PMP Tutorial › Module 4 · Process (50%) › Lesson 8
Process: Cost, EVM, Quality, Risk & Procurement
The second half of the Process domain — keeping the project on budget, on quality, and on top of risk and contracts. This lesson includes the Earned Value Management formulas you must memorise.
In this lesson
Cost estimating & budgeting
- Analogous — top-down from a similar past project; fast, least accurate.
- Parametric — rate-based (e.g. cost per unit × units).
- Bottom-up — estimate each work package and sum; most accurate, most effort.
- Three-point (PERT) —
(O + 4M + P) / 6to account for uncertainty.
The cost baseline is the approved, time-phased budget. Contingency reserves cover known risks (inside the baseline); management reserves cover unknown risks (outside the baseline, controlled by management).
Earned Value Management (EVM)
Three measures drive EVM: PV (planned value), EV (earned value = % complete × BAC) and AC (actual cost). BAC is the total budget.
| Formula | Meaning | Reading |
|---|---|---|
| CV = EV − AC | Cost Variance | Negative = over budget |
| SV = EV − PV | Schedule Variance | Negative = behind |
| CPI = EV / AC | Cost Performance Index | < 1 = over budget |
| SPI = EV / PV | Schedule Performance Index | < 1 = behind |
| EAC = BAC / CPI | Estimate at Completion | Forecast total cost |
| ETC = EAC − AC | Estimate to Complete | Remaining cost |
| VAC = BAC − EAC | Variance at Completion | Negative = will overrun |
| TCPI = (BAC − EV)/(BAC − AC) | To-Complete Perf. Index | > 1 = must improve |
Quality management
Plan quality in; don't inspect it in. Key ideas:
- Cost of Quality (CoQ): conformance costs (prevention + appraisal) vs. non-conformance costs (internal + external failure). Prevention is cheaper than failure.
- Quality vs grade: quality = meeting requirements; grade = feature level. Low quality is always a problem; low grade may be acceptable.
- Seven basic tools: cause-and-effect (fishbone/Ishikawa), flowchart, check sheet, Pareto chart (80/20), histogram, control chart, scatter diagram.
- Manage Quality (process/audits) vs Control Quality (inspecting deliverables for correctness).
Risk management
Plan risk → identify risks → analyse (qualitative then quantitative) → plan responses → implement → monitor.
- Qualitative analysis prioritises risks using a probability/impact matrix; quantitative models them numerically (e.g. Monte Carlo, EMV = probability × impact).
- Threat responses: avoid, transfer, mitigate, escalate, accept.
- Opportunity responses: exploit, share, enhance, escalate, accept.
- Track everything in the risk register; watch for secondary risks (caused by a response) and residual risks (left over after a response).
Procurement & contract types
The contract type decides who carries the cost risk:
| Type | Examples | Risk sits with |
|---|---|---|
| Fixed Price | FFP, FPIF, FP-EPA | Seller |
| Cost Reimbursable | CPFF, CPIF, CPAF | Buyer |
| Time & Materials | T&M | Shared (good for staff augmentation) |