The Hindu Business Line : A certification to add to your CA degree, as a new project

THIS is about an exam you might not have heard of: PMP, short for Project Management Professional. The study guide PMP, by Joseph Phillips, and published by Tata McGraw-Hill (www.tatamcgrawhill.com) covers the syllabus 100 per cent through more than 700 practice exam questions. But what's this exam? "Not for rookies," says the book.

"The application process alone can filter out the unqualified and the merely curious." That's because you have to give info to Project Management Institute (PMI) about projects you've completed. But first, you want to know what a project is.

A Guide to the Project Management Body of Knowledge (PMBOK) from the PMI defines a project as a temporary endeavour undertaken to create a unique product or service. Project management is the supervision and control of the work required to complete the project vision, defines the book. And this comprises management of project integration, scope, time, cost, quality, HR, communications, risk and procurement. Project management life cycle has five processes called IPECC, for initiation, planning, execution, control and closure.

Each chapter is sprinkled with exam tips, case studies, on-the-job guidance, key terms, two-minute drill, and self-test with answers. For example, a short para explains sunk costs: "Money already spent on a project is called sunk cost and should not be taken into consideration when determining if a project should continue. Instead, the cost of the work to complete is one of the elements that should be taken into consideration when considering to kill a project."

You cannot afford to be theoretical because "the PMP exam will test your knowledge on the outcome of project phases, rather than the idealistic outputs of a project phase." Correct answers are hidden in the maze of multiple-choice questions. As a project manager you must scan the project for hidden stakeholders, cautions the book. "Hidden stakeholders can influence the outcome of the project. They can also add cost, schedule requirements, or risk to a project." One frequent example is of environmental activists.

Let us fast-forward to chapter 7 on project cost management, something of immediate interest to accountants. "There is a distinct difference between cost estimating and pricing," explains Phillips. "A cost estimate is the cost of the resources required to complete the project work. Pricing, however, includes a profit margin." Estimating could be top-down, that is, analogous, or bottom-up, starting from zero and accounting for each component of WBS (that is, work breakdown structure).

Parametric modelling offers yet another method to estimate costs; this uses regression analysis and learning curve. "Cost estimates can also pass through progress elaboration. As more details are acquired, as the project progresses, the estimates are refined." Soon enough, you would be able to draw a cost baseline, showing what is expected to be spent on the project. "Large projects that have multiple deliverables may have multiple cost baselines to illustrate the costs within each phase." What's CPI? Not the name of a party, but cost performance index — to show how much money the project is losing.

"For example, a project with a CPI of 0.93 is losing seven cents on the dollar." So, should we not aim at above 1.00? Wrong, because "it could mean that estimates were inflated or that an expenditure for equipment is late or sitting in accounts payable and has not yet been entered into the project accounting cycle." A formula to stick to your brain is EAC=BAC/CPI, where EAC is estimate at completion, and BAC is budget at completion.

The PMP has 200 questions (not eight papers in two groups) and you need to answer 137 questions correctly within four hours to pass. Worth giving it a shot, isn't it?

BooksOfAccount@TheHindu.co.in

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