Mastering Estimate at Completion with Examples

There are many forecasting tools and metrics used to calculate the future performance of a project. Schedule Variance, Cost Variance, Budget at Completion and Earned value are some of them. Likewise, other forecasting tools, Estimate at Completion (EAC) helps to make forecasts for the completion cost of a project. The EAC relies on past performance metrics. Calculating the EAC provides a clear understanding of the project’s current status and future performance. Through you can make decisions to bring the project on track and implement corrective actions to decrease the costs. In this article, we analyze Estimate at Completion formula with examples.

What is Estimate at Completion (EAC) Definition?

According to the PMBOK Guide Estimate at Completion (EAC) is the expected total cost of completing all work expressed as the sum of the actual cost to date and the estimate to complete.

Also, this definition is explanatory for the EAC;

Estimate at Completion (EAC) is the sum of the Actual Cost of Work Performed (ACWP) and Estimate to Complete (ETC). In other words, the forecasted total amount of money required to finish the project is called Estimate At Completion.

Simply put, The EAC is a periodic evaluation of the anticipated total cost at project completion.

In this article, we will focus on the Estimate at Completion (EAC) concept.

Estimate at Completion (EAC) Formulas

Most of the projects are not performed as planned. There are many factors that may affect your project’s critical decisions and execution methods. Project teams usually struggle with the problems to bring their projects on track.

At the beginning of a project, a project manager prepares a baseline budget . As the project progresses, the original budget may no longer be realistic because of the changed conditions, cost and schedule variances. By inspecting the project past performance a new budget may be prepared. This new budget which is based on the projects past performance is called Estimate at Completion (EAC).

The Estimate at Completion can be calculated by four formulas here below;

1: EAC = BAC / CPI
2: EAC = AC + (BAC – EV)
3: EAC = AC + (BAC – EV) / (CPI x SPI)
4: EAC = AC + Bottom-up ETC

For better understanding lets do some examples for each formula.

Estimate at Completion Examples

Example For the First EAC Formula (EAC = BAC / CPI)

EAC = BAC / CPI

We have a project to be completed in 10 months, and the cost of the project is 10,000 USD. Five months have passed and 4,500 USD has been spent, but only 30% of the work has been completed.

Budget at Completion (BAC) = 10,000 USD
Actual Cost (AC) = 4,500 USD
Planned Value (PV) = 5,000 USD (50% of 10,000 USD)
Earned Value (EV) = 3,000 USD (30% of 10,000 USD)
Cost Performance Index (CPI) = EV / AC = 3,000/4,500 =0,67
EAC = BAC / CPI = 10,000/0,67 = 15,000 USD
As per the calculations we will have to spend 15,000 USD to complete the project.

Note that the first formula considers the past performance of the project will be the same as future performance. Therefore it calculates the  EAC by dividing the BAC by CPI.

Example For the Second EAC Formula (EAC = AC + (BAC – EV))

EAC = AC + (BAC – EV)

We have a project with a budget of 100,000 USD. Two months have passed and our project is effected from natural. We are assuming our project will not suffer from natural disasters again. We have spent 20,000 USD and the value of the completed work is 15,000 USD.

Actual Cost (AC) =20,000 USD
Budget at Completion (BAC) = 100,000 USD
Earned Value (EV) = 15,000 USD
EAC = AC + (BAC – EV)
EAC = 20,000 + (100,000 – 15,000) = 105,000 USD

Second formula considers that the planned past performance of your project is different than the actual. However future performance will be as planned. Therefore  it calculates the Estimate at Completion (EAC) as the sum of Actual Cost (AC) and remaining planned cost (BAC – EV).

Estimate at Completion Example For the Third Formula (EAC = AC + (BAC – EV) / (CPI x SPI))

EAC = AC + (BAC – EV) / (CPI x SPI)

We have a project with a budget of 300,000 USD. We have spent 100,000 USD and the value of the completed work is 75,000 USD. As per the schedule, we should have earned 150,000 USD to date.
Budget at Completion (BAC) =300,000 USD
Actual Cost (AC) = 100,000 USD
Earned Value (EV) = 75,000 USD
Planned Value (PV) = 150,000 USD
SPI = EV / PV = 75,000 / 150,000 = 0,5
CPI = EV / AC = 75,000 / 100,000 = 0,75
EAC = AC + (BAC – EV) / (CPI x SPI)
Estimate At Completion = 100,000 + ( 300,000 – 75,000) / ( 0,5 x 0,75 ) = 700,000 USD

The third formula considers both schedule and cost performance of the project. You can use this formula when your project is behind the schedule and/or over budget .

Estimate at Completion Example For the Fourth Formula (EAC = AC + Bottom-up ETC)

EAC = AC + Bottom-up ETC

We have a project with a budget of 300,000 USD. We have spent 100,000 USD and the value of the completed work is 75,000 USD. We noticed that we made some mistakes in our original budget and we revised now. As per our new calculations, we need 320,000 USD to complete our project.

Budget at Completion (BAC) = 300,000 USD
Actual Cost (AC) = 100,000 USD
Earned Value (EV) = 75,000 USD
Bottom-up Estimate to Complete = 300,000 USD
EAC = AC + Bottom-up Estimate to Complete
EAC = 100,000 + 320,000 = 420,000 USD.

The fourth formula can be used when the project’s planned budget lose validity or it becomes unrealistic. Therefore you will calculate EAC as the sum of Actual cost and new forecast for the remaining work.

Summary

The Estimate at Completion (EAC) is a great forecasting tool which enables project control teams to make realistic estimations of the total cost that project may take to complete. This tool is essential for making realistic budget revisions.

Note that the EAC is an important concept for the PMP Certification exam. Do you use the EAC for budget planning along with schedule variance, cost variance and budget at completion ? You can share your methods and experiences by using the comments box.

External Reference

PMI – The estimate at completion

Tags: estimate at completio estimate at completion vs budget at completion stimate at completion with schedule variance and cost variance variance at completion