:Project Management- PMP
Budget Forecasting
EAC
There are many ways to calculate EAC,
depending on the assumption made:
Case1: Typical
Situation
Simple EAC calculation (EAC =
BAC/CPI)
This scenario
assumes that the project will
continue to perform to the end as it was performing up until now.
If the CPI = 1, then EAC = BAC. This
means you can complete your project with your approved budget (BAC), and there
is no need to use forecasting analysis.
At the start of the project, the
Estimate at Completion will be equal to the Budget at Completion, i.e. EAC =
BAC.
Case2: Atypical Situation
AC= AC + (BAC-EV)
Here, you say that until now you have
deviated from your budget estimate; however, from now you
can
complete the remaining work as planned.
Usually this happens when due to some
unforeseen conditions, any incident happens and your cost elevates; however you are sure that
this will not happen again and you can continue with the planned cost estimate.
To calculate the
EAC you will simply add money spent to date (i.e. AC) to the budgeted cost for
remaining work.
EAC Case1: Typical Situation
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 is completed so far.
Find the Estimate at Completion (EAC)
for this project.
Budget at Completion (BAC) = $100,000
Actual Cost (AC) = $60,000
Planned Value (PV) = 50% of $100,000 = $50,000
Earned Value (EV) = 40% of $100,000= $40,000
To calculate the EAC, first you have to calculate the
Cost Performance Index
(CPI) = EV / AC
= $40,000 / $60,000
= 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.
It means if the project continues to progress with CPI =
0.67 until the end, you will have to spend $149,253.73 USD to complete the
project.
EAC Case2 : Atypical Situation
You have a project with a budget of
$500,000 USD. During execution phase, an incident happens which costs you a lot
of money. However, you are sure
that this will not happen again, and 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.
Calculate the Estimate at Completion
(EAC).
Since the cost elevation is temporary in nature and the
rest of the project can be completed as planned, in this case you will use the
formula: EAC = AC + (BAC – EV)
Actual Cost (AC) = $200,000
Budget at Completion (BAC) = $500,000
Earned Value
(EV) = $175,000
EAC = 200,000 + (500,000 – 175,000) = 200,000 + 325,000 = 525,000
Hence, the Estimate at Completion is $525,000 USD.
To-Complete
Performance Index (TCPI)
•Helps the team determine the efficiency that must be
achieved on the remaining work for a project to meet a specified endpoint, such
as BAC or the team’s revised EAC
•Hint:
for CPI and SPI, >1 is good, but in TCPI, the opposite is true. i.e. <1
is good
•
•TCPI
=
EVM
– Hints to remember
•EV
comes first in every formula
•If
it’s variance, the formula is EV – something
•If
it’s index, EV / something
•If
it relates to cost, use Actual Cost
•If
it relates to schedule, use PV
•(CV,
SC): (-) negative numbers are bad, (+)
positive is good
•(CPI,
SPI): (<1) are bad, (>1) positive is good
•(TCPI): (<1)
is GOOD, (>1)
is BAD
Jamil Faraj, PMP
13-6-2015
