Estimate to Complete (ETC), A Forecasting Tool
Project managers often wonder how much money they will spend to complete the remaining project works. If the remaining cost of the works are more than planned, clients, funders and stakeholders will be unhappy and they will start to question the project’s success. Accurate project cost estimation is one of the most important parameters that indicates a project’s success. Basically, cost estimation is the practice of assigning value which incorporates a wide range of tools and techniques to predict the costs of tasks. Estimate to Complete (ETC) is a strong forecasting tool used along with the estimate at completion.
This tool provides an approximate idea of how much money will be spent to complete the remaining balance of work. In this article we will discuss ETC by using mathematical examples.
For better understanding, let’s review the examples below.
Estimate to Complete (ETC) Calculation Methods
ETC can be calculated by using two methods.
- Bottom Up Cost Estimation
- Subtracting the Actual Cost (AC) from Estimate at Completion (EAC)
Estimate to Complete (ETC) Example 1
Assume that your organization has a project to erect 100 pylons. Total budgeted cost of the project is 1,000,000 USD. To date, you have spent 300,000 USD. During the execution, you noticed that you are spending more than planned. Therefore you need to calculate the remainig cost of the project.
You work with the construction team to estimate the cost of the remaining project works. According to your new estimations, you will pay;
- 500,000 USD for rental equipments
- 250,000 USD for workmanship
- 50,000 USD for general expenses.
Now we will Calculate the ETC.
Budget at Completion = 1,000,000 USD
Actual Cost = 300,000 USD
Cost of Rental Equipments = 500,000 USD
Cost of Workmanship = 250,000 USD
General Expenses = 50,000 USD
ETC = Cost of Rental Equipments + Cost of Workmanship + General Expenses
= 500,000 + 250,000 + 50,000
= 800,000 USD
ETC = 800,000 USD
Estimate to Complete (ETC) Example 2
Assume that your company has undertaken a project to be completed in 20 months. The total budgeted cost of the project is 20,000,000 USD. Twelve months have passed and 7,000,000 USD has been spent. According to the work performance reports, only 30 % of work has been completed.
Suppose that your projects cost performance will remain the same for the remaining works.
Let’s calculate the ETC for this project.
Given in the question:
Budget at Completion = 20,000,000 USD
Actual Cost (AC) = 7,000,000 USD
Earned Value (EV) = 30% of 20,000,000 USD
= 6,000,000 USD
We will calculate Estimate at Completion (EAC) in order to calculate the ETC
EAC = BAC / Cost Performance Index
Cost Performance Index (CPI) = 6,000,000 USD / 7,000,000 USD
Cost Performance Index (CPI) = 0.857
Estimate at Completion (EAC) = 20,000,000 USD / 0.857
= 23,333,333 USD
Estimate at Completion (EAC) = 23,333,333 USD
ETC = 23,333,333 USD– 7,000,000 USD
= 16,333,333 USD
ETC for this project is 16,333,333 USD.
Estimate to Complete (ETC) Example 3
The project was about building 50 cabins. The cost of building 1 cabin was estimated as 100 units of money and the total budget was 5000 units of money.
As per the work performance reports,
- The project team has built 30 cabins
- The project team has spent 3300 units of money to build 30 cabins
- The project team needs to build another 20 cabins to complete the project
As per the informations given above, we can say that remaining work is 20 cabins and ETC would be expected cost of building remaining 20 cabins.
Let’s look at the following calculations
If 30 cabins were built spending 3300 units of money then 20 cabins can be built in (20×3300/30) = 2200 units of money.
İn the past our workers performance was low but now their performance is better so remaining 20 cabins can be built as per the original estimate (20×100) = 2000 units of money.
Our workers has gained experience about building cabins and the efficiency will improve so we are assuming that each cabin can built in 90 units of money and 20 cabins can be built (20×90) = 1800 units of money.
Estimate to Complete vs Estimate at Completion – What are the Differences ?
There is another tool used to forecast the project costs which is known as the Estimate at Completion (EAC). Professionals often confused with the differences of ETC and Estimate at Completion (EAC). They are different tools used for different purposes.
Estimate at Completion (EAC) calculates the total cost of the project at the end. However, ETC calculates the cost of the remaining work at a given date.
ETC can be calculated by subtracting the actual cost from Estimate at Completion (EAC).
Estimate to Complete (ETC) is a strong forecasting tool that shows the planned cost to complete the remaining project work. It provides an answer to the question: How much money is needed to complete the remaining project work? . Basically, this technique provides you a rough idea of how much money will be spent to complete the remaining work.
ETC is a forecast technique. It can be done either by using project’s past performance or by re-evaluating the remaining project work. This estimate can be updated regularly as project progresses and the project moves towards the completion.
ETC is the expected cost that you will spend to complete the remaining work of the project. It is an effective forecasting tool which helps to calculate the cost of the remaining work and determine cost deviations.
Note that this topic is very important from a PMP Exam point of view. You may encounter a few questions related with this topic on the exam. Therefore we recommend you to undertand the concept very well to pass the exam.