Estimate at Completion EAC
It is a forecast for how much the final cost of the project will be. In other words, as of today what do we expect the final cost of the project to be? There are four formulas to calculate EAC, each formula is appropriate for a different scenario depending on the project type and project performance. Pay close attention to the question given to determine which formula to use. Each scenario will be explained in a separate example.
|No||Formula for EAC||Scenario|
|1||AC + Bottom-Up Estimation||This formula is used when the original estimate is no longer valid (flawed).|
|2||BAC /CPI||This formula is used when the spending continues at the same rate, meaning that CPI is almost same throughout the life of the project.|
|3||AC + (BAC – EV)||It is used when the current Cost Variance (EV -AC) is atypical of the future, meaning that the current CPI is atypical of the future.|
|4||This formula is used when the project has a restricted deadline and the current CPI is atypical of the future.|
Example 1: Greg is an inexperienced project manager that was recently assigned to a new facility construction project. Half way through the life of the project, all estimations are different from what was originally planned due to poor management performance. Senior management asked Greg to provide estimates at completion for his project. What is the right formula to use to calculate EAC for his project?
Answer: since the original estimation for the project is no longer valid, the correct formula to use to calculate estimate at completion is EAC = AC + Bottom-Up estimate.
Example 2: You are the project manager for an installation of 4 ultrasound examining machines for a health care facility. Project timeline is 8 weeks and each installation is budgeted for $50,000. By the end of week 3, the CPI for the project was 0.9. What is the Estimate at Completion for the project?
Answer: BAC = 8 months x $50,000 = $400,000
EAC = BAC / CPI
EAC = $400,000 / 0.9, or $444,440.
Example 3: In the previous example, If there was a problem that caused the project to abnormally cost more, e.g. during the installation of the second ultrasound machine, somewhere there was a mistake that caused the installation cost to be $60,000, then the CPI is atypical of the future of the project and we should use the third formula AC + (BAC – EV).
Example 4: You are the project manager for a project that has a restricted timeline of 6 months. During the 2nd month, the project experienced a technical problem that cost the project $100,000. EV = $800,000, AC = $$900,000, and PV = $800,000. The project is budgeted for $3,000,000. What is the estimate at completion (EAC)?
Answer: The project experienced a technical problem that cost $100,000; that means that the Cost Variance is atypical of the future and it is a one-time incident. Since the schedule is restricted and the Cost Variance is atypical of the future, we use the formula:
CPI = $800,000/$900,000, or 0.89
SPI = $800,000/$800,000, or 1
EAC = $3,372,000