Estimate at Completion (EAC) in Project Management

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• 0:04 Estimate at Completion
• 0:28 Formula One
• 2:18 Formula Two
• 3:25 Formula Three
• 5:17 Formula Four
• 6:17 Lesson Summary
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Lesson Transcript
Instructor: Saranya Ramachandran

Saranya has a Bachelors in Science focused on Electronics and Telecommunication and a Masters in Business Administration. She has 8 years of Project Management Experience and is PMP Certified.

Estimate at completion is a forecasting technique employed to estimate the cost of a project at completion. This lesson explores several ways to calculate the estimate at completion for a project.

Estimate at Completion

Estimate at completion (EAC) is a forecasting technique employed to estimate the cost of a project at completion. Calculating estimate at completion helps measure how much a project may be off-track and can help inform the most appropriate corrective changes to make. There are four ways in which estimate at completion can be calculated. Each formula is used for a specific scenario and considers different factors.

Formula One

When the future financial performance of a project is expected to be similar to the past performance, estimate at completion can be calculated using cost performance index. Cost performance index (CPI) indicates how a project is performing with regards to cost. CPI is calculated as earned value divided by actual cost. Earned value (EV) is the estimated cost at a specific stage in the project, and the actual cost (AC) denotes the actual expenditure of the project at that stage. The formula for CPI is as follows:

• Cost performance index (CPI) = Earned value (EV) / Actual cost (AC)

If the earned value is equal to the actual cost then the CPI would be equal to 1, which denotes that the project is on track. Budget at completion (BAC) is the original total budget estimate created at the beginning of a project. Formula 1 assumes that the future financial performance of the project will be the same as the past performance of the project. Estimate at completion (EAC) is calculated as budget at completion divided by cost performance index. Formula 1 for EAC is as follows:

• Estimate at completion (EAC) = Budget at completion (BAC) / Cost performance index (CPI)

For example, Project A has an estimated budget at completion of \$100,000 and a cost performance index of 0.8. The project manager believes that the past performance of the project will mirror the future performance.

• Estimate at completion (EAC) = Budget at completion (BAC) / Cost performance index (CPI)

• Estimate at completion (EAC) = \$100,000 / 0.8 = \$125,000

Therefore, the estimate at completion would be \$125,000.

Formula Two

If the project went off-track due to a specific aspect then we can use formula 2. This formula calculates the EAC by adding the actual cost to the difference between budget at completion and earned value. Formula 2 assumes that the rest of the project will proceed as planned. Formula 2 for EAC is as follows:

• Estimate at completion (EAC) = Actual cost (AC) + (Budget at completion (BAC) - Earned value (EV))

For example, Project B went off-track on one specific task. Project Y has a budget at completion of \$100,000, an earned value of \$30,000, and an actual cost of \$35,000. The rest of the tasks are expected to be on track with the original budget.

• Estimate at completion (EAC) = Actual cost (AC) + (Budget at completion (BAC) - Earned value (EV))

• Estimate at completion (EAC) = \$35,000 + (\$100,000 - \$30,000) = \$105,000

Therefore, the estimate at completion would be \$105,000.

Formula Three

At times, a project may be behind schedule as well as over budget. In these instances, both cost and schedule will need to be considered when calculating the estimate at completion. Schedule performance index (SPI) indicates how behind or ahead a project is compared with the planned schedule. SPI is calculated by dividing earned value by planned value. The planned value (PV) denotes the actual value of work that should have been completed per schedule. The formula for SPI is as follows:

Schedule performance index (SPI) = Earned value (EV) / Planned value (PV)

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