: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