estimate-at-completion-eac

Estimate at Completion (EAC) is a forecasting tool in project management.

Forecasting helps predict the future performance of projects. It is based on the past performance of the project and objective data. With this information in hand, you can guess future progress and find early indications of a deviation.

We have three forecasting techniques in project management:

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

In this blog post we will discuss Estimate at Completion (EAC) in detail and the other two techniques briefly.

What is Estimate at Completion (EAC)?

According to the PMBOK Guide, Estimate at Completion is “The expected total cost of completing all work expressed as the sum of the actual cost to date and the estimate to complete.”

Just in case the definition above doesn’t give you a complete picture, let me give you a simple example.

Let’s say you are somewhere in your project. The client comes and asks you how much they have to spend to complete the project and your project has deviated from the cost baseline.

Therefore, you will estimate the new budget and give this number to the client. This is the Estimate at Completion (EAC). Estimate at Completion allows the project manager to see the final project cost estimate.

Project work does not always go as planned. There are many circumstances beyond your control that may require a change in your plan. Funding requirements keep on changing from the moment the project starts.

It is your responsibility as a project manager to influence the factors that cause changes. However, if alterations occur, you have to manage them.

You will evaluate the impact of each change on the project’s objectives and take action as needed.

You can calculate the Estimate at Completion in three different scenarios.

Case 1: EAC = BAC / CPI

You assume that the project will continue to perform, to the end, as it has been performing in this scenario.

In other words, your future performance will be the same as past performance. Therefore, the CPI will remain unchanged until the project ends.

Formula for the Estimate at Completion

You can calculate Estimate at Completion by dividing the Budget at Completion by the Cost Performance Index.

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

Or,

EAC = BAC / CPI

  • If the CPI = 1, then EAC = BAC. This means you can complete your project with your approved budget analysis.
  • The Estimate at Completion will be equal to the budget at completion at the start of the project, i.e., EAC = BAC.

Example of the Estimate at Completion (Case 1)

You have a project to be completed in 12 months and the cost is 100,000 USD. 6 months have passed, and 60,000 USD has been spent, but upon closer review, you find that only 40% of the work has been completed.


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


The question did not say that the Planned Value was 50%. However, it says that the duration is 12 months and 6 months have passed. In this case, you can safely assume that the PV was 50% unless it is given in the question.

 

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

 

= 40,000 USD

 

First, you have to calculate the Cost Performance Index to calculate the EAC:

 

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.

 

In other words, if the project continues with CPI = 0.67 until the end, you will have to spend 149,253.73 USD to complete it.


The Estimate at Completion (EAC) gives the amount of money the project will cost at the end.


The Estimate at Completion can be determined by four methods, depending on how the project is performing. However, from a PMP certification exam point of view, the first method is the most important. There is a smaller chance you will see questions based on the others.

Case 2: EAC = AC + (BAC – EV)

Here, you have deviated from your budget estimate, but from now on you can complete the remaining work as planned.

Unforeseen circumstances or one-time incidents can cause this to happen and will increase costs. However, it will not happen again and you can complete the remaining work as planned.

In this formula, you add the money spent to date to the budgeted cost of the remaining work.

Formula for the Estimate at Completion

The formula to calculate the Estimate at Completion in this case is:

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

EAC = AC + (BAC – EV)

Example of the Estimate at Completion (Case 2)

You have a project with a budget of 500,000 USD. An incident during the execution phase that costs you a lot of money. However, you are sure that this will not happen again, and that 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).

 

You will use this formula because the cost increase is temporary and you can complete the rest of the project as planned.

 

Estimate at Completion = Money spent to date + (Budgeted cost for the remaining work – Earned Value)

 

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 USD

 

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

Case 3: EAC = AC + [(BAC – EV) / (CPI * SPI)]

You are over budget, behind schedule, and the client is insisting you complete the project on time. The cost and schedule performance must be taken into consideration.

Formula for the Estimate at Completion

Estimate at Completion = Money spent to date + (Budgeted cost for the remaining work – Earned Value) / (Cost Performance Index * Schedule Performance Index)

EAC = AC + [(BAC – EV) / (CPI * SPI)]

Example the Estimate at Completion (Case 3)

You have a fixed deadline for a project with a budgeted cost of 500,000 USD. To date, you have spent 200,000 USD, and the value of the completed work is 175,000 USD. However, according to the schedule, you should have earned 225,000 USD by now.

 

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 USD

 

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

Case 4: EAC = AC + Bottom-up Estimate to Complete

In this situation you find out that your cost estimate was flawed and you must calculate the new cost estimate for the remaining project work.

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

Example of the Estimate at Completion (Case 4)

You have a project to construct a government 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, you noticed your cost estimation was flawed. Therefore, you need to calculate your budget again for the remainder of the project.

 

You gather your team members and re-estimate the cost of the remaining work. Your new estimate shows that it would take 400,000 USD to complete the remainder 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

 

Here, you will use the formula:

 

EAC = AC + Bottom-up Estimate to Complete

 

= 200,000 + 400,000

 

= 600,000 USD

 

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

Forecasting Technique #2: Estimate to Complete (ETC)

Estimate to Complete is the second forecasting technique. It is the cost of completing the remaining work.

Estimate to Complete = Estimate at Completion – Actual Cost

ETC = EAC – AC

Forecasting Technique #3: To Complete Performance Index (TCPI)

The To Complete Performance Index estimates how fast you have to move to achieve the target.

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

TCPI = (Remaining Work) / (Remaining Funds)

TCPI = (BAC – EV) / (BAC – AC)

Or

TCPI = (BAC – EV) / (EAC – AC)

Summary

The Estimate at Completion is an excellent forecasting tool. It allows project managers to make realistic budget revisions. It gives you a mid-project estimation of the overall cost that your project may take to complete. Once this estimate is approved, this will be your new budget. The EAC is not fixed, it may change as the project progresses. Estimate at Completion should be revised periodically or as defined in the project management plan.

How often do you use Estimate at Completion (EAC) during your projects? Please share your experience in the comments section.

This blog post is the fifth in a series of seven on Earned Value Management and project forecasting. Please read through my previous posts before reading this post if you’re coming here from a search engine or a referral.

The following are the links for other blog posts:

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Speak Your Mind

  • I have a questions if we have to find EAC provided that the project experience to date is expected to prevail. Which approach should we have to use?
    1- EAC = AC + ([BAC-EV]/CPI*SPI)
    or
    2- EAC = AC + [BAC – EV]

  • Estimate at Completion = Money spent to date + (Budgeted cost for the remaining work – Earned Value) / (Cost Performance Index * Schedule Performance Index)

    Is it not the total budget (BAC)? Why do you call it “Budgeted cost for the remaining work”

    Is there a mistake here… or is my understanding is incorrect..?

  • First of all…very helpful so thanks. I believe i see an error where “Budgeted cost for the remaining work” already includes the subtraction of the earned value in Case 3.

    Estimate at Completion = Money spent to date + (Budgeted cost for the remaining work – Earned Value) / (Cost Performance Index * Schedule Performance Index)

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

      • The formula is right, but in the explanation it is saying budgeted cost of work remaining is equal to BAC – EV
        It should either say Budget at completion – Earned value (BAC – EV)
        or just say Budgeted cost of Work remaining for (BAC – EV) because the fact is
        BAC – EV is actually the Budgeted Cost of Work Remaining

  • I’ve tried using all 4 formulas for EAC with same scenario (example below) and getting different values as results. Do this mean that we have to pick the right formula according to project situation or else we might get misleading information/interpretation?

    Example:
    BAC = 100,000
    AC = 60,000
    EV = 40,000
    PV = 50,000

      • If I update project status on weekly basis, with the actual situation varies from week to week, I will be using different formula each week.

        Will it still be okie? Will all the weekly calculations still be correlated from start to end of the project? If I plot graph using those numbers, will it still work?

        • Hello Kris,

          I have already explained that how you will select a formula to be used in a given case. Please read the post again.

      • You are managing a one year project with a budget of $100,000. After six months, the CPI is 0.8 and the actual cost is $75,000. What would you forecast the project to cost at completion, assuming your actual variance was caused by a one time occurrence ?

  • Fahad,
    Many thanks for your explanations. I’m finding them very helpful. One question.
    In Case 3, why wasn’t the calculation 200,000+325,000 = 525,000 then 525,000/.69 = $760,870

    Please explain. Many thanks, Trudy

    • The brackets are missing in the formula EAC case #3. Should read AC + [(BAC-EV) / (CPI * SVI)] all work should be done inside the brackets before adding the AC. Author also rounds to “000”.

      There probably is a math rule to working formulas that is assumed.

  • Good way of telling, and nice piece of writing to
    obtain information regarding my presentation subject matter, which i am going to present in college.
    latahza

  • Hi Fahad,
    I have a question about what you said about EAC especially with the statement of formula:
    EAC = AC + (BAC – EV)

    why are you say (Budgeted cost of the remaining work – Earned Value) … correct me if I’m wrong.

    Regards
    Abahussein

  • Thanks a lot. It cleared my many doubts. This article is very use full. I was reading PMBOM, Head first but this article gives me everything that to within 15 minutes.

  • Suppose we are executing a project and at a certain stage, CPI is closer to 1, but now onwards, for remaining part of the project, our Item Rates are below the Technical Sanctioned Estimate, which themselves are not practically feasible.
    It means our Actual Cost would increase as compared to our Earned Value which concludes our project would not follow the preceding trend.
    In this Scenario, how would we calculate EAC ?

    Kindly guide.

  • I have been teaching and accomplishing Earned Value Project Analysis for over 20 years and I do have some spreadsheets for the development of IEACs.

    Your for the asking.

  • when you say a project is complete?
    a) budget at completion is equal to earned value
    b) Earned value is equal to Cost value

    write the most authentic relationship

    • When the project is completed, earned value is equal to planned value.

      When you revise the budget, your EAC will be your new BAC.

  • You are great!

    Thanks Fahad, you’ve been very helpful during my preparation, I’m having my exam in 3 days, will come back to thank you again after I pass inshalla,

  • Hello Fahad

    I could not pass my PMP in first attempt. I am studying again. The exam is changing after Jan 11th. What would be your suggestion about changes coming up. Should I try to give exam before or after. Kindly advise.Thank you

  • Dear Fahad,

    Thanks for the detailed explanation.

    I am confused with some calculation and need guidance.

    In the 1st example(1st case) where EAC = BAC/CPI, BAC = 100000, EV = 40000 and AC = 60000. CPI = 0.67 thus EAC = 100000/0.67 = 149253.7
    But if we calculate it in another way EAC = 100000/(40000/60000), as per cross calculation EAC = (100000 * 60000)/40000 = 150000.

    We get accurate values for normal equations like 5/(2/10) which can be 5/0.2 still 25 and 5*10/2 still 25. Here i am unable to understand the reason for this difference.

    Can you guide !!

    Regards,
    Reshma

  • See references Marked for review
    61. You are performing earned value technique on your project.
    After budget approval, an additional and unexpected cost item has been identified, which made the project more expensive some weeks ago. The item has meanwhile been paid by the project team, and it is expected that for the remaining duration of the project, costs will be as budgeted.

    In this case, which is the best formula to calculate EaC (Estimate at Completion)?

    1 EaC = BaC – CV
    2 EaC = BaC / CPI
    3 EaC = AC + BtC / CV
    4 You can not compute the EaC.

  • 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

    • 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.

  • 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.

    • 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 .

  • 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

      • 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?

  • 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

  • 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

    • 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.

  • 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

  • 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?!

  • 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.

  • 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.

      • 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

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

    • 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.

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