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Estimate at Completion (EAC)

5 minutes 5 Questions

Estimate at Completion (EAC) is a crucial forecasting tool in Earned Value Management (EVM) that provides an informed projection of the total cost required to complete a project based on current performance trends. It helps project managers anticipate the final project cost by considering variances in cost and schedule that have occurred up to the present time. EAC is essential for effective budget management and for making strategic decisions about resource allocation and project scope. There are multiple methods to calculate EAC, each suitable under different project conditions: 1. **EAC = AC + (BAC - EV)**: Assumes future work will be completed at the original budgeted rate. AC is Actual Cost, BAC is Budget at Completion, and EV is Earned Value. 2. **EAC = BAC / CPI**: Assumes future cost performance will continue at the same rate as current performance. CPI is Cost Performance Index. 3. **EAC = AC + [(BAC - EV) / (CPI × SPI)]**: Considers both cost and schedule performance indices (SPI) to forecast EAC when project performance impacts both cost and schedule. 4. **EAC = AC + Bottom-up ETC**: Involves a new, detailed estimate to complete the remaining work (Estimate to Complete - ETC), added to the actual costs incurred. By regularly computing the EAC, project managers can detect trends indicating potential cost overruns or savings early in the project lifecycle. If the EAC exceeds the BAC, it signals that the project is projected to go over budget, prompting the need for corrective actions such as cost-cutting measures or scope adjustments. EAC is vital for stakeholders as it provides a realistic expectation of the project's financial outcome, allowing for proactive decision-making. It enhances transparency and accountability in financial management and contributes to more accurate financial reporting and budgeting processes. In summary, the Estimate at Completion is an indispensable metric in EVM for predicting the total anticipated cost of a project, enabling project managers to manage budgets effectively, anticipate financial risks, and maintain control over project expenditures.

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PMI-SP - Earned Value Management (EVM) Example Questions

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Question 1

A project manager notices significant variances in both schedule and cost performance. What EAC calculation method would be most appropriate in this situation?

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

When both schedule and cost variances are significant, the most accurate EAC formula includes both CPI and SPI: EAC = AC + [(BAC-EV)/(CPI×SPI)] This formula is most appropriate because: - It considers both cost and schedule performance indices - It accounts for the current efficiency rates in both time and cost dimensions - It provides the most realistic estimate when both variances are present The other options are less suitable because: - Using only the standard baseline formula fails to account for performance trends - Using only CPI fails to consider schedule impacts on final costs - Using new estimates might not properly account for documented performance trends When a project shows variances in both schedule and cost, it's crucial to use a formula that incorporates both performance factors to get the most accurate estimate at completion.

Question 2

In a project where significant rework is occurring, which EAC calculation method provides the best insight for stakeholder reporting?

Correct Answer: EAC = AC + (BAC - EV)/(CPI x SPI)

EAC = AC + (BAC - EV)/(CPI x SPI) is the most appropriate formula for this scenario because: When significant rework is occurring, both cost and schedule performance need to be considered in estimating future performance. This formula accounts for both Cost Performance Index (CPI) and Schedule Performance Index (SPI), making it the most comprehensive approach. This method assumes that: 1. Future cost performance will be influenced by both cost and schedule variances to date 2. The remaining work will be performed according to both efficiency ratios 3. The compounded effect of both performance factors provides the most realistic forecast Other formulas are less suitable because they either: - Use arbitrary multiplication factors - Only consider basic variances - Do not incorporate both performance indices - Add risk reserves which may lead to double-counting when rework is already known

Question 3

Under what circumstance does EAC = BAC/CPI reflect the most accurate estimate of final project costs?

Correct Answer: When current variances are typical and expected to continue

The formula EAC = BAC/CPI is most accurate when current performance trends are expected to continue for the remainder of the project. This formula assumes that future work will follow the same efficiency (or inefficiency) patterns as seen in past performance. When variances are typical and showing consistent patterns, this formula provides the most reliable forecast. Other options are incorrect because: - Performing at the planned baseline rate would mean using EAC = AC + (BAC-EV) - Irregular patterns of cost variance make this formula less reliable as past performance isn't indicative of future results - A new efficiency trend would require different EAC formulas, such as EAC = AC + Bottom-up ETC

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