Estimate to Complete (ETC) – Another Project Forecasting Tool

Estimate To Complete (ETC)

You will often want to know how much more money you need to complete a remaining task. In your personal matters, you can go with a guess, but in your professional life you must adopt a professional approach and use proven techniques to reach a decision.

In project management one such technique is the Estimate to Complete (ETC), which is another forecasting technique used along with the estimate at completion. This technique gives you an approximate idea of how much money will be required to complete the remaining balance of work.

Since this is a very important forecasting technique, I will explain this topic with three simple examples in three different scenarios, so you can understand it properly and then we will move on to mathematical examples.

This topic is very important for the PMP exam. You may see a few questions from this topic on your exam.

Okay, let’s get started.

Example-I

You are constructing your home with a target budget of 100,000 USD. You are halfway to completion, and you feel that you may have to spend more than what you had planned. Therefore, you ask your contractor to give you a fresh estimate for the remaining work.

Your contractor calculates the cost of the remaining work and tells you that from now it will take 70,000 USD to finish building your home.

This 70,000 USD is the Estimate to Complete.

Example-II

You are working with a project that is 30% completed, and 70% remains unfinished.

In this case, the Estimate to Complete is the expected amount of money to complete this 70% of remaining work.

Example-III

There is another scenario in which you may want to calculate the Estimate to Complete.

Suppose that you’re building a five story building and, due to a financial crisis, you cannot complete the project. Therefore, you decide to cut your building to three stories from five stories to save some money.

In this case, the Estimate to Complete will help you calculate your savings.

So the Estimate to Complete (etc) is a forecasting tool in project management that tells you the expected amount of money that will be spent to complete the remaining part of the project.

I hope this concept is clear to you.

However, there is another forecasting tool that is often confused with the Estimate to Complete. This tool is the Estimate at Completion (EAC).

There is a difference between Estimate to Complete and estimate at completion.

Estimate at completion is the total cost of the project at the end. On the other hand, Estimate to Complete is the amount of money required to complete the remaining work from a given date.

Moreover, when the project starts, the EAC is equal to the ETC. As the project progresses, the ETC starts decreasing, and at the end of the project it becomes zero.

How to Calculate the Estimate to Complete

There are two methods to calculate the Estimate to Complete.

  1. Bottom up Cost Estimation
  2. ETC = Estimate at Completion – Actual Cost

Case-I: Bottom up Cost Estimation 

In this case you go to the activity level, find the cost of each activity for the remaining work, and add them to get the total cost of the remaining work.

There is no formula for the bottom up cost estimation technique.

Example of ETC (Case-I)

You have a project to build a government department’s building for 500,000 USD. To date you have spent 200,000 USD. However, during your project execution you noticed that your cost estimation was flawed and you need to re-calculate your budget 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 125,000 USD for construction, 75,000 USD for plumbing, 150,000 USD for painting, and 50,000 USD for other expenditures.

Calculate the Estimate to Complete (ETC).

Given in the question:

BAC = 500,000 USD

AC = 200,000 USD

Cost of construction = 125,000 USD

Cost of plumbing = 75,000 USD

Cost of painting = 150,000 USD

Other expenditures = 50,000 USD

Since you are using Bottom up Cost Estimation, you will calculate the cost of each activity/work-package and then you will add them to get the final figure.

Hence, Estimate to Completion = Cost of construction + Cost of plumbing + Cost of painting +

Other expenditures

= 125,000 + 75,000 + 150,000 + 50,000

= 400,000

Hence, the Estimate to Complete is 400,000 USD.

Case-II: ETC = EAC – AC 

In this case, calculating the Estimate to Complete is very straightforward. First, you will calculate the estimate at completion, and then you will subtract the actual cost spent from it.

Estimate to Complete = Estimate at Completion – Actual Cost

ETC = EAC – AC

There are many ways to calculate the EAC. To calculate the EAC in different cases, you can visit my blog post on Estimate at Completion.

Example of ETC (Case-II)

You have a project to be completed in 12 months, and the total 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. Your project is expected to perform with the same cost performance.

Find the Estimate to Complete (ETC) 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 USD

= 50,000 USD

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

= 40,000 USD

To determine ETC first we have to find the EAC.

And, EAC = BAC/CPI

Hence, Cost Performance Index (CPI) = EV / AC

= 40,000 / 60,000

= 0.67

Therefore, Cost Performance Index (CPI) = 0.67

Now, Estimate at Completion (EAC) = BAC/CPI

= 100,000/0.67

= 149,253

Estimate at Completion (EAC) = 149,253 USD

Now, Estimate to Complete (ETC) = EAC – AC

= 149,253 – 60,000

= 89,253 USD

Hence the Estimate to Complete (ETC) for this project is 89,253 USD.

Summary

The Estimate to Complete is the anticipated cost that you will need to complete the remaining part of the project. This is a forecasting tool and you will use it when the previous estimate is no longer valid and you need a fresh estimate for the rest of the work. Tracking ETC gives you information on the projected cost of the remaining work. You will use this tool whenever something goes wrong and the cost baseline deviates. You will use this tool as quickly as possible and communicate to stakeholders to get the new budget approved.

This is the end of this blog post on Estimate to Complete. If you have something to share, you can do so through the comments section. Now, you can move on to the next blog post on To Complete Performance Index (TCPI).

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 =>renjith krishnan / FreeDigitalPhotos.net

Comments

  1. Ravindra says

    Fahad,

    Its’ a nice article.

    Theoretically, it looks like Budget at completion (BAC) & Estimate at completion (EAC) both are same. Practically (based on the formulas) they are not same. What is your opinion?

    • Fahad Usmani says

      Theoretically when project starts, BAC and EAC are same. But as the project progresses EAC keeps on changing unless you’re exactly proceeding as per your approved planned and your actual exependiture remains equal to the planned exependiture

  2. Ravindra says

    After posting the question, i had realized that EAC is calculated once the project is started. BAC is calculated at the begining of the project.

    Thanks.

  3. Sandra says

    Hi,

    Since ETC = EAC – AC, rearranging it will give EAC = AC + ETC.
    But EAC = AC + (BAC – EV), so can I say that ETC = BAC – EV?
    Why can’t I just use ETC = BAC – EV in the example above to calculate the answer?

    Thanks.

  4. kenzao says

    @Sandra: As you said EAC = AC + (BAC-EV). My question is how did it come from? As I know, BAC-EV =AC so that means EAC = AC + AC? If yes, it’s incorrect. Please let me know

    Thanks

    • MMB says

      Kenzao

      If past performances are likely to occur in the future, then EAC= AC+(BAC-EV)/CPI where CPI is Cost Performance Index so far.
      If past performances are in line with planification, then CPI=EV/AC=1

      Your statement BAC-EV=AC is not true (never true !!!)

  5. Ram says

    I calculated one of our project by this formula and the result is (-), so it means that there is no cost to complete the project?

  6. Anish says

    Dear Fahad

    I wish to inform you that I passed PMP on 13th Feb, 2014. I also wish to inform you that It was nice experience going though your explanation of the terms. There is no feedback area , so writing it here. Thanks once again.

    Regards

    • Fahad Usmani says

      Congratulations Anish for passing the Exam. Would be glad if you share you detailed lessons learned here at PMSC.

      Fahad

  7. Deby202 says

    @ Anish,
    I’ll take any advice you or anyone can provide for taking the test this year. Thanks so much!
    Deby202

  8. PSb21 says

    Hello – very useful explanations – thank you so much.

    One query I have which I can’t get my head around is proving mathematically that if EAC = IEAC then CPI = TCPI ?
    For example – If EAC is simply independent estimate at completion (IEAC) then the TCPI is the same as the cost performance index (CPI), and we do not change our performance so IEAC is the correct estimate of our final cost – but how do I prove this mathemtically? CPI = TCPI?

  9. Daniela says

    Hello,

    thank you so much for these very good examples. Could you help me find out how to calculate the estimated time to complete? Especially in cases where one is behind schedule.

    Thank you in advance,
    Daniela

  10. Sekar says

    Hi,

    The explanation given by you is very clear and nice. It helped me to clear many of the questions I had in my mind.

    Thanks a lot for this blog.
    Sekar

  11. Amita Sharma says

    Excellent Explanation….. very well written… Have been studying for past 2 months but was lost…This is much better than other explanations… Thanks!!!

  12. Neetu says

    Hello Fahad,

    Great article, tremendous help for understanding the fundamentals in simple manner.
    Keep up the good work !

    Thanks

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