As you know that the projects are executed in the real world, and in the real world things do not always go in a textbook way. There will be many situations beyond your control that may make your project deviate from the approved baselines. Consequently, your project schedule and budget may change.
The PMBOK Guide defines two project forecasting tools:
- Estimate At Completion (EAC), and
- Estimate To Complete (ETC).
Estimate To Complete (ETC) is the amount of money used to complete the remaining work (the work that is left after certain period).
Estimate At Completion (EAC) is the amount of money that the project will cost you in the end.
These forecasting tools provide you the visibility of future progress of the project and give project sponsors an early idea of how much they are going to spend on it.
A prudent project manager always keeps track of changes and informs the management.
There are various circumstances and formulas in which EAC can be calculated, but from a PMP Certification point of view, is one formulathat is most commonly used, and more popular than the rest.
Estimate At Completion = (Budget at Completion) / (Cost Performance Index)
EAC = BAC/CPI
This formula provides the EAC if the CPI remains present throughout the project. It should be noted that if the CPI = 1, then EAC = BAC. Also, when the project starts, EAC equals to BAC.
I am going to give you an example based on this formula only. Once you understand the concept, you can go through your reference books and the PMBOK Guide to analyze the remaining formulas.
However, for the PMP Certification exam this formula is enough and there is less chance that you will see questions based on other typical formulas.
Therefore, if you understand and are able to solve questions based on this formula then you wouldn’t have any problem in your exam.
You have a project to be completed in 12 months and the total cost of the project is $100,000. Six months have passed and $60,000 is spent but on closer review you find that only 40% of the work is completed so far.
Find the Estimate At Completion (EAC) for this project.
Given in question:
Budget At Completion = $100,000
Actual Cost (AC) = $60,000
Planned Value (PV) = 50% of $100,000
Earned Value (EV) = 40% of $100,000
Cost Performance Index (CPI) = EV / AC
= $40,000 / $60,000
Cost Performance Index (CPI) = 0.67
Estimate At Completion (EAC) = BAC/CPI
Estimate At Completion (EAC) = $149,253.73
It means that, if the project continues to progress with CPI = 0.67 til the end, then you will have to spend $149,253.73 to complete the project.
In the next blog we will discuss the Estimate To Complete (ETC).
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