What is Estimate at Completion (EAC)?

Estimate at completion is the forecasted cost of completing the project.

There are four cases to calculate estimate at completion.

Case-I

In this scenario, you assume that the project’s cost performance will remain the same until completion. In other words, future performance will be the same as past performance; the Cost Performance Index (CPI) will remain the same for the rest of the project.

In this case,

EAC = BAC / CPI

You can conclude that from the above formula:

If the CPI = 1, then EAC = BAC. This means you can complete your project with your approved budget as is and forecasting analysis is not needed.

The Estimate at Completion will be equal to the budget at completion at the start of the project, i.e., EAC = BAC.

Example

You have a project to be completed in 12 months with a budget of 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 has been completed so far.

Find the Estimate at Completion (EAC) for this project.

Given in the question:

Budget at Completion (BAC) = 100,000 USD

Actual Cost (AC) = 60,000 USD

Planned Value (PV) = 50%of 100,000

= 50,000 USD

Earned Value (EV) = 40% of 100,000

= 40,000 USD

First, you have to calculate the Cost Performance Index to calculate the EAC,:

Cost Performance Index (CPI) = EV / AC

= 40,000 / 60,000

= 0.67

Cost Performance Index (CPI) = 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.

In other words, if the project’s progress continues with CPI = 0.67, you will have to spend 149,253.73 USD to complete the project.

Case-II

In this case, you have deviated from your budget estimate once, but the rest of the project isn’t going to be affected.

This singular cost increase is usually due to some unforeseen condition. However, you are sure this will not happen again, and that you can continue with the planned cost estimate.

That is why you will add the money spent to date (AC) to the budgeted cost for the remaining work.

The formula to calculate the Estimate at Completion in case-II is as follows:

Estimate at Completion =Money spent to date + (Budgeted cost for the remaining work – Earned Value)

EAC = AC + (BAC – EV)

Example

You have a project with a budget of 500,000 USD. An incident happens during the execution phase, 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 USD.

Calculate the Estimate at Completion.

Given in the question:

Actual Cost (AC) = 200,000 USD

Budget at Completion (BAC) = 500,000

Earned Value (EV) = 175,000

Hence,

EAC = 200,000 + (500,000 – 175,000)

= 200,000 + 325,000

= 525,000 USD

The Estimate at Completion is 525,000 USD.

Case-III

In this situation, you are over budget, behind schedule, and the client is insisting you complete the project on time. Both the cost and the schedule need to be taken into consideration.

The formula to calculate the Estimate at Completion in case-III is as follows:

Estimate at Completion = Money spent to date + (Budgeted cost for the remaining work – Earned Value) / (Cost Performance Index * Schedule Performance Index)

EAC = AC + (BAC – EV) / (CPI * SPI)

Example

You have a fixed deadline project with a budgeted cost of 500,000 USD. To date, you have spent 200,000 USD, and the value of the completed work is 175,000 USD. However, according to the schedule, you should have earned 225,000 USD to date.

Calculate the Estimate at Completion (EAC).

Given in the question:

Budget at Completion (BAC) =500,000 USD

Actual Cost (AC) =200,000 USD

Earned Value (EV) =175,000 USD

Planned Value (PV) =225,000 USD

To calculate the EAC, first you have to calculate the CPI and SPI:

SPI = EV / PV

= 175,000 / 225,000

= 0.78

CPI = EV / AC

= 175,000 / 200,000

= 0.88

Now, you can use the formula:

EAC = AC + (BAC – EV) /(CPI * SPI)

= 200,000 + (500,000 –175,000) / (0.88 * 0.78)

= 200,000 + 325,000 / 0.69

= 200,000 + 471,000

= 671,000 USD

The Estimate at Completion is 671,000 USD.

Case-IV

This is the scenario, you find out that your cost estimate was flawed, and you need to calculate the new cost estimate for the remaining work.

Here, you will go to the activity level, find the cost of each activity, and add them to get the total cost of completing the project.

Example

You have a project to construct a government building for 500,000 USD. To date, you have spent 200,000 USD, and the value of the completed work is 175,000 USD. However, during your project execution, you noticed your cost estimation was flawed, and you need to calculate your budget again for the remaining part of the project.

You gather your team members and re-estimate the cost of the remaining work. Your new estimate shows that it will take 400,000 USD to complete the remainder of the work.

Calculate the Estimate at Completion (EAC).

Given in the question:

Budget at Completion (BAC) = 500,000 USD

Actual Cost (AC) = 200,000 USD

Earned Value (EV) = 175,000 USD

Bottom-up Estimate to Complete = 400,000 USD

In this case, you will use the formula:

EAC = AC + Bottom-up Estimate to Complete

= 200,000 + 400,000

= 600,000 USD

Hence, the Estimate at Completion is 600,000 USD.

I hope that this concept is clear to you.

Published by hilarybest4948

I am Experienced social Media marketing, web development, content management, Google analyst, user experience expert,mobility entrepreneur. Performing social media optimization activities on behalf of the clients via SEO, Email marketing, Banner Advertising, CPP etc I am a team leader with vast insight on corporate communications and brand development. My outstanding values enable me deliver great work and actionable business leads which in turn is perceived as a major deal maker for firms and other associates. I have been able to support revenue generation activities for blue-chip firms and fortune 500 companies over the years. While I look to leverage my excellent values via freelance,social media. I believe quite a number of businesses and individuals will find any engagement with me; worth their precious time. Duties and Responsibilities: • Assist in creating and implementing social media marketing strategies and tactics. • Handle social media market research activities. • Collect and analyze marketing data to develop and adjust correlating marketing plans. • Create presentations and agreements and assemble client activity reports • Possess a clear understanding of mobile applications, websites, and advertising. • Handle content creation and management tasks along with planning and executing special events. • Write and post blogs and articles, handle tweets and updates and upload pictures and videos to create awareness. • Track the growth and impact of social media on the business and create and submit progress reports. • Perform research activities to find articles, stories, and resources, relevant to client base and post links to social media profiles. • Update social media accounts with activities and events being led by the company. • Monitor and respond to social media activities on a regular basis and build relationships with new and existing audiences. • Provide recommendations to clients on how to extend their performance and results. • Assist in performing social media optimization activities on behalf of the company/client

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