Estimate at Completion (EAC)

Estimate at Completion (EAC): Complete Guide for PMI-SP Exam

What is Estimate at Completion (EAC)?

Estimate at Completion (EAC) is a project management metric that forecasts the total cost of a project when it will be completed. It represents a critical component of earned value management (EVM) and provides project managers with a realistic prediction of what the project will ultimately cost based on performance to date.

Why EAC is Important in Project Management

EAC is crucial because it:

• Enables early identification of potential cost overruns
• Provides stakeholders with realistic forecasts
• Helps in making informed decisions about project continuation or adjustment
• Serves as an early warning system for budget issues
• Supports proactive rather than reactive management

How EAC Works

EAC combines what has already been spent with a forecast of remaining costs. The basic formula is:

EAC = AC + ETC

Where:
• AC (Actual Cost): The costs incurred to date
• ETC (Estimate to Complete): The estimated cost to finish the remaining work

EAC Calculation Methods

There are several methods to calculate EAC, each appropriate for different scenarios:

1. When original estimates are fundamentally flawed:
EAC = AC + Bottom-up ETC
(Recalculate remaining work from scratch)

2. When current variances are atypical:
EAC = AC + (BAC - EV)
(Assumes remaining work will be completed as originally planned)

3. When current variances are typical:
EAC = BAC / CPI
(Assumes current performance will continue)

4. When both schedule and cost factors impact future work:
EAC = AC + [(BAC - EV) / (CPI × SPI)]
(Accounts for both cost and schedule performance)

Where:
• BAC: Budget at Completion (original budget)
• EV: Earned Value (value of work completed)
• CPI: Cost Performance Index (EV/AC)
• SPI: Schedule Performance Index (EV/PV)

Practical Application of EAC

Consider a software development project with:
• BAC = $100,000
• AC to date = $60,000
• EV = $50,000

We can calculate:
• CPI = $50,000/$60,000 = 0.83

Using method 3 (assuming variances are typical):
EAC = $100,000/0.83 = $120,482

This tells us the project will likely cost about $120,482 to complete rather than the original $100,000 budget.

Exam Tips: Answering Questions on EAC

1. Identify the scenario: Pay attention to keywords that suggest which EAC formula is appropriate:
• "Remaining work as planned" = Method 2
• "Current trends will continue" = Method 3
• "Both schedule and cost impact" = Method 4

2. Know your formulas: Memorize all four EAC calculation methods and when to apply each.

3. Understand the components: Be clear on how to calculate AC, EV, CPI, and SPI as these feed into EAC formulas.

4. Check your work: EAC should always be greater than AC (you can't spend less than you've already spent).

5. Interpret the result: Be prepared to explain what the EAC means in context (e.g., "The project will exceed budget by $20,482").

6. Connect to other metrics: Understand how EAC relates to VAC (Variance at Completion), TCPI (To-Complete Performance Index), and other EVM metrics.

7. Practice calculations: Work through sample problems with different scenarios to become familiar with how the formulas behave.

8. Read carefully: On the exam, all necessary information will be provided, but you need to extract it accurately.

9. Show your reasoning: If asked to justify your answer, explain which formula you chose and why.

10. Consider real-world implications: Think about what actions a project manager might take based on the EAC calculation.

By mastering EAC calculations and understanding their application, you'll be well-prepared to handle this important topic on your PMI-SP exam.