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Estimate at Completion (EAC)

5 minutes 5 Questions

Estimate at Completion (EAC) is a critical project management metric used to forecast the total expected cost of a project upon completion, based on current project performance and trends. It plays a vital role in variance analysis by providing insights into how current variances in cost and schedule might impact the overall project budget. EAC allows project managers to predict whether the project will stay within the original budget or if adjustments are needed to address cost overruns or underruns. There are several methods to calculate EAC, each suitable for different project conditions: 1. **If current variances are atypical and not expected to continue**: - **EAC = Actual Cost (AC) + Budget at Completion (BAC) - Earned Value (EV)** - This method assumes future work will proceed as planned. 2. **If current variances are expected to continue at the same rate**: - **EAC = BAC / Cost Performance Index (CPI)** - This method factors in the current cost efficiency. 3. **If both cost and schedule performance impact the remaining work**: - **EAC = AC + [(BAC - EV) / (CPI × Schedule Performance Index (SPI))]** - This method is more comprehensive, considering both cost and schedule efficiencies. By comparing EAC to the original Budget at Completion (BAC), project managers can calculate the Variance at Completion (VAC), which quantifies the expected overrun or underrun. Understanding EAC helps in evaluating whether corrective actions are needed to control costs or adjust project objectives. It enables proactive decision-making to keep the project aligned with financial goals. Incorporating EAC into regular project reviews ensures that financial estimates remain current and reflective of actual project progress. It fosters transparency with stakeholders by providing realistic projections and highlights trends that may require strategic adjustments. Ultimately, EAC is an essential tool for managing project performance and ensuring successful project delivery within budget constraints.

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Question 1

In a project where actual costs are increasing but deliverables remain on schedule, which key variable should you analyze before selecting an EAC formula?

Correct Answer: The variance and cause of cost overruns

When actual costs are increasing but deliverables remain on schedule, analyzing the variance and cause of cost overruns is the most crucial variable to determine the appropriate EAC (Estimate at Completion) formula. Here's why: The correct approach examines what's actually causing the cost increases while maintaining schedule performance. This understanding is essential because: - It helps determine if the cost variances are one-time occurrences or systemic issues - It enables proper selection of EAC formula based on whether past variances will affect future performance - It provides insight into whether current cost performance trends will continue Why other options are not optimal: - Historical performance indicators from other projects may not be relevant to current unique project circumstances - The SPI/CPI ratio is less relevant when schedule performance is fine and only costs are problematic - Resource allocation changes' cumulative impact is too broad when the specific issue is cost variance while schedule remains stable

Question 2

In a complex project where the remaining work requires additional resources and new expertise, which aspect most significantly influences the EAC calculation?

Correct Answer: Future resource productivity rates and associated cost impacts

Future resource productivity rates and associated cost impacts are the most significant factors in EAC calculation for this scenario because: 1. The question specifically mentions 'additional resources and new expertise' being required, indicating a change in future resource requirements. 2. When new resources and expertise are needed, historical performance may not be relevant as the work conditions are changing. 3. Future productivity rates will have the greatest impact because: - New team members need time to become productive - Different skill sets come with varying cost structures - Resource integration affects overall team productivity - New expertise typically commands different pay rates The other options are less suitable because: - Historical performance trends are less relevant when introducing new resources and expertise - Past performance indices don't adequately account for the introduction of new resources - Using current cost performance index alone would be inaccurate as it doesn't reflect the upcoming changes in resource mix and expertise

Question 3

When comparing multiple EAC calculations from different team leads in a large program, what should be the primary consideration for the program manager?

Correct Answer: The specific assumptions and performance factors used in each calculation method

Understanding the specific assumptions and performance factors used in different EAC calculations is crucial for a program manager to make informed decisions. When team leads present varying EAC calculations, the key is to understand what assumptions each team lead made and which performance factors they considered in their calculations. This allows the program manager to: - Evaluate the validity of each calculation method - Understand the context behind the numbers - Assess which factors might be more relevant to the current project situation - Make better-informed decisions about which EAC is most realistic The other options are less critical because: Historical data, while valuable, may not reflect current project conditions or unique circumstances. Mathematical precision alone doesn't guarantee accuracy if the underlying assumptions are flawed. Statistical variance between methods is less important than understanding why those variances exist through the underlying assumptions.

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