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Estimate at Completion (EAC)

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Estimate at Completion (EAC) represents the forecasted value of costs at the end of the project. It provides an estimate of what the project is expected to cost. Normally, this estimate is a combination of the money already spent (actual costs) and the estimate to complete (the remaining work). This measure provides project managers and stakeholders with a tool to predict the total project cost based on current project performance and helps them to ascertain whether budget adjustments are necessary.

Guide on Estimate at Completion (EAC)

Estimate at Completion (EAC):
It is a prediction of the total cost of a project or a task at the end when all the work has been completed. It's a technique of earned value management, a project management technique for estimating how a project is performing.
Importance of Estimate at Completion (EAC):
EAC is important as it gives the project team a clear indication of the anticipated final cost of the project. This allows project managers and sponsors alike, to make informed decisions regarding the project and its budget. It also aids in analyzing the cost performance of the project and the efficiency of the cost management processes implemented.
How EAC works:
EAC is calculated using the formula: EAC = AC + ETC, where AC is the Actual Cost and ETC is the Estimate To Completion.
It's a forecast of future project cost performance based on both past performance and estimated future performance.
Answering Questions on EAC in an Exam:
To calculate EAC in an exam, you'll need the following: the actual costs of tasks completed (AC), the budgeted cost of work scheduled (BCWS), and the budgeted cost of work performed (BCWP). The formula to find the EAC = AC + [(BAC - EV) / CPI].
Exam Tips:
- Understand the concept and importance of EAC.
- Remember the formula of EAC = AC + ETC or EAC = AC + [(BAC - EV) / CPI] based on available data.
- Practice EAC calculations using a variety of data sets.
- Remember that EAC is primarily an estimation, and it may change as the project progresses.

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CAPM - Earned Value Management Example Questions

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Question 1

In a project where the Budget at Completion (BAC) is $600,000, the Actual Cost (AC) is $250,000, and the Earned Value (EV) is $200,000, which formula should be used to calculate the Estimate at Completion (EAC) if we assume future cost performance will improve?

Correct Answer: EAC = AC + [(BAC - EV) / (CPI × SPI)]

The correct formula for calculating the Estimate at Completion (EAC) when we assume future cost performance will improve is:

EAC = AC + [(BAC - EV) / (CPI × SPI)]

This formula is used when we expect the project's cost performance to improve in the future. Here's why this is the best answer:

1. It incorporates both the Cost Performance Index (CPI) and Schedule Performance Index (SPI), which provides a more comprehensive view of the project's performance.
2. By multiplying CPI and SPI, we account for both cost and schedule efficiency, assuming they will improve.
3. This formula is more optimistic than using only CPI, as it factors in potential schedule improvements.

The other formulas are not appropriate for this scenario:

EAC = AC + [(BAC - EV) / CPI]: This formula assumes that future cost performance will continue at the same rate as the current CPI, not accounting for improvement.

EAC = BAC / CPI: This formula is used when we expect the current cost performance to continue for the remainder of the project, not when we expect improvement.

EAC = AC + (BAC - EV): This formula assumes that all future work will be completed exactly as budgeted, which doesn't align with the expectation of improved performance.

In summary, when future cost performance is expected to improve, we use the formula that incorporates both CPI and SPI to provide a more optimistic and comprehensive estimate of the project's completion cost.

Question 2

You're working on a project with a BAC of $120,000 and a CPI of 1. If the project progress continues at this performance, what would be the project's EAC?

Correct Answer: $120,000

The Estimate at Completion (EAC) is a forecast of how much the entire project will cost, given the project's performance up until now. In the question, the Cost Performance Index (CPI) is 1, which means the project is exactly on budget. If the project continues at this performance, the EAC will be the same as the Budget at Completion (BAC), which is $120,000. Therefore, the answer $120,000 is correct. The other answers are wrong because they suggest that the project will go over budget, which is not indicated by the information provided in the question.

Question 3

In a project where the BAC is $400,000, AC is $150,000, and EV is $120,000, which formula best represents the Estimate at Completion (EAC) assuming the current cost variance will persist?

Correct Answer: EAC = BAC / CPI

The best formula to represent the Estimate at Completion (EAC) assuming the current cost variance will persist is EAC = BAC / CPI.

Step 1: Identify the given information:
BAC (Budget at Completion) = $400,000
AC (Actual Cost) = $150,000
EV (Earned Value) = $120,000

Step 2: Calculate the Cost Performance Index (CPI):
CPI = EV / AC = 120,000 / 150,000 = 0.8

Step 3: Apply the formula EAC = BAC / CPI:
EAC = 400,000 / 0.8 = $500,000

This formula is correct because it assumes that the current cost performance (represented by the CPI) will continue for the remainder of the project. It takes into account the current efficiency in cost utilization and projects it to the end of the project.

The other formulas are incorrect for this scenario:

EAC = AC + (BAC - EV) assumes that future work will be completed at the planned rate, which does not align with the given condition that the current cost variance will persist.

EAC = BAC + (AC - EV) is not a standard EAC formula and does not accurately represent the project's performance.

EAC = AC + [(BAC - EV) / (CPI * SPI)] incorporates the Schedule Performance Index (SPI), which is not relevant when only considering cost variance persistence.

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