilities. A staffing management plan defines the staffing rules for the project, specifically when and how human resource requirements will be met. The project team directory shows who is on the team. The organizational chart shows reporting structures on the project.

  • A project team directory lists all the project team members and other stakeholders. This means that the project has either completed or nearing completion of staff acquisition.

  • Organizational planning involves setting up the project organization with roles and responsibilities defined.  The results of the Organizational Planning process should be checked throughout the project to ensure constant applicability.

  • Co-location is organizational placement strategy where the project team members are physically located close to one another in order to improve communication, working relationships and productivity

  • Generally, when two people have a problem, they need to resolve it themselves. However, the issue here is what happens next. The Project Manager is responsible for communicating what needs to happen next. 

  • Resource histogram - A bar chart shows the number and type of resources you need throughout your project.  Staffing levels that will be needed through the course of her project.  Figures out the number of people that will be needed in each role over time and displays that information in a chart as part of her staffing management plan.

  • The Staffing Management Plan always includes a Resource Histogram, so that should be your first clue. The Resource Histogram shows what kind of resource is needed through each week of your project and how many staff members you need.


Type of Communication Formal Written -
Forma Verbal -
Informal Written -
Informal Verbal -
Communication Model Sender -
Message -
Receiver -
Communication Methods Interactive Communication - One person provide information, other receives it and respond. E.g. conference, telephonic conv
Push Communication - Person provide information but do not expect feedback. Eg. Status report, updates via email etc
Pull Communication - the Project Manager places the information on a central location. The recipient then retrieves/pull the information. Eg. Distribute large documents or distribute to large group of peoples
Communication Blockers - Noisy surroundings
- Distance between those trying to communicate
- Improper encoding of message
- Making negative comments (eg. What a bad idea)
- Hostility
- Language and Culture
various Reports A trend report shows performance over time.
A forecasting report looks only to the future.
A status report is generally static (relating to a moment in time).
A variance report looks at specific project items or activities compared to the plan.
A Progress report generally show problems after they occur.
  • Can the project manger control all the communications - NO, its impossible
  • Should the Project Manager try to control communication - YES, otherwise changes, miscommunication, scope creep, unclear directions
  • What % of Project Manager time spent in communication - 90%
  • Trends are found by comparing current to a baseline. A trend report shows areas needing attention based on the time analysis.
  • A communications management plan can attempt to control communications, but the Project Manager needs to have open communications with everyone
  • Type of Communication

    Formal VS Informal - Formal communication is required if it represents material value to the project. If it is a discussion or agreement on scope, cost, or resources, a formal communication is necessary. If it is of nonmaterial value, then informal communication is acceptable. Asking for a quick update on a task during the middle of the week can be an informal communication. Asking for the official status during a status meeting can be a formal communication.

    Written Versus Verbal - If it effects time, cost, or scope, then it should be written. If it is just a quick update or a status conversation, then it can stay verbal.
  • The WBS allows communication vertically and horizontally within the organization as well as outside the project.
  • Reports help distribute information, not just report on progress. The bar chart is the tool that shows the schedule at a detailed enough level for discussion with the team.
  • Stakeholder has most influence during beginning of the project.
  • Expectations are unspoken requirements and are often more critical to a project's stakeholders than the stated ones. Unless these expectations are identified and recorded, there is likely to be a high level of dissatisfaction with the project.
  • Distribute Information TT are - Communication methods and Information distribution tools


Risk Factors The probability that it will occur (what)
The range of possible outcome (impact or amount at stake)
Expected timing (when) in the project lifecycle
The anticipated frequency of risk events (how often)
Risk Averse Someone who does not want to take risks
Risk Tolerance Tolerance are the areas of risk that are acceptable or un-acceptable
Risk Threshold A point beyond which risk become un-acceptable
Risk Management Process.
(The risk management process is very iterative)
The 6 sequential risk management process are:
- Plan Risk Management
- Identify Risks
- Perform Qualitative Risk Analysis
- Perform Quantitative Risk Analysis
- Plan Risk Response
- Monitor and Control Risk Responses
Risk Category Where do risks coming from?
Information Gathering Technique Brainstorming
Delphi Technique - Build consensus of experts who participate anonymously.
Expert Interviewing -
Root Cause Analysis -Reorganizing the identified risks by their root cause will help you identify more risks
SWOT Analysis
Strength, Weakness, Opportunity and Threats
Looks at the project to identify Strengths and Weaknesses and thereby identify risks (opportunities and threats)
Checklist Analysis  
Assumptions analysis  
Risk Register Output of identify risk process. Notice that the updated risk register is the only output of several risk management processes.
But if the project has just started and you're in the identify risk process, the risk register will only contain the identify risk and not response plan, which comes later.

Perform Qualitative Risk AnalysisProbability and Impact
Risk Data Quality Assessment
Risk Categorization
Risk Urgency Assessment

Following are determined:

The probability of each risk occurring (low, med, high)or 1 to 10 scale
The impact (amount at stake, consequences, bad or good) of each risk occurring (low, med, high or 1 to 10 scale)
Tool - Probability and Impact Matrix - This matrix is use to rate/sort risks to determine which ones warrant immediate response and which one should be put on watch list
Qualitative risk analysis can also be use to determine whether the project should be selected, continued or terminated

Risk Data Quality Assessment

How accurate and well understood the risks are?

Extent of the understanding of the risks

Data available about the risks

Quality of the Data

Reliability and Integrity of the data
Risk Categorization  
Risk Urgency Assessment Fact that the risk may occur soon or will require a long time to plan a response.
Perform Quantitative Risk Analysis or Risk Assessment Numerical analysis of probability & Impact (amount at stake or consequences)
- Determine which risk event warrant a response
- Determine risk exposure (determine overall project risks)
- Determine the quantified probability of meeting project objective (eg. We have 80% chance of completing -roject in $500000 budget)
- Determine cost and schedule reserves
- Identify risk requiring the most attention
- Create realistic and achievable cost, schedule, scope targets
Quantitative Probability & Impact Quantitative probability impact can be determined in the following various ways:
- Interviewing
- Cost and time estimating
- Delphi Technique
- Use of historical records
- Expert Judgment
- Expected Monetary Value Analysis - EMV = P(Probability) * I (Impact)
- Monte Carlo Analysis (what if)
- Decision Tree - It takes into account future events for today's choices
Monte Carlo Analysis (Simulation) - It is usually done with a computer based monte carlo program
- Evaluate the overall risk in the project
- Provides the probability of completing the project on any specific day or any specific cost
- Provides the probability of any activity actually being on critical path
- Takes into account path convergence
- Can be used to access cost or schedule impacts
- Results in a probability distribution
- It simulates the time and not order of activities
Decision Tree - A decision tree takes into account the future events in order to decide today
- It calculates EMV in more complex situations
- It involves the mutual exclusitivity
Risk Response Strategies or Risk Mitigation Strategies Avoid - Eliminate the threat by eliminating the cause (eg remove the person or work package). Avoidance of risk means that we change the way we will execute the project so the risk is no longer a factor.

Mitigate - Reduce the probability or impact of the threat

Accept -

Transfer (Deflect, Allocate) - Make other party responsible for risk by taking insurance, purchase bonds, outsourcing, warranty etc. Transfer risk does not eliminate 100% risk but have some residual risk (e.g. you can cover cost by transferring risks but there may be schedule delays caused by party transferred the risk to)

Risk Opportunities Strategies Exploit (reverse of Avoid) -
Enhance (reverse of Mitigate) -
Share (reverse of transfer) -
Fallback Plans These are the specific actions that will be taken if the contingency plan is not effective.
Accepting Risks Examples - The team can't do anything about the weather, so the Project Manager has accepted the fact that they could end up being delayed by it.
- Acceptance of risk does not involve such action as purchasing insurance
  • We always do qualitative risk analysis, but quantitative risk analysis is not required for all projects
  • What risk management activities are done during the execution of the project? - WATCHING OUT THE WATCHLISTED (NON CRITICAL) RISK THAT INCREASE IN IMPORTANCE.
  • Contingency reserve may only be used to handle the impact of specific risk it was set aside for. If it is not then project manger must take preventive or corrective actions, fast tracking, crash or adjust the project to accommodate or make up for the impact.
  • Workaround is the choice only when risk is occurring (not discovered or identified) of an unplanned risk.
  • Qualitative Risk Analysis: What are the chances that a risk event will occur? What would the impact be if the event does occur?
  • Outputs: Prioritized list of risks and overall risk ranking for the project
  • Quantitative Risk Analysis: this is all about assigning hard numbers to the risk
    Tool and techniques: Interviewing, Sensitivity Analysis, Decision Tree Analysis, Simulation
    Outputs: Prioritized list of quantified risks
  • Planning contingency reserves is part of which risk response strategy? - Active risk acceptance
  • Residual risks are those that could not be avoided, transferred or mitigated. They may also include minor risks that have been accepted after changing the project plan.
  • All remaining risks (residual risk) that you decide not to do something about should be documented and revisited later.
  • Secondary risks are those that arise from taking action on a primary risk
  • A watchlist is made up of low priority risks that, in the Perform Qualitative Risk Analysis process, were determined to be of too low priority or low impact to move further in the risk process.
  • One of the things Monte Carlo analysis would show is where schedule risk exists on the project.
  • S Curve- Graphic display of cumulative costs, labor hours, percentage of work, or other quantities, plotted against time. Used to depict planned value, earned value, and actual cost of project work. The name derives form the S-like shape of the curve (flatter at the beginning and end, steeper in the middle) produced on a project that starts slowly, accelerates, and then tails off. Also a term used to express the cumulative likelihood distribution that is a result of a simulation, a tool of quantitative risk analysis
  • The expected monetary value is probability times impact. In this case you multiply the probabilities together and then multiply the impact. 0.20 x 0.10 x 0.20 x $1000 = $4.
  • When a risk happen that does not have a risk response plan then Project Manager should hold a risk re-assessment and plan a work around before deciding using the reserve or not.
  • Plan Risk Responses must include the involvement of all risk response owners and possibly others. Sponsors need to be involved in the project and help identify risks. They may even approve the response plans created by others, but they would not generally be major contributors to response plans.
  • Lack of an adequate test environment, limited testing, and likely unavailability of the resource are all risks that should have been identified early in the project, and for which response strategies should have been developed.
  • To mitigate risk we either reduce the probability of the event happening or reduce its impact. Many people think of using insurance as a way of decreasing impact. However, mitigating risk is taking action before a risk event occurs. Acceptance of risk does not involve such action as purchasing insurance. Avoidance of risk means that we change the way we will execute the project so the risk is no longer a factor. Transference is passing the risk off to another party.
  • Risk Acceptance: A strategy that is adopted because it is seldom possible to eliminate all risk from a project. This strategy indicates that the project team has decided not to change the project management plan to deal with a risk, or is unable to identify any other suitable response strategy... The most common active acceptance strategy is to establish a contingency reserve, including amounts of time, money, or resources to handle known-or even sometimes potential, unknown-threats or opportunities
  • The expected monetary value takes into account the probability and the impact. The calculation is: (0.05 x 21) + (0.5 x 56) - (0.3 x 28) The last part is subtracted because it represents an opportunity and should be balanced against the threat.
  • As more risks are identified, the amount of contingency reserves set aside to cover those risks will increase, not decrease.
  • Contingency reserves address known unknowns and are managed by the Project Manager, versus management reserves, which address unknown unknowns and are managed by senior management.
  • Don't feel too silly. Many people miss this one. No calculation is needed. If there is a 20 percent chance in any one month, the chance in the fourth month must therefore be 20 percent.
  • The RBS is part of the Risk Management Plan. It is structured very similarly to WBS.
  • You review and go over your risks register at every meeting. Any time you come across a new risk, the first thing you should do is document it in the risk register. Once you've identified the risk, the next step is to analyze the impact and probability of the risk! That's what the Qualitative Risk Analysis process is for. You shouldn't take any other action until you've analyzed the risk.
  • What are the strategies for dealing with positive risks - Exploit, share, enhance, accept
  • When the risk is identified or discovered, not occurring, so there is no need to take action by creating a workaround. Qualifying the risk will give you an indication of how great the risk is. That information will help you determine how to proceed.


Centralized/De-Centralized contracting Centralized Contracting - There is one procurement department and procurement manager manages procurements on multiple projects
De-Centralized Contracting - A procurement manger is assigned to one project full time and he reports directly to the Project Manager.
Procurement Management Process Four sequential processes are:Plan Procurement, Conduct Procurement, Administer Procurement, Close Procurement
Plan Procurement Process - Make-or-Buy Analysis
- Creating Procurement Management Plan
- Creating Procurement Statement of Work
- Selecting a Contract Type
- Creating the procurement documents
- Determine the source selection criteria
Types of procurement statement of work - Performance - what the final product should be able to accomplish rather than how it should be built. Eg. I need a car that goes 0-100 mph in 6 seconds
- Functional - conveys the end result or purpose rather than specific procedures. E.g. I need a car with heated seats
- Design - conveys precisely what work needs to be done. E.g. construct as per the designs
Contract Types The procurement manager will select the project type:
- Fixed Price (FP) [Lump sum, Firm fixed price]
- Time and Material (T&M) [Unit Price]
- Cost Reimbursable (CR)
Fixed Price - Fixed Price (FP) [Lump sum, Firm fixed price] Buyer has least cost risk
- Fixed Price Incentive Fees (FPIF) - Incentives based on seller meeting specified performance criteria
- Fixed Price Award Fee (PFAF) - Bonus based on performance, but the award amount is determined in advance.
- Fixed Price Economic Price Adjustment (PFEPA) - Chose when there are questions about future economic conditions (future price) for contracts that exist for a multi year period
- Purchase Order - This is usually unilateral (signed by one party) instead of bilateral (sign by both parties). Purchase orders becomes contract when it is accepted. Eg. Buying commodities
Time and Material Time and Material (T&M) - has the MOST risk for the buyer
Cost Reimbursable Cost Reimbursable (CR) - When the exact scope of the work is uncertain and therefore the cost cannot be estimated accurately, the buyer incurs the most cost risk. Used in projects where the scope is unknown.
- Cost Contract (CC) - Seller receive no fee or profit. Non profit organization.
- Cost Plus Fee or Cost Plus Percentage of Cost (CPF/CPPC) - This type of contract is not allowed for US federal acquisitions or procurement.
- Cost Plus Fixed Fee (CPFF) - Fixed fee doesn't vary with cost
- Cost Plus Incentive Fee (CPIF) -
- Cost Plus Award Fee (CPAF) -
Ceiling Price Highest price the buyer will pay.
Point of total assumptions (PTA) Refers to the amount above which the seller bears all the loss of a cost overrun
PTA= ([Ceiling Price - Target Price] / Buyers Share Ratio) + Target Cost
Price Amount that seller charges the buyer
Fee or Profit Amount beyond the cost incurred for seller
Cost Amount of cost incurred
Target Price Target Cost + Target Fee
Procurement Documents or Bid Documents Request For Proposal (RFP) - Detailed proposal on how the work will be done, who will do it, price etc.
Request for Information (RFI) - Purpose is to only get information and not procure.
Invitation/Request For Bid (IFB or RFB) - only request a total price to do all work
Request for Quotation (RFQ) - Request a price quote per item, hour, meter or other unit of measure - Request for Quote (RFQ) is associated with a Time & Materials contract
Teaming Agreement or Joint Venture When two sellers make a team to supply the buyers demand
Special Provisions or special conditions In a standard contract there may be a need to put conditions specific to the project. These special provisions are the result of:
Risk Analysis
Project Requirement
Type of Project
Administrative, Legal or Business Requirement
Terms of Condition

- Acceptance
- Agent
- Arbitration -This method uses a third party to resolve disputes, both parties pay for arbitration and is used because it is cheaper and faster than court.
- Bonds
- Breach/Default - The response to breach must always be the issuing a formal letter notifying the other party.
- Confidentiality
- Dispute Resolution -
- Force Majeure - An act of GOD, none of the party is at fault. E.g. hurricane, electric storm, flood. Usually covered by insurance
- Indemnification (Liability) - who is liable for damage, accidents etc
- Liquidated Damages - Estimated damages for specific defaults described in advance
- Time is of the essence - Means delivery dates are strictly binding
- Material Breach - The breach is so large that it may not be possible to complete the work under the contract

Private Contractual Relationship
Non Competitive procurement - Single Source - Preferred Vendor
- Sole Source - There is only one seller
Bidder Conference
Contractor Conference
Vendor Conference
Pre-Bid Conference
Bidder conferences are held to provide all bidders a clear and common understanding of the work required.
Vendor Selection or Seller Selection - Weighting System - a method of quantifying data to reduce subjective assessment in source selection. A system to minimize personal prejudice is a weighting system
- Independent Estimates
- Screening System - a method of applying a minimum criteria for qualifying sellers.
- Past Performance History
Negotiation Price is not always the primary selection criteria; the following is usually the order:
Independent Estimates Independent Estimates Independent estimates derived by the buyer are often referred to as "should cost" estimate for the procurement. This is done to ensure the correct pricing levels on the procurement. The buyer organization develops independent estimates on its own (or with data available from elsewhere) to check the correct pricing levels of the proposals. This helps in evaluating the seller's understanding of the SOW and may point towards deficiencies in the SOW or sellers' experience with the SOW.
  • Procurement Manager or Contract Administrator is the only person who has the authority to change the contract.
  • Termination

    • If the contract is terminated for convenience then the seller is paid for work completed and work in progress but if the contract is terminated for default the seller is generally paid for the work completed but not for work in progress (and may also subjected to claim from buyer for the damages)
  • Sellers are generally required under contract to keep working unless told otherwise.
  • Terms and conditions should be the result of a risk analysis. This means the Project Manager has been assigned and has completed the risk management process before the contract is drafted. Contracts are risk mitigation tools!
  • Remember that PMI's definition of an audit is different. According to PMI, audits are used to improve the processes. A procurement audit includes what went right and wrong for the purposes of creating historical records and improving future performance.
  • A cost change control system applies to the project, whereas the contract change control system applies to the part of the project that is contracted. The contract change control system includes a method for controlling cost on the procurement.
  • The independent estimate is most concerned with cost, comparing cost estimates with in-house estimates, or with outside assistance.
  • The correct answer according to the PMBOK is "To negotiate a deal that both parties are comfortable with". The most important thing to focus on is to create a deal that everyone feels good about. Choice "To negotiate the best price possible for your project" sounds like a good choice, but the best possible price might not be fair to your seller, and that could create a bad scenario for the project in the future.
  • Fait Accompli means non-negotiable. It means that part of the contract cannot be changed
  • Procurement audits are not documents that need to be reviewed while closing out project contracts. However, you should review the contract itself, and invoice and payment records.
  • Procurement Audit - Identifies success and failures that warrant transfer to other procurements.
  • When there's a dispute between a buyer and a seller, that's called a claim. Most contracts have some language that explains exactly how claims should be resolved - and since it's in the contract, it's legally binding, and both the buyer and seller need to follow it. Usually it's not an option to renegotiate a contract, especially at the end of the project after the work is complete, and lawsuits should only be filed if there are absolutely, positively no other options.
  • The PMP Code of Professional Conduct requires cultural sensitivity to others. It's unacceptable to belittle anyone based on how they speak, the way they dress, or any other aspect of their cultural background. If you see a member of your team doing this, it's your responsibility to do what's necessary to correct the behavior and prevent it from happening in the future.

    Parkinson's law is best defined by?

    Who is responsible for portfolio management within an organization = senior management or stakeholders

    What is project risk response audit used for?
  • Work Performance Information is an input to all Monitoring and Control processes
  • Work Performance Measurement is an important output of Scope control, schedule control and cost control.
  • The two main outputs of Direct and Manage Project Execution are Deliverables and Work Performance Information. Deliverables are the documents and other work products your project produces, and Work Performance Information is a name for all of the performance metrics and reports you can generate to track how your project is doing versus your plan.
  • Quality Control Measurement is an output of Quality Control but input to Quality Assurance
  • Resource Calendar is an input for Develop Project Team, Estimate Activity Resource, Estimate Activity Duration, Develop Schedule, Determine Budget and output of Acquire Project Team and Conduct Procurement
  • Project Staff Assignment & Resource Calendar are outputs of Staff acquisition or Acquire Project team process
  • Distribute Information TT are - Communication methods and Information distribution tools
  • Budget forecasts are an output of Control Costs, which is part of monitoring and controlling.
  • Output of Plan Quality

    • Quality Management Plan
    • Quality Metrics
    • Checklist
    • Process Improvement Plan
    • Project Management Plan and Document updates
  • Output of Perform Quality Assurance
    • Change Request including recommended corrective actions and preventive actions
    • Updated standards and process

  • Project Management Plan and Document updates
  • Approved corrective actions are input to "Direct & Manage Project Execution"

    How to calculate early start and finish?

    1. Build an Activity Diagram, as described in the previous article, including estimating the time required (or duration) for all tasks. Include a space on each task card for early and late start and finish dates or times (times, rather than dates, are required for tasks where hours or minutes are significant).

      The early start and early finish are simply the earliest times that a task can start or finish. The late start and late finish are the latest times that a task can start or finish.
    2. Starting with the tasks at the beginning of the diagram, complete the early start and early finish for each task in turn, following the arrows to the next task, as in the figure below. The early start of a task is the same as the early finish of the preceding task. If there is more than one predecessor task, then there are several possible early start figures. Select the largest of these. The early finish for each task is equal to the early start plus the duration of the task. The final calculation is for the earliest completion time for the project. This is calculated in the same way as the early start date.


      Calculating the early start and finish
    3. Starting with the tasks at the end of the diagram, calculate the late start and late finish for each task in turn, following the arrows in the reverse direction to the previous task, as in the diagram below. The late finish is the same as the late start of the succeeding task (for the final tasks in the project, this is equal to the earliest completion date). If there is more than one successor task, then there are several possible late figures. Select the smallest of these. The late start for each task is the late finish minus the duration of the task. The final calculation is for the earliest completion time for the project. This is calculated in the same way as the early start date.


      Calculating the late start and finish
    4. You now have, for each task, the earliest and latest times that it can start and finish. Now find the slack time (or 'float') for each task by subtracting the early start from the late start. The slack time is the amount of time the task can be slipped by without affecting the end date of the process. The critical path can now be identified as all paths through the network where the slack time is zero.


      Calculating the slack and finding the critical path

    Other Tips

  • Create a mind dump
  • Do a first pass (attempt easy questions while marking long questions for review). Keep count on skipped questions.
  • Identify which process the question refers to?
  • Identify which KM area question refers to?
  • Identify the situation is in present/past/future. (Present = Executing, Past = Monitoring and control)
  • Read the answers first

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