Accounting Terms on The PMP Exam

Terms on the PMP From Accounting

There are some terms on the PMP exam that are borrowed from the accounting discipline.
You don’t have to have a degree in accounting, and there really aren’t that many–but they are good to know.
You will need them when you are analyzing what project to do. They help to provide a way to look at projects objectively and determine what the long term benefits might be.
Here are the terms to watch for:
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Net Present Value:
NPV
Net Present Value is the present value of the net benefits of a project over many time periods. That means the total income or revenue after the costs, including interest.
On the exam, you will not have to calculate Net Present Value–but you do have to know that a bigger NPV is better than a smaller one, and that only projects with a positive NPV should ever be attempted.
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Internal Rate of Return
IRR
Internal Rate of Return is the rate of return that the project will create. The IRR must be higher than interest for the same amount of money put into a bank account or a CD.
On the test you won’t have to calculate the IRR, but know that a bigger IRR is better, and that you would choose the project with the biggest IRR as the one the company should work on.
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Payback Period
This refers to the time it will take to repay the investment in the project before the project begins to create a profit.
If one project has a Payback Period of one year, and the other has a Payback Period of four years, you would pick the first project, because it pays back its investment in a much shorter time.
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Benefit cost Ratio
This number compares the benefit to the cost. Usually this is done in the form of Revenue divided by Cost. It is usually used as a way to compare projects and the bigger the ratio, the better for the project.
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These are the four Accounting terms that will be on the PMP Exam. Although you won’t have to do any calculations with them, they will be needed to help you choose which projects to work on.
There are a number of other things that can help you prepare for the exam.

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