Estimate at Completion (EAC)
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.
Complete Guide to Estimate at Completion (EAC) in Earned Value Management
What is Estimate at Completion (EAC)?
Estimate at Completion (EAC) is a critical project management metric that forecasts the total expected cost of a project when completed. It represents the projected final cost based on actual performance to date and remaining work. EAC is a key component of Earned Value Management (EVM), providing project managers with a realistic projection of final costs.
Why is EAC Important?
EAC is crucial for several reasons:
1. Realistic cost projections: It provides stakeholders with an updated, reality-based forecast of project costs.
2. Early warning system: Identifies potential budget overruns early in the project lifecycle.
3. Decision support: Helps management make informed decisions about additional funding, scope changes, or even project termination.
4. Performance measurement: Allows comparison between original budget estimates and likely final costs.
5. Stakeholder communication: Offers transparent information about project financial health.
How EAC Works: The Formulas
EAC can be calculated using different formulas depending on project conditions:
1. When future performance will be at planned rate (CPI=1):
EAC = AC + (BAC - EV)
2. When future performance will continue at current rate:
EAC = BAC / CPI
3. When both CPI and SPI affect future performance:
EAC = AC + [(BAC - EV) / (CPI × SPI)]
4. When original estimate was fundamentally flawed:
EAC = AC + Bottom-up ETC
Where:
- AC = Actual Cost to date
- BAC = Budget at Completion (original budget)
- EV = Earned Value to date
- CPI = Cost Performance Index (EV/AC)
- SPI = Schedule Performance Index (EV/PV)
- ETC = Estimate to Complete
When to Use Each Formula
• Formula 1: Use when current variances are atypical and not expected to continue.
• Formula 2: Most commonly used when cost variances are typical and expected to continue.
• Formula 3: Use when both schedule and cost performance affect remaining work.
• Formula 4: Use when past performance is not a good indicator of future results.
Interpreting EAC Results
• If EAC > BAC: Project is projected to be over budget
• If EAC = BAC: Project is projected to be on budget
• If EAC < BAC: Project is projected to be under budget
Exam Tips: Answering Questions on EAC
1. Read carefully for context clues: The question may indicate which EAC formula is appropriate based on scenario details.
2. Look for keywords: Terms like "current performance will continue" suggest using BAC/CPI, while "new estimate needed" might indicate a bottom-up ETC approach.
3. Check your calculations: Small errors in CPI or SPI calculations can lead to incorrect EAC values.
4. Remember the components: Be clear on what AC, BAC, EV, CPI and SPI mean and how they're calculated.
5. Practice with scenarios: Before your exam, practice calculating EAC with different assumptions.
6. Understand implications: Be ready to explain what an EAC value means for the project beyond just the number.
7. Know related metrics: Understand how EAC relates to other EVM metrics like VAC (Variance at Completion = BAC - EAC).
8. Focus on practical usage: In scenario-based questions, consider which formula makes most sense given the context.
Common Exam Question Types
1. Calculation questions that provide values and ask you to determine EAC
2. Scenario questions asking which EAC formula is most appropriate
3. Interpretation questions about what an EAC value means for project success
4. Questions comparing EAC to other metrics like BAC or TCPI
5. Questions about actions to take based on EAC results
Understanding EAC thoroughly prepares you not only for exams but also for real-world project management challenges where accurate cost forecasting is essential.
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