Estimate to Complete (ETC)

5 minutes 5 Questions

Estimate to Complete (ETC) is the expected cost to finish all the remaining project work. The ETC can be considered as the future a cost performance index if the project continues as is. This is a crucial measurement as it helps to identify cost overruns in early stages of the project. It represents the forecast of remaining budget needs based on both cost performance and schedule performance.

Guide on Estimate to Complete (ETC)

Introduction:
Estimate to Complete (ETC) is a crucial tool used in Project Management which calculates the future cost of a project based on past performance and on-going expenses.
Importance of ETC:
ETC is significant because it helps project managers to ascertain future costs, allocate resources wisely, and avoid budget overruns. It enables a more precise budget estimation basis on project progression.
Understanding ETC:
ETC can be considered as an upgraded version of the 'Estimate At Completion (EAC)' with the only difference being subtraction of 'Actual Cost (AC)' from EAC. This provides the estimated cost required to complete the remaining project work.
ETC Calculation:
ETC=EAC - AC.

Exam Tips: Answering Questions on ETC:
Understanding the formula and concept of ETC is key. Although calculations seem straightforward, it's important to read questions thoroughly to avoid confusion between similar terms like EAC, AC and ETC.
When answering questions, ensure clarity on whether the question requires computation or conceptual understanding. It's advisable to learn how ETC integrates with other project management parameters.
Remember Practice makes Perfect. Solve sufficient problems to gain confidence and accuracy.

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Question 1

The project you manage has a total budget of $1,000,000. After 8 months, the actual cost spent is $800,000 and 80% of the project work has been completed. What is the Estimate to Complete (ETC) for the project?

$200,000 $350,000 $250,000 $300,000

Correct Answer: $200,000

As per the question, the project has spent $800,000 to complete 80% of the project work. This implies that the cost spent so far represents 80% of the total planned budget. Therefore, if 100% represents the total project cost, which is $1,000,000, then the remaining 20% of the project, which is yet to be completed, will cost $200,000. This is computed as 1,000,000 - 800,000. Hence, the Estimate for completing the rest of the project or Estimate to Complete (ETC) is $200,000. The other answers are incorrect. For example, $250,000, $300,000 and $350,000 indicate that the project would exceed its original budget of $1,000,000, which contradicts the premise of the question.

Question 2

In your software development project, the initial project budget was $120,000. After 4 months, the project completion status is 35%, and the actual cost spent is $50,000. If the project performance remains the same, what is the Estimate at Completion?

$125,000 $140,000 $135,000 $142,857

Correct Answer: $142,857

To calculate the 'Estimate at Completion' (EAC), we first need to determine the cost performance index (CPI). The CPI is the ratio of the percentage of work actually completed (earned value) to the actual cost spent. The earned value is 35% of the initial budget, which is $120,000 * 35/100 = $42,000. Hence, CPI = $42,000 / $50,000 = 0.84. After we have CPI, we can get EAC = Initial project budget / CPI = $120,000 / 0.84 = $142,857 (approx). So, '$142,857' is the correct answer. The reason why '$135,000', '$125,000' and '$140,000' are incorrect is because they don't correspond to the correct formula of EAC calculation.

Question 3

In a pharmaceutical research project, the initial budget was set at $650,000. After six months, the project has consumed $325,000 and the project is 30% complete. Determine the Estimate to Complete (ETC).

$650,000 $700,000 $758,333 $800,000

Correct Answer: $758,333

First, calculate the Estimate at Completion (EAC). EAC is the total amount that you expect a project to cost on its completion. It can be determined by the formula: Actual Cost (AC) divided by project progress (in decimal form), that is, EAC = AC / progress in decimal. In this case, the Actual Cost (AC) is $325,000 and the project progress is 30% or 0.3 in decimal form. So, EAC = $325,000 / 0.3 = $1,083,333. Then, to determine the Estimate to Complete (ETC), subtract the Actual Cost (AC) from the EAC. So, ETC = EAC - AC = $1,083,333 - $325,000 = $758,333. So, the estimate to complete the project is $758,333. The other answers are incorrect because they do not match the result of this calculation.

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