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.
