PMP Study Notes 2005

PMP CERTIFICATION

Study Notes

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Introduction......................................................................................................................................3
Formulas...........................................................................................................................................3
Statistics Needed for the PMP Exam...............................................................................................4
Recurring Themes and Recommendations: PMI-isms......................................................................5
PM Theory.......................................................................................................................................6
Organizational Theory..................................................................................................................6
Knowledge Areas.............................................................................................................................6
Initiation.......................................................................................................................................6
Planning........................................................................................................................................6
Execution.....................................................................................................................................7
Control.........................................................................................................................................7
Closure.........................................................................................................................................8
Process Areas...................................................................................................................................8
Integration Management..............................................................................................................8
Scope Management......................................................................................................................9
Time Management......................................................................................................................11
Cost Management......................................................................................................................13
Quality Management..................................................................................................................14
HR Management........................................................................................................................16
Communications Management...................................................................................................17
Risk Management.......................................................................................................................18
Procurement Management.........................................................................................................20

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Introduction
This document contains important formulas and tips that I gathered during my preparation for the
PMP certification exam. It has excerpts from some other notes authored by J.McHugh that I
found helpful with PMBOK and PMP Exam Prep by Rita Mulcahy.

Formulas

Major Process Description Formula

Time Management PERT Formula (P+4M+O)/6
Time Management Standard Deviation of a task (P-O)/6
using PERT “How far you are from the
mean.”
Time Management Variance of a task using ((P-O)/6)2
PERT
Cost Management Cost Variance (CV) BCWP-ACWP
Cost Management Schedule Variance (SV) BCWP-BCWS
Cost Management Cost Performance Index BCWP/ACWP
(CPI) “Your getting xx cents out of
every $ invested.”
Cost Management Schedule Performance Index BCWP/BCWS
(SPI) “You are progressing at x% of
the rate originally planned.”
Cost Management Estimate at Completion = BAC / CPI
(EAC) = ACWP + ETC
= ACWP + Remaining BCWS
“What you expect the total
project to cost”.
Cost Management Estimate To Completion EAC-ACWP
(ETC) “From this point on, how
much MORE will it cost”
Cost Management Variance at Completion BAC-EAC
(VAC) “Once completed, how much
more or less did it cost?”
Cost Management Present Value of a Dollar FV/(1+r)n
“PV means the value today of
future cash flows”
Cost Management Future Value of a Dollar FV = PV * (1 + )n
FV = PV + (PV * I)
Cost Management Net Present Value NPV = Sum of PVs
The total benefits (income or
revenue) less the costs.
Cost Management Internal Rate of Return IRR is the rate at which
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Inflows (revenue) = Outflows;

(costs)
Communications Communication Channels N (N-1) / 2
Management (where N = the number of
people)
Risk Management Expected Monetary Value (Probability %) * (Impact $)

Statistics Needed for the PMP Exam

Major Process Description Formula

Cost Management 3 or 6 Sigma +/- 1 sigma = 68.26%
+/- 2 sigma = 95.46%
+/- 3 sigma = 99.73%
+/- 6 sigma = 99.99%
Cost Management Order of Magnitude -25% to +75%
Estimate
Cost Management Budget Estimate -10% to +25%
Cost Management Definitive Estimate -5% to +10%
Communications Amount of time a Proj. Mgr 90%
Management spends communicating
Scope Management Level of breakdown for 80 hours
project plan tasks
Quality Management Deming – % of the cost of 85%
quality that is the direct
responsibility of
management
Communications Mgt % of communication that is 55%
non-verbal
Risk Management Recommended minimum 10%
total risk reserve for a
project

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Recurring Themes and Recommendations: PMI-isms

Section PMI-ism
Integration Mgt A project is not complete until a Lessons Learned is completed
Quality Mgt Quality must be planned in not inspected in
Human Res. Mgt It is a project manager’s responsibility to plan, estimate, and
schedule a project
Human Res. Mgt The best forms of power are Expert and Reward. Penalty is the
worst
Human Res. Mgt Formal, Reward, and Penalty are powers derived from the PM’s
position in the company. Expert power is earned on your own.
Human Res. Mgt It is the team’s role to help plan what needs to be done (WBS), how
the project will flow from beginning to end (Network Diagram), as
well as to estimate times for their tasks.
Human Res. Mgt It is senior management’s role (those who manage PMs) to approve
the OVERALL project plan, budget, schedule, and to approve any
changes that are made to these overall figures.
Human Res. Mgt The person experiencing the problem must solve it themselves, not
run to someone senior.
Human Res. Mgt Problem solving is the best choice to resolve a conflict.
Risk Mgt. Quantitative risk analysis is preferable to qualitative risk analysis
because it is less subjective
Procurement Mgt PMI advocates that when making a make or buy decision that both
direct and indirect costs are considered
General Historical records should be mined and re-used for planning,
estimating, and risk
General PMI does not approve of gold plating
General Team members need to be involved in project planning
General The WBS should be used on every project
General Project is not complete until a Lessons Learned is complete
General The needs of all the stakeholders should be taken into account on all
projects.
General The PM must be proactive. The PM must find problems early, look
for changes, prevent problems, etc.

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PM Theory

Organizational Theory

Functional – This is the most common form of organization. The organization is set up within
different functional areas (e.g., accounting, marketing, manufacturing).

Project Expeditor – The project expeditor acts primarily as a staff assistant and communications
coordinator. The expeditor CANNOT personally make or enforce decisions.

Project Coordinator – Similar to the project expeditor; however, the coordinator has some
power to make decisions, has some authority, and reports to a higher-level manager.

Matrix – This form attempts to maximize the strengths and weaknesses of both the Functional
and the Project forms, but has people reporting to 2 bosses.
Strong Matrix – the balance of power rests with the Project Manager.
Weak Matrix – the balance of power rests with the Functional Manager.
Balanced Matrix – The power is balanced between the functional and project managers.
Tight Matrix – Watch out for this! This has nothing to do with the matrix organization.
It simply refers to the location of the project team offices in the same room.
Projectized – All organization is by projects. The project manager has total control of
projects; personnel are assigned to a project manager.

Process Groups
Initiation

Project Deliverables- Part of the project charter defined at the onset of the project with inputs
from stakeholders.
Project Charter - Issued by a manager(management) external to the project at a level
appropriate to the needs of the project.
Examples of Project selection methods - Benefit measurement and Constrained
Optimization(uses mathematical models e.g. Linear programming).
Estimate Range in Initiation - Order of magnitude estimate (-25% to +75%)
Project Objectives - Must be clearly understood and unambiguous, should be quantifiable

Planning

Project coordinator reports to a higher level manager and has authority to make some
decisions whereas the Project expeditor has no authority to make decisions.
Resource requirements are determined before the Project schedule and network diagram.

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Project schedule remains preliminary(cannot be published) until resource assignments are

confirmed.
Scope statement - Created in Planning not in Initiation.
Project status reports are prepared in the execution phase.
After the customer’s input to SOW, the performing organization’s project team is responsible
for Scope baseline preparation.
Recent historical data provides the most unbiased and least subjective basis for the
development of the initial project schedule.
MOST important to get the project schedule approved by the functional managers.
Analogous estimating – May or may not use historical costs. Uses Top-down estimating
techniques.
Rolling wave planning – Progressive detailing of a project plan.
Sign-off(Acceptance) from both parties must be present to have a contract
CPM estimating emphasizes controlling cost and leaving the schedule flexible

Execution

Recollections are less reliable than other documented results like published reports, lessons
learned databases, etc.
Standard deviation is a measure of how far the measurement is from the mean.
Team meetings are a communication tool.
Scope Verification – Should be done at the end of each phase.
Compromising is the next best conflict resolution technique after problem solving.
Forcing is the worst conflict resolution technique.
Team member trainings – Direct Costs and responsibility of the project manager.
Team development involves enhancing the ability of the stakeholders, not just the team.
Quality planning can be done in execution.
Communication barriers and miscommunication result in conflict.

Control

Budget changes(including reduction) should be evaluated first by the PM with the team to
determine if they are beneficial.
In an assumption of a15% chance of exceeding cost estimates, I am above the mean. 50% is
the mean. Since the chances of meeting this estimate is 85%, in this case I am above the mean.
Quality Planning - Identifying the quality standards relevant to the project and determining
how to meet them.
Overall quality, confidence, Evaluation of quality standards – Quality Assurance but Quality of
a specific task – Quality control.
Quality Control - Analyzing an actual defect, Identifying ways to eliminate the causes of
unsatisfactory performance.
Configuration management – A rigorous scope change control system. CM procedures
document the physical characteristics of formal project documents and steps required to

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control changes to them. It includes auditing the items and system to verify conformance to
requirements.
Lack of a prioritized list of risks is the MOST likely cause of poor risk management.
SPI, CPI < 1 => Bad
Any change which goes beyond the budgeted time and cost needs management approval.
When a data point falls out of the control limits, it is said to be assigned a cause. The process
is NOT assigned a cause, the data point is.
Project Performance measurement baseline should generally change only in response to a
scope or deliverable change.
Uncertainty - "An uncommon state of nature, characterized by the absence of any information
related to a desired outcome."
Quality audits – Part of Quality Assurance
Attribute sampling measures whether or not the results confirm to specifications. Variables are
characteristics we want to measure – size, shape, weight, etc. An Attribute is what we are
measuring.
The range of estimates with the smallest range is the least risky.
When the project deviates significantly from the baseline, updated risk identification and
analysis should be performed.
Note: Given a situation, the PM needs to look at steps that solve the problem proactively.
Project float –Difference between required end date and expected project completion date.
Checklists – output of quality planning

Closure

Output of Procurement management process - Acceptance of the final product

Project archives is the last thing to be completed before the team is released in closure.
Most common problem in administrative closure - Retaining resources to complete the project
Product Verification is done during closure but scope verification is done in control.

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Knowledge Areas
Integration Management

1. Integration is the primary role of the Project Manager because the project manager is the
only one responsible for seeing the overall project “big picture”.

2. The creation of a database of historical records is an organizational responsibility that can

result in major inputs to continuous improvement.

3. Overall Change Control – The Project Manager MUST be concerned with:

 Influencing the factors that effect change.
 Ensuring that the change is beneficial.
 Determining that a change has occurred.
 Managing the changes as they occur.

4. Principle objective of Stakeholder Management is to “be proactive in curtailing

stakeholder activities that might adversely affect the project”.

5. A change control board is used as required to approve or reject change requests.

6. A change control system includes procedures to define how documents may be changed.

7. Rolling wave planning provides information on work to be done for successful completion
of the current phase and subsequent phases of the project.
8. The management by objectives techniques does not address establishing a specific career
path for a project team member.

9. A variance is considered to be significant if it jeopardizes project objectives.

10. Controlling occurs on a continuous basis throughout the project.

11. Maslow’s 3 highest levels of human needs are: self-actualization, esteem and social.

12. Lessons Learned – A lessons learned is done during the Closeout phase of the project. It
is completed by the whole team / organization. “What have we done and how can we do
it better”. Sometimes called a “post mortem”. It is NOT part of effective Change Control.

13. When it comes to changes, the Project Manager’s attention is best spent on – preventing
unnecessary changes.

14. Management’s role on the project is – help prevent changes to the project objectives.

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15. To make a change: “Evaluate the impact of the change to the project, then meet with the
team to discuss alternatives before making a decision to use project reserves and meet
with management.

16. A project is plagued by changes to the project charter. The person with primary
responsibility to decide what changes are necessary is – Management.

17. A work authorization system is used to – control gold plating.

18. Status meetings are a management tool and NOT a policy of the performing organization.

19. Change Requests MUST be formal.

20. Corrective Action is an input to project plan execution because it – completes the
feedback loop needed to ensure effective project management.

Scope Management

1. The WBS is
 Graphical picture of the hierarchy of the project.
 Identifies all tasks.
 Foundation on which the project is built.
 Is VERY important.
 Forces you to think through all aspects of the project.
 A WBS can be re-used for other projects.
 Means to communicate with the customer.
2. The Project Charter:
 Gives the project manager authority.
 Created by a manager who is external and higher in the corporate hierarchy,
not the project manager or team.
 Created during the Initiation phase
 Broad enough so it does not need to change as the project changes.

3. Project Selection Criteria:

a. Benefit Measurement Methods (comparative approach) – Murder Board
(presenting project to a panel of people who try to shoot it down); Peer Review;
Scoring Models; Economic Models; Benefit compared to cost, Payback Period.
b. Constrained Optimization Methods (mathematical approach) – Linear
programming; Integer programming; Dynamic programming; Multi-object
programming.

4. The key aspect of Scope verification – customer acceptance of the project efforts.

5. The WBS Dictionary is designed to control what work is done and when.

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6. Delphi Technique – method most commonly used to obtain expert opinions on technical
issues, the necessary scope of work, or risks. The rules for Delphi: (a) keep the experts’
identities anonymous and (b) try to build consensus.

7. Management by Objectives (MBO) – an organization should be managed by objectives,

has 3 steps: (a) establish unambiguous and realistic objectives, (b) periodically evaluate if
objectives are being met, and (c) take corrective action. MBO works only if management
supports it.

8. Project plans are developed by – the Team.

9. The process of creating a work breakdown structure results in – team buy-in.

10. When an organization chooses a project selection model, the most important criteria is
Realism.

11. The project’s scope change control system is a set of procedures by which project scope
may be changed, including the paperwork, tracking systems, and approval levels necessary
for authorizing change.

12. Discounted cash flow – PV of the inflows is greater than the PV of the outflows by a
specified amount or percentage.

13. A scope change is one that – modifies the project’s agreed-upon scope as identified by the
WBS

14. Ideally, the project manager should be selected and assigned – during the initiation phase.

15. The output of scope change control consists of – scope changes, corrective actions, and
lessons learned.

16. The project charter should be issued by – a manager external to the project.

17. To relate the functional organizations to the WBS elements, the project manager should
use a – cost account matrix.

18. Technical requirements are – used by the project staff to target efforts.

19. A change control does not include – procedures for conducting a mid-project control
system review.

20. Two fundamental objectives of project control are – alter activities to achieve results and
manage organizational assets.

21. Scope change control uses the following tools: performance measurement.
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22. Each item in the WBS is assigned a unique identifier – the code of accounts.

23. Expectancy Theory of Motivation – motivation to act is linked to an outcome that is

expected to have value.

Time Management

1. Methods:
a. Activity-On-Node (AON) or Precedence Diagramming Method (PDM) – nodes or
boxes are used to represent tasks. Arrows show task dependencies. This method
adds lag relationships to PERT or CPM. Four relationships FS, FF, SS, SF. No
dummy activities.
b. Activity-On-Arrow (AOA) or Arrow Diagramming Method (ADM) – the arrows
are used to represent tasks; uses only FS relationships between tasks; May use
dummy tasks; PERT and CPM estimating techniques can ONLY be drawn on
an AOA diagram.

2. Estimation methods are CPM, PERT and Monte Carlo (provides an indication of the risk
involved in the project).

3. Standard Deviation tells you how unsure the estimate is.

4. Heuristics, no matter how used means “rule of thumb”.

5. Milestone Chart is good for reporting to Management and the Customer.

6. If you have 4 tasks with PERT calculations, task SD and task variance; you find the CP for
the project by adding the task PERT calculations and taking the square root of the sum of
the task variances. The rule: “statistically, the rule is that you cannot add standard
deviations but MUST add the variances and take the square root.”

7. Monte Carlo uses a computer to simulate the outcome of a project based on PERT
estimates (optimistic, pessimistic, most likely) and the network diagram, but does not use
the PERT formula.

8. Crashing and Fast Tracking are 2 ways to shorten the project schedule:
Crashing – adds more resources to the Critical Path [results in increased costs].
Fast Track – reducing project duration by redefining logical relationships (doing more
tasks in parallel) [results in rework and increased risk].

9. Decomposition plays the following role in activity definition as compared to scope

definition – final output is described as activities or action steps.

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10. Activity Duration = work quantity / production rate.

11. The schedule control system is a tool used in schedule control. It is not an input.

12. The basis for measuring and reporting schedule performance is the – schedule baseline.

13. Corrective action in project time management primarily concerns – expediting to ensure
that activities remain on schedule.

14. The schedule control system should be integrated with the – overall change control
system.

15. Dummy activity has no duration and uses no resources; it indicates a precedence
relationship between two activities.

16. Lag is the waiting time between two tasks.

17. Float is the amount of time a task can be delayed without delaying the project.

18. CPM – estimating based on 1 time estimate per activity:

- One time per task.
- Controlling cost & leaving the schedule flexible.
- Drawn on Activity-On-Arrow (AOA).
- Can have dummies.

18. PERT has 3 time estimates: Optimistic, Pessimistic, Most Likely.

19. A revision is – a change to the scheduled start or finish dates in the approved project
schedule.

Cost Management

1. Inputs to Estimating:
 WBS
 Network Diagram
 Schedule
 Historical Records
 Resource Pool
 Risks

2. Analogous estimating is a form of Expert Judgment.

3. Payback period is the period it takes to recover your investment in the project before you
start to generate revenues.

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4. Benefit Cost Ratio (BCR) compares the costs to the benefits of different projects. Choose
the project with the higher BCR. If BCR = 1, then costs and benefits are the same.

5. Cost control is concerned with – influencing the factors that create change to the cost
baseline to ensure that the change is beneficial.

6. “To Complete Performance Index” (TCPI) is used to – determine the cost performance
needed to complete the remaining work within management’s financial goal for the
project.

7. The cost management plan – describes how CVs will be managed.

8. The project schedule during the cost budgeting process – allows costs to be allocated to
the time period when they will be incurred.

9. Definitive estimates have an accuracy range of –5% to +10% (the most accurate to predict
the actual cost of a project).

10. Change Requests are inputs to cost control.

11. The undistributed budget is part of the – performance measurement baseline.

12. Learning curve theory – unit costs decrease in a regular pattern as more units are
produced.

13. A resource-limited project is one in which – the project must be finished as soon as
possible but without exceeding a specific level of resource usage.
14. Life Cycle Costing – PMI effectively warns us that we should look at and manage life
cycle costs instead of just project costs. For example: as project costs decrease, operations
& maintenance phase costs increase.

15. Opportunity Cost – the cost of choosing one project and giving up another.

16. Benefit of Value Analysis – to find a less costly way of doing the same scope of work.

17. Law of Diminishing Returns – the more you put into something, the less you get out of it.

18. Parametric Estimate – uses project characteristics in a mathematical model to predict

project costs, such as Regression Analysis and Learning Curve.

19. During the Execution phase, a large # of changes are made to the project the PM should –
make the changes necessary but retain the baseline.

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Quality Management

1. Quality is “Conformance to requirements, specifications, and fitness of use.” The PM

should perform careful and accurate needs analysis at the beginning of the project to
ensure stakeholder satisfaction. Complete what is committed – doing what you said you
were going to do. It concerns ALL levels of management and staff.

2. Statistics:
a. Normal Distribution – a normal distribution is the most common probability
distribution and is used to measure variations.
b. Population – the entire universe.
c. Sample – part of the population.
d. Variable – the characteristic you want to measure (e.g., Size, shape, weight).
e. Attribute – the measurement that will tell if the sample is acceptable.
f. Probability – the likelihood that something will occur.
g. Statistical Independence – the probability of one event occurring does not affect
the probability of another event occurring.
h. Mutually Exclusive – two events are said to be mutually exclusive if they cannot
both occur in a single trial.

3. The Employee has ULTIMATE responsibility for quality.

4. The Project Manager has OVERALL or PRIMARY responsibility for quality.

5. The Engineer has the primary responsibility for establishing design and test specifications.

6. Trend Analysis – uses mathematical techniques to forecast future outcomes based on

historical results.

7. Quality:
Planning – Plan
Determine what will be quality on the project and how quality will be measured.
Planning Phase
Assurance – Implement
Determine if your measurement of quality is appropriate.
Execution Phase.
Control – Check
Perform the measurement and compare to the quality plan.
Control Phase

8. Pareto Chart – the chart represents the information being examined in its order of priority
and helps focus attention on the most critical issues (types of problems, frequency, or
category of identified cause). It helps the PM focus on the most critical issues to improve
quality.

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9. Pareto’s Law – a relatively small number of causes will typically produce a large majority
of the problems or defects.

10. Fishbone Diagrams – also known as “Cause and Effect”, Ishikawa.

a. A creative way to look at the causes or potential causes of a problem.
b. Helps stimulate thinking, organizes thoughts and generates discussion.
c. Can be used to explore a desired future outcome and the factors to which it
relates.

11. Purpose of Taguchi method is – use statistical techniques to compute a “loss function”
to determine the cost of producing products that fail to achieve a target value. The tool
helps to determine the value or break-even point of improving a process to reduce
variability.

12. Attribute Sampling is concerned with conformance; whereas Variable Sampling is

concerned with the degree of conformity.

13. Sampling and Probability form the basis of statistical process control, which helps the team
monitor project results for compliance with relevant quality standards so that methods can
be identified to eliminate causes of unsatisfactory results.

14. The purpose of Flowcharting is to – help analyzing how problems occur.

15. Stakeholders should be informed of the quality policy by the – Project Team.

16. Quality Assurance consists of – activities in the quality system designed to provide
confidence that the project will satisfy relevant quality standards.
17. In attribute sampling – the result does or does not conform.

18. In quality control – special causes are unusual events; random causes are normal process
variations.

19. The statistical control chart is a tool used primarily to help – monitor process variations
over time.

20. Product availability – Reliability and Maintainability.

21. Kaizen – Continuous improvement; incremental improvements; supported by / directed by

Top Management.

HR Management

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1. The seven sources of conflict are: schedules, project priorities, resources, technical
opinions, administrative procedures, cost, personality.

2. Conflict Resolution Techniques are

a. Problem Solving / Confronting – Solving the real problem. BEST choice.
b. Compromising - bring some degree of satisfaction to both parties.
c. Withdrawal - postponing a decision to next week.
d. Smoothing – emphasizing agreement, rather than differences of opinion.
e. Forcing – “do it my way”.

3. Maslow’s Self-Actualization – work to get a chance to contribute and to use their skills.

4. Motivating people is the BEST done by rewarding them and letting them grow. Giving
raises does NOT do it.

5. A responsibility matrix does NOT show when people will do their jobs (time) or what
work elements are needed to fulfill the objectives of the project.

6. Team Building:
a. It is the job of the PM to enhance the ability of the stakeholders to contribute as
individuals as well as enhance the ability of the team to function as a team.
b. Incorporate team-building activities into all project activities.
c. The WBS is a team-building tool.
d. Start Early.

7. War Room – the project team is located in one room.

8. Halo Effect – the tendency to rate high or low on all factors due to the impression of a
high or low rating on some specific factor.
9. Constraints are factors that limit the project team’s option, such as:
a. Organizational Structure
b. Union Agreements
c. Preferences on the project team
d. Staff assignments

10. A PM who has a low concern for personal goals and a high concern for relationships is
practicing which style of conflict resolution? – Yield-Lose.

11. An input to team development is – the project plan.

12. Ambiguous Jurisdiction exists when two or more parties have related responsibilities,
but their work boundaries and role definitions are unclear – for example in a weak and
strong matrix organization.

13. Input to Organizational Planning consists of – project interfaces, staff requirements, and
constraints.
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Communications Management

1. Communications Plan is created by the Project Manager and becomes part of the project
plan.

2. The communications model looks like a circle with 3 parts: the sender, the message, and
the receiver. Each message is encoded by the sender and decoded by the receiver.
 Nonverbal – about 55% of all communication is non-verbal.
 Paralingual – means the pitch and tone of your voice.
 Active Listening – receiver confirms that he/she is listening.
 Effective Listening – watching the speaker to pick up physical gestures and
facial expressions.
 Feedback – do you understand what I have explained?

3. Communication Methods:.
 Formal Written – Complex problems, project plans, charters, long distances.
 Formal Verbal – Presentations, speeches.
 Informal Written – Memos, e-mail, notes.
 Informal Verbal – Meetings, conversations, personnel performance.

4. Can the PM control all communication? – NO

5. Should the PM try to control communications? – Yes, otherwise changes and scope creep
can occur.

6. Performance Reporting – Status report; Progress report; Trend report (examining project
results); Forecasting report (predicting future); Variance report; Earned value (integrating
scope, cost and schedule measures).

7. The project status report is a form of ‘formal written’ communication.

8. Communications skills, information retrieval system, and information distribution system

are techniques that use – the information distribution process.

9. Determine the objective – is the 1st step in preparing a presentation.

10. Which of the following is a tool used in administrative closure – performance reporting
methods.

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11. The LOB technique is a performance reporting technique to – assure the customer that the
articles it is buying will be available when needed. LOB is used in firm-fixed-price
contracts.

12. Negotiation is – the process of conferring with others to come to terms or reach an
agreement.

Risk Management

1. Risk or Risk Event – a discrete occurrence that may affect the project for good or bad;
there can be good risks.

2. Uncertainty – an uncommon state of nature, characterized by the absence of any

information related to a desired outcome.

3. Risk Management – the process involved with identifying, analyzing, and responding to
risk. It includes maximizing the results of positive events and minimizing the
consequences of adverse events.

4. Risk Management Process:

Risk Identification
Risk Quantification
Risk Response Development
Risk Response Control

5. Risk Identification happens on the onset of the project. This step cannot be completed
until a WBS has been created and the project team knows “what is the project”. Risk
identification generally occurs during the following project life-cycle phases – Concept /
Initiation and Planning. Although, risk identification can occur through all phases.

6. Types of Risk:
Business Risk = risk of a gain or loss.
Pure (Insurable) Risk = only a risk of loss (i.e., fire, theft)

7. Sources of Risk – external, internal, technical, unforeseeable (about 10% of risks are
unforeseeable).
Triple Constraints: Schedule, Cost, Quality, Performance or Scope of Work.

8. A risk trigger is – a symptom of a risk.

9. When a risk is identified, analyze it and determine if a work around is required.

10. The project charter is NOT changed in risk management.

11. Risk tolerances are determined to – help the team rank the project risks.

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12. Risk Quantification – assessing the risk and risk interactions to assess the range of
possible project outcomes; determining which risk event warrants a risk response.
Qualitative – taking an educated guess (High, Medium, Low)
Quantitative – estimating by calculation ($20, 3-week delay) << PREFERRED

13. The Risk Quantification approach that considers the attitude of the decision maker toward
risk is – the Utility Theory.

14. The Delphi method is a risk quantification technique to – determine probability

assessments relating to future events.

15. Monte Carlo Simulation – performs the project many times and uses the network diagram
and PERT estimates to simulate the cost or schedule results of the project. It indicates the
risk of the project and each task by providing a percent probability that each task will be
on the Critical Path. It accounts for all path convergences.

16. Expected Monetary Value – the product of 2 numbers, the probability and impact (or the
amount at stake).

17. Decision Trees – a decision tree takes into account future events in trying to make a
decision today; it makes use of expected value (probability times impact) calculations and
mutual exclusivity.

18. When completed, risk quantification results in a prioritized list of risks and determination
of top risks, opportunities to pursue, opportunities to ignore, threats to respond to, and
threats to ignore.

19. Risk Response Development’s Risk Strategies to make the risk smaller or eliminate it:
Avoidance = eliminate the threat by eliminating the cause
Mitigation = effect the probability or the impact of risk
Acceptance = do nothing and say, “if it happens, it happens”
Deflection (Transfer, Allocate) = make another party responsible for the risk
through allocation, purchasing insurance, or outsourcing the work.

The outputs of Risk Response Development are insurance, contracting, contingency

planning, reserves (minimal total reserve of 10%), and the risk management plan.
Non-Critical risk should be recorded to be revisited in the Execution phase.

20. The amount of contingency reserve should be based on – the sum total of the most likely
probability and impact of the various risk events.

21. What do you do with non-critical risks? – Document and revisit periodically.

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22. Would you select only one risk response strategy? – No, you can choose a combination of
choices.

23. What risk management activities would you be doing during the Execution phase of the
project? – Watching out for non-critical risks that become more important.

24. What is the most important item to address in project team meetings? – Risk.

25. How would risks be addresses in meetings? By asking – what is the status of risks?; any
new risks?; any change to the order of importance?

26. Risk Response Control:

Workarounds = unplanned responses to risk; an unplanned response to
negative risk events.
Contingency Plans = planned responses to risks.

27. Bringing a project in on time is related to schedule risk, not technical risk.

28. The simplest form of risk analysis is – sensitivity analysis (places a value on the impact
to the project plan of changing a single project variable).

29. Risk Exposure measures the – product of the probability and the impact of the risk.

30. Additional risk response development is needed when the – risk event was unexpected or
the effect is greater than anticipated.

31. Risk Mitigation involves – reducing the expected monetary value of a risk event by
reducing the probability of occurrence.

32. A customer remembers the QUALITY of the project’s results long after cost and schedule
performance have been forgotten.

33. The most important aspects of a risk from a project management point of view are its –
Causes.

34. The PERT tool – is the most appropriate for measuring schedule risk.

35. The Ultimate responsibility for identifying and managing project risk rest with the –
Project Sponsor.

36. Range estimating does NOT identify – the specific risk event impacting the estimate.

Procurement Management

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1. Procurement Management – includes the processes required to acquire goods and service
from outside the performing organization.

2. A contract should not be created before the PM is assigned to the project. During
negotiations, the PM protects the relationship between the buyer and seller.

3. Unless otherwise stated, these questions on the exam are from the buyer’s perspective!
 A contract is a formal agreement.
 All requirements should be specifically stated in the contract.
 All contract requirements must be met.
 Changes must be in writing and formally controlled.
 The US government backs all contracts by providing a court system.

4. What do you need to have a legal contract?

An Offer.
Acceptance.
Consideration – exchange something of value (each side must give up
something).
Legal capacity – separate legal parties, competent parties.
Legal purpose – you cannot have a contract for the sale of illegal goods.
Note: money need not be exchanged for a contract to be Valid.

3. A contract, offer or acceptance may be spoken or written, although written is preferred.

4. Contracts are risk mitigation tools. Therefore, the contract should be created before the
PM is assigned to the project.

5. Procurement Process:
Procurement Planning Make or Buy
Reason to Buy is to decrease risk
Solicitation Planning RFP Issued
Procurement documents / Bid documents
Solicitation Q & A, proposal received
Source Selection Pick one, contract award
Contract administration Admin, substantial completion
Contract closeout Finish

6. Contract Type Selection:

Cost Reimbursable (CR) – the seller’s costs are reimbursed but the buyer bears the
highest risk of all the contract forms that the cost will increase (e.g., cost risk).
Cost Plus Fixed Fee (CPFF) – most common; helps to keep the seller’s cost in line
because a cost overrun will not generate any additional fee.
Cost Plus Percentage of Costs (CPPC) – an ILLEGAL form of contract for the US
government and is bad for buyers everywhere.
Cost Plus Incentive Fee (CPIF) – pays all the costs and agreed upon fees, plus a bonus
for beating the incentive.
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Time & Material (T&M) or Unit Price – usually used for small dollar amounts.

Fixed Price (FP) – called lump sum or firm fixed price. It is the MOST Common
contract in the world. The buyer has the least cost risk, the risk of costs going higher
is born by the seller.
Fixed Price Incentive Fee (FPIF) – Contract = $1,000, for every month you finish
early, you will receive $100. Parties negotiate a target cost, target profit, a price
ceiling and a formula for establishing price to be paid.
Fixed Price Economic Price Adjustments (FPEPA) – fixed price that allows for
adjustments if contract is for multiple years.

Purchase Order – contract that is unilateral (signed by one party) instead of bilateral
(signed by both parties).

Incentives – allows an incentive (bonus) on top of the agreed upon price for beating
cost, time performance, scope of work or quality. An incentive helps to bring the
seller’s objectives in line with the buyers. With the incentive, the buyer and seller
work toward the same objective.

7. Risk and Contract Type:

- Who has the risk in a cost reimbursement contract, buyer or seller? – Buyer, if
the costs increase the buyer pays the added cost.
- Who has the cost risk in a fixed price contract, buyer or seller? – Seller, if costs
increase the seller pays the costs and makes less profit.

8. The scope of work is written to describe what work is to be completed under the contract.
For example:
- Performance – conveys what the final product should be (CR contract).
- Functional or detailed – conveys the end purpose or results rather than specific
procedures (T&M contract)
- Design – conveys precisely how the work is to be done (FP contract).

9. Solicitation Planning – RFP; consists of putting together the procurement documents; bid
documents, the contract is included in the procurement (bid) documents because the terms
and conditions of the contract are the work that needs to be done and the costs associated
with them.
Request for Proposal (RFP) – requests a detailed proposal.
Invitation for Bid (IFB)/Request for Bid (RFB) – requests 1 price for all work.
Request for Quotation (RFQ) – requests a price quote per item, hour, etc.

10. Force Majeure – an act of God such as a fire or freak electrical storm.

11. Termination – stopping the work before it is completed.

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12. Breach – when part of the contract is not performed (remember, the contract consists of
the scope of work and legal terms).

13. Waiver – intentionally or unintentionally giving up the right in the contract due to lack of
oversight.

14. Privity is a legal relationship / direct contractual relationship between 2 parties. There is
no privity between government and subcontractor.

15. Letter of Intent – this is NOT a contract but simply a letter, without legal binding, that
says the buyer intends to hire the seller.

16. Non-Competitive Forms of Procurement – sometimes work is awarded to a company

without competition; generally done when project is under extreme schedule constraints or
if a contractor has unique qualifications.
Single Source – contract directly with your preferred seller.
Sole Source – there is ONLY one supplier (e.g., one with a patent).

17. Solicitation – questions and answers; consists of answering the seller’s questions and
receiving proposals or bids.

18. Bidder’s Conference – is a meeting with prospective seller to make sure they have a clear
and common understanding of the procurement. Sellers have the chance to ask questions.
Things the PM should look out for in the Bidder’s Conference:
- Collusion
- Sellers not asking questions in front of their competitors
- Making sure all Q and A are put in writing and issued to all potential
sellers by the buyer as an addendum to the procurement documents.

19. The Manhattan Principle – you have the right to make a bad deal; do not confuse ethics
with legality.

20. Advisement is not an offer to purchase; it is a “offer to negotiate”.

21. Source Selection – pick-one; consists of reviewing the proposals and selecting the seller.
A seller can short-listed based on a weighting system, screening system, independent
estimates, past performance history.

22. Negotiation – the objectives of negotiation are (1) Obtain fair and reasonable price and (2)
Develop a good relationship with the seller. The PM MUST be involved during
negotiation if for no other reason than to protect the relationship.

23. Main items to negotiate are: responsibilities, authority, applicable law, technical/business
management approaches, contract financing, and price.

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24. Contract Administration – consists of assuring the seller’s performance meets

contractual requirements. The PM MUST read and understand the contract and manage
its completion.

25. Conflict – in many instances, another person other than the PM controls the contract.
This is the contracting officer or contract administrator – who is the ONLY ONE WITH
THE AUTHORITY TO CHANGE THE CONTRACT.

26. How is project control different in a contracted environment:

- You need to deal with different company’s set of procedures.
- It is not easy to see problems.
- A greater reliance on reports to determine if a problem exits.
- A greater reliance on relationships between the buyer and seller’s project
managers.

27. Contract Close Out – finish;

28. Four Categories of Cost:

Direct – labor, materials
Indirect – management, supervisory, indirect materials
Overhead – utilities, insurance, performance bond
Period – general and administrative

29. Disputes – Disagreements are inevitable; a lawsuit represents a failure of the disputes
clause to work. Disputes clause has nothing to do with Bid Protest.
30. Damages = Penalty Clause; represent a remedy for breach of contract.
Types of Damages:
Liquidated (usually per a formula)
Unliquidated (Not predetermined)
Consequential (As a result of failure to perform)
Nominal (Small, minimal, in name only) – to protect your rights
Punitive (Malice, criminal, neglect)

31. Purchases include critical items such as raw materials, standard production items, specialty
items, and miscellaneous items of small value.

32. A purchasing department is constantly “in motion” performing functions – overall

management, buying, follow-up, expediting, and clerical/admin functions.

33. Failure to properly price forecast can have disastrous consequences, particularly if a PM
has developed a major proposal with a fixed price contract!

34. A Bid List is a list of approved suppliers who can be invited to submit responses to bids for
goods/services. The preferred Bid List is part of the process to protect the assets of the
company and the specific ongoing projects.

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35. Bill of
Lading – is defines as a receipt issued by a carrier for merchandise to be delivered to
a party at some destination.

36. BackCharge – is defined as the cost of corrective action taken by the purchaser and
chargeable to the supplier.

37. Truth In Negotiation Act – TINA – shows how prices were derived; cost justification.

38. Uniform Commercial Code (UCC) – is a unified set of rules and regulations governing
commercial transactions (does not deal with pricing).

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