Estimate at Completion (EAC) – A Project Forecasting Tool

Estimate At Completion - EAC

Forecasting helps us predict future events, and it has been used in every part of the world since the dawn of time. People from different cultures have different criteria to predict the future. Some people use the movement of the moon or stars to predict the future and others use palm lines to predict it.

In project management we also do forecasting to find the future performance of projects. However, here the forecasting is based on past performance and objective data, which provides you with the visibility of the future progress of the project and gives an early idea if anything may go wrong.

We use three techniques in project management for forecasting. These techniques are as follows:

  1. Estimate at Completion (EAC)
  2. Estimate to Complete (ETC)
  3. To Complete Performance Index (TCPI)

In this blog post, I’m going to discuss the Estimate at Completion in detail, and for the other two techniques you can refer my next blog posts.

Okay, let’s get started.

Estimate at Completion (EAC)

We know that real world situations do not always go as planned. There are many circumstances beyond your control that may change your planned path and lead to a change in your planning.

Likewise when you execute the project according to the plan, some unforeseen conditions happen which lead to a change in your project plan. As a project manager it will be your responsibility to manage these changes and evaluate their impact on the project objectives.

Now, the question is: how will you evaluate the impact of these changes?

You will evaluate it with the help of project forecasting tools, such as the Estimate at Completion (EAC).

The Estimate at Completion (EAC) gives you the forecasted value of the project when it is completed. It tells you how much you may have to spend to complete the project. In other words, you can say that it is the amount of money that the project will cost you at the end.

The Estimate at Completion can be determined by four methods depending on the way the project is performing. However, from a PMP Certification exam point of view, the first method is more important than the rest, and there is less chance that you will see questions based on the other cases.

Anyway, I’m going to explain all formulas mentioned in the PMBOK Guide, so you don’t worry.

Case-I: EAC = BAC/CPI

In this scenario you assume that the project will continue to perform to the end as it was performing until now. Simply put, your future performance will be same as the past performance; i.e. the CPI will remain the same for the rest of the project.

Formula for the Estimate at Completion

In this case, the Estimate at Completion can be calculated by dividing the budget at completion by cost performance index.

Estimate at Completion = (Budget at Completion) / (Cost Performance Index)

Or,

EAC = BAC/CPI

From the above formula, you can conclude that:

  • If the CPI = 1, then EAC = BAC. This means you can complete your project with your approved budget, and there is no need to use forecasting analysis.
  • At the start of the project, the Estimate at Completion will be equal to the budget at completion, i.e. EAC = BAC.
Example of the Estimate at Completion (Case-I)

You have a project to be completed in 12 months, and the cost of the project is 100,000 USD. Six months have passed and 60,000 USD has been spent, but on closer review you find that only 40% of the work has been completed so far.

Find the Estimate at Completion (EAC) for this project.

Given in the question:

Budget at Completion (BAC) = 100,000 USD

Actual Cost (AC) = 60,000 USD

Planned Value (PV) = 50% of 100,000

= 50,000 USD

Earned Value (EV) = 40% of 100,000

= 40,000 USD

To calculate the EAC, first you have to calculate the Cost Performance Index:

Cost Performance Index (CPI) = EV / AC

= 40,000 / 60,000

= 0.67

=>Cost Performance Index (CPI) = 0.67

Now,

Estimate at Completion (EAC) = BAC/CPI

= 100,000/0.67

= 149,253.73

Hence, the Estimate at Completion (EAC) is 149,253.73 USD.

It means if the project continues to progress with CPI = 0.67 until the end, you will have to spend 149,253.73 USD to complete the project.

Case-II: EAC = AC + (BAC – EV)

Here, you say that until now you have deviated from your budget estimate; however, from now on you can complete the remaining work as planned.

Usually this happens when, due to some unforeseen conditions, an incident happens and your cost elevates. However, you are sure that this will not happen again and you can continue with the planned cost estimate.

That is why in this formula, to calculate the EAC you will simply add the money spent to date (i.e. AC) to the budgeted cost for the remaining work.

Formula for the Estimate at Completion

The formula to calculate the Estimate at Completion in case-II is as follows:

Estimate at Completion = Money spent to date + Budgeted cost for the remaining work

EAC = AC + (BAC – EV)

Example of the Estimate at Completion (Case-II)

You have a project with a budget of 500,000 USD. During the execution phase, an incident happens which costs you a lot of money. However, you are sure that this will not happen again, and you can continue with your calculated performance for the rest of the project.

To date you have spent 200,000 USD, and the value of the completed work is 175,000 USD.

Calculate the Estimate at Completion (EAC).

Since the cost elevation is temporary in nature and the rest of the project can be completed as planned, in this case you will use the formula:

EAC = AC + (BAC – EV)

Given in the question:

Actual Cost (AC) =200,000 USD

Budget at Completion (BAC) = 500,000

Earned Value (EV) = 175,000

Hence,

EAC = 200,000 + (500,000 – 175,000)

= 200,000 + 325,000

= 525,000

Hence, the Estimate at Completion is 525,000 USD.

Case-III: EAC = AC + (BAC – EV)/(CPI*SPI)

You are over budget, behind schedule, and the client is insisting you complete the project on time. In this case, both the cost and the schedule need to be taken into consideration.

In other words, you can say that if your cost performance is poor, you are also behind schedule and you must complete your project on time. In this case you will use the formula for Case-III.

Formula for the Estimate at Completion

The following formula can be used to calculate the Estimate at Completion in case-III:

EAC = AC + (BAC – EV)/(CPI*SPI)

Example of the Estimate at Completion (Case-III)

You have a fixed deadline project with a budgeted cost of 500,000 USD. So far you have spent 200,000 USD and the value of the completed work is 175,000 USD. However, as per the schedule you should have earned 225,000 USD to date.

Calculate the Estimate at Completion (EAC).

Given in the question:

Budget at Completion (BAC) =500,000 USD

Actual Cost (AC) = 200,000 USD

Earned Value (EV) = 175,000 USD

Planned Value (PV) = 225,000 USD

To calculate the EAC, first you have to calculate the CPI and SPI:

SPI = EV/PV

= 175,000/225,000

= 0.78

CPI = EV/AC

= 175,000/200,000

= 0.88

Now, you can use the formula:

EAC = AC + (BAC – EV)/(CPI*SPI)

= 200,000 + (500,000 – 175,000)/(0.88*0.78)

= 200,000 + 325,000/0.69

= 200,000 + 471,000

= 671,000

Hence, the Estimate at Completion is 671,000 USD.

Case-IV: EAC = AC + Bottom up Estimate to Complete

This is the case when you find out that your cost estimate was flawed and you need to calculate the new cost estimate for the remaining work for the project.

Here you will go to the activity level, find the cost of each activity and sum them to get the total cost of the remaining work.

Example of the Estimate at Completion (Case-IV)

You have a project to construct a government’s department building for 500,000 USD. To date you have spent 200,000 USD and the value of the completed work is 175,000 USD. However, during your project execution you noticed that your cost estimation was flawed and you need to calculate your budget again for the remaining part of the project.

You sit down with your team members and re-estimate the cost of the remaining work. Your new estimate says that it will take 400,000 USD to complete the remaining part of the project.

Calculate the Estimate at Completion (EAC).

Given in the question:

Budget at Completion (BAC) = 500,000 USD

Actual Cost (AC) = 200,000 USD

Earned Value (EV) = 175,000 USD

Bottom Up Estimate to Complete = 400,000 USD

In this case you will use the formula:

EAC = AC + Bottom up Estimate to Complete

= 200,000 + 400,000

= 600,000

Hence, the Estimate at Completion is 600,000 USD.

Estimate To Complete (ETC)

Estimate to Complete is the second forecasting technique which is used along with the Estimate at Completion. It is the amount of money to complete the remaining work (the work that is left after a certain period).

Visit: Estimate to Complete

To Complete Performance Index (TCPI)

In simple words, the To Complete Performance Index tells you how fast you have to move to achieve the target.

It is the estimate of the future cost performance that you may need to complete the project within the approved budget. This budget may be your initial approved budget (BAC), or a new approved budget, i.e. the Estimate at Completion (EAC).

Visit: To Complete Performance Index

Summary

The Estimate at Completion is an excellent forecasting tool which gives you an early idea about the total cost that your project may take to complete. Please note that after you calculate the Estimate at Completion, you will raise a change request to approve it. Once this new budget is approved, it will be known as the budget at completion.

Here is where this blog post on the Estimate at Completion (EAC) ends. If you have something to say, share it through the comments section, and now you can move on to my next blog post on the Estimate to Complete.

If you are interested in learning all the mathematical formulas for the PMP exam, you can try my PMP Formula Guide. You can also try my PMP Question Bank to practice 400 PMP exam sample questions.

image credit => nuchylee / FreeDigitalPhotos.net

Comments

  1. Hannah says

    PMBok Guide has 2 other formulas for EAC:

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

    Could you please explain these 2 formulas?

    • Fahad Usmani says

      Hello Hannah,

      Sorry to replying you late as I was busy with celebrating Eid Holidays with my family.

      I have updated this blog post. Now it explains all EAC formulas mentioned in the PMBOK Guide.

      Hope this answers your query.

          • Santosh says

            How we can decide which formula should be used? e,g Instead of using BAC / CPI if I use AC + BAC – EV to calculate the EAC I get different answer for the same example which you have mentioned above. With first option, answer is $149,253.73 and with second option answer is $1,20,00 ($60,000 + $1,00,000 – $40,000 = $1,20,00).

              • Shri M says

                Hi Fahad

                Do we generally take the Commitments when we calculate the Actual Cost ?(to elaborate, Actual Cost todate + Commitments= Total Cost). To arrive at Estimate at Completion, is it fair to consider the Total cost rather tahn the Actual cost (as its already commited for the project) and estimate to complete should be remaining work to be done excluding the commitments.

                Please throw some light on this

                Thanks

                Shri M

                • Fahad Usmani says

                  Whatever you have spend is Actual Cost.

                  For the other part, I did not understand you question clearly. Please explain it again if you can.

  2. Paul Evans says

    Found your site today in my PMP study time and wanted to say I really like your logical and simplifed approach.
    Regards…Paul.

  3. Karen Noakes says

    Have a mock PMP question asking what the formula for forecasting EAC using remaning budget is and correct answer was EAC=ACC+BAC-EV.

    Please explain as I cannot find this as an option in any of the 3 books I have nor can I find the ACC acronym stands for.

    • Fahad Usmani says

      There is a typing error in your formula given by you.

      Here is the correct formula:

      EAC = AC + BAC – EV

      • ala'a says

        Hi Fahad
        just wandering in the EVM ,
        we have the EAC=AC+ETC , then we have the EAC = AC+ (BAC- EV)
        Finally e have the EAC = AC+ (BAC-EV)/CPI
        How was that driven?!
        thanks much indeed for your support

        Ala’a

  4. ken says

    Thanks Fahad, it s cant get any simpler that how you explained the 4 different types of EAC. You gave me a very clear explanation and I am confident that I understand when and how to use each formula. Thanks.

  5. Mohamad says

    Thank you for explanation, but the scenario of using SPI and CPI together is not clear, how SPI*CPI means that you’ll be on schedule?!

  6. Tauseef Qureshey says

    Regarding EAC 3rd case that is following

    EAC=AC +(BAC-EV)/CPI*SPI

    Here we calculate EAC that is in terms of budget or money or cost (i.e it will give you new budget,money or cost). But how we can find EAC in terms of schedule or time( i.e in terms of new schedule or time) such as how much more schedule or time required to complete remaining work.

    Thanks

  7. Sameh says

    Dear Fahed
    great efforts as usual , i appreciate your efforts and your smooth explanation but if you don’t mind i have some questions:

    1- in Case no 1 , it has not been mentioned that CPI will be the same to the end of the project in the problem , so if i face same problem in the exam how can i guess that CPI will be the same to use this formula ?

    2-in case no II , as you have highlighted that we can complete the remaining work as planned , what does it mean ? I understood that BAC has to be the same until the end of the project , it means the value of BAC has to equal the EAC !! or how we can complete the remaining work as planned ? and finally you calculated EAC is 525000 while BAC is 500000 ! , so how we completed the remaining work as planned ?

    Thanks in advance
    Best regards

    • Fahad Usmani says

      For case-I, I have already written that:

      “In this scenario you assume that the project will continue to perform to the end as it was performing up until now”.

      In the second case you have over spend till certain point, however, after that you can complete that tasks with previously estimated cost.

  8. Basem Fayed says

    Dear Fahad,

    A mathematical example of Estimate at Completion (Case-III)

    However, as per the schedule you should have earned $225,000 USD to date.

    Why earned,I believe it should be planned value PV

  9. Basem Fayed says

    Dear Fahad,

    If it possible to explain the following

    what is the logic behind using $ ( Money value ) to measure time,i.e. using PV in the equations ( SV=EV-PV) to indicate that we are behind or ahead of schedule

    Thanks and regards

      • Basem Fayed says

        logic wise we measure length in meter,Foot…etc
        and time in Hours,days,…etc
        schedule measured in …. time

        the results of SV should be measured in “time metrics”
        So why the person who invented the Earned value management….considered planned value = $ ..i.e. Money…..and the results are behind schedule or ahead of schedule show time?

  10. deepak says

    Can you please let me know why project schedule is input for determine budget process. It is planning process so why we are not using schedule baseline as input.

    • Tulika says

      IF you read Rita, it says (and real scenario too) the cost of procurement (services or resources) may also vary on the “time of year” , eg raw material for cap may be expensive during winters , so overall cost of woolen production will go high if you choose to procure during winters , thus it is considered while determining budget.

      Hope my understanding is correct .

  11. Hardeep says

    Hi Fahad,

    Saw this pmstudy and it explains formula’s very well. I have a query regarding
    Case-III: EAC = AC + (BAC – EV)/(CPI*SPI)

    You are over budget, behind schedule, then you use (CPI * SPI) both

    a) How about if only over budget (within schedule) — Should we use only CPI at bottom ? –>> EAC = AC + (BAC – EV)/CPI

    b) How about if only behind schedule (within budget) — Should we only use SPI at bottom ? —>>> EAC = AC + (BAC – EV)/SPI

    Does that make sense? Please let me know . Thanks

    • Fahad Usmani says

      If you are over budget and within schedule you can use either case-I or case-II.

      EAC is for cost estimation. If you are within budget and behind the schedule, you will go for schedule compression technique to bring project on schedule.

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