Wednesday, June 18, 2008

The Project Estimate of Completion

The estimate at completion (EAC) is an important output of project cost control. It is a calculated prediction of the total costs of a project at completion, based on performance to date. You might want to calculate the EAC whenever you assess the earned value for a project as a part of your periodic evaluation.

As with other outputs, your periodic assessments of the EAC will form a vital part of the project's history. You may want to track it in a trend analysis. The EAC is useful for the project management team for the following reasons.
  • It shows what the total project is expected to cost.
  • You can estimate the total costs of an activity or group of activities.
  • It is the best estimate of potential profitability of the project.
If the current EAC for any job gives a warning of cost overruns, you may want to assess cost variances to see if they will likely be recurring in the future and check the original cost estimates to see if they were inaccurate and should be revised.

There are four common methods for calculating the EAC. However, before you can calculate the EAC, you will need to know the budget at completion (BAC), which is the planned value (PV). The standard method used for calculating the EAC can be expressed in either of two ways, depending on whether you have the cost performance index (CPI).
  • The standard formula for calculating EAC is as follows: EAC = (AC ÷ EV) x BAC. This formula, which uses the earned value (EV) variable, is based on the project's cost performance to date. Use it when cost variances are typical of future variances.
  • If you have worked out the CPI already, simply divide it into the total budget at completion (or the planned value at completion). The formula is as follows: EAC = BAC ÷ CPI.
The third formula you can use is: EAC = AC + ETC. It combines actual costs to date (AC) and the estimate to complete (ETC), which is the total of all estimated costs of work that has not yet been performed. This approach is most often used when:
  • past variances would have continued to occur
  • original estimates have been revised significantly
  • the revised estimates are deemed accurate.
The fourth formula that can be used to calculate the EAC adds the actual costs to date (AC) to the expected earned value of the work not yet completed. To find this "future earned value," you simply multiply the PV by the percentage of work that has not yet been performed. It is expressed as follows: EAC = AC + (PV x percent of work remaining).

This approach is most often used when the variances to date are seen as atypical, and the project management team expects that similar variances will not occur in the future.

However you choose to arrive at a final estimate, you can use the EAC to calculate the variance at completion for your project. The final variance can be expressed as either a dollar amount or as a percentage. You will more commonly see it as a ratio of the total variance to the budget at completion.

For example, for a project with a BAC of $75,000 and an EAC of $85,000, the variance at completion would be $10,000. Expressed as a percentage, the VAC (variance at completion) would be $10,000 divided by $75,000. This project would be 13 percent over budget.

The estimate at completion is your educated guess regarding the total cost of a project. You have to decide, before calculating EAC, how future cost variances compare to current cost variances, since each of the formulas uses a different assumption about future variances.

2 comments:

Anonymous said...


Tag: PM201A53. Let me share all of you about #5 Tips for Project Management Success,, I hope you enjoy it

1. Plan your day using time management techniques

As a project manager, time management skills are essential because you are dealing with a wide range of tasks that demand a quick turnaround time. Planning your day will go a long way in keeping you organized and increasing your productivity. Assist your task planning by using project management software which helps you track the work of you and your team.

If you are not very tech savvy, a simple to-do list can also be a great organizational tool. Prioritize your most important tasks by putting them at the top of the list and less important ones at the bottom. Having a visual plan of your daily tasks helps to keep you on track and aware of time.

Related post: Free ebook 104 secrets to become a great project manager

2. Include stakeholders in important project conversations

While you will have plenty of responsibilities regarding the project, don’t neglect your clients.

Good communication is essential is keeping both parties informed of project progression, curtailing scope creep, and apprised of changing requirements. Some clients may have different expectations when it comes to communication, so make sure to establish the frequency and type of communication (like emails, phone calls, and face-to-face conversations) at the beginning of your project.

Establishing communication expectations early helps alleviate stakeholder uncertainty about communication frequency and delivery.

3. Regularly communicate with your team

Daily team communication helps keep misunderstandings and unclear requirements under control. Keeping your team informed in every step of the project is essential to project management success.

For example, a study published by Procedia Technology found that good communication skills were the cornerstone of project management. The study examined over 300 “construction project managers, architects, construction managers, engineers and quantity surveyors” and their successes and failures on various construction projects.

4. Anticipate project setbacks

Even the best-laid plans often go awry.

Remember that even with a high amount of planning and attention to detail, your project may still encounter some challenges. Pay attention to complaints from stakeholders or colleagues, and other warning signs, like a missed deadline or cost overrun, that there may be a problem.

Preventing a crisis will keep your project running smoothly, save you a lot of time, and keep you, your team, and your stakeholders confident in progressing with the project.

Unfortunately not every complication can be avoided. Crisis management skills are essential for dealing with the unexpected. Project managers need to be flexible and pragmatic. Improvise and make sharp decisions when needed.

Related post: 92 free project management templates

5. Stay focused on the details

A common problem project managers encounter is having the project aims not aligned with the organization’s objectives. A great project manager will strategize a plan for the project to lead back to the overall success of the business.

Know your project’s scope by heart and avoid wandering outside of the project’s requirements. It’s too easy to get lost in minor details and forget what your focus is, so a well-planned project scope is essential for success.

And final, you should use KPI to measure effectiveness of the project, here are full list: 76 project management KPIs



Anonymous said...


Tag: PM206A53. Let me share all of you about #5 Tips for Project Management Success,, I hope you enjoy it

1. Plan your day using time management techniques

As a project manager, time management skills are essential because you are dealing with a wide range of tasks that demand a quick turnaround time. Planning your day will go a long way in keeping you organized and increasing your productivity. Assist your task planning by using project management software which helps you track the work of you and your team.

If you are not very tech savvy, a simple to-do list can also be a great organizational tool. Prioritize your most important tasks by putting them at the top of the list and less important ones at the bottom. Having a visual plan of your daily tasks helps to keep you on track and aware of time.

Related post: Free ebook 104 secrets to become a great project manager

2. Include stakeholders in important project conversations

While you will have plenty of responsibilities regarding the project, don’t neglect your clients.

Good communication is essential is keeping both parties informed of project progression, curtailing scope creep, and apprised of changing requirements. Some clients may have different expectations when it comes to communication, so make sure to establish the frequency and type of communication (like emails, phone calls, and face-to-face conversations) at the beginning of your project.

Establishing communication expectations early helps alleviate stakeholder uncertainty about communication frequency and delivery.

3. Regularly communicate with your team

Daily team communication helps keep misunderstandings and unclear requirements under control. Keeping your team informed in every step of the project is essential to project management success.

For example, a study published by Procedia Technology found that good communication skills were the cornerstone of project management. The study examined over 300 “construction project managers, architects, construction managers, engineers and quantity surveyors” and their successes and failures on various construction projects.

4. Anticipate project setbacks

Even the best-laid plans often go awry.

Remember that even with a high amount of planning and attention to detail, your project may still encounter some challenges. Pay attention to complaints from stakeholders or colleagues, and other warning signs, like a missed deadline or cost overrun, that there may be a problem.

Preventing a crisis will keep your project running smoothly, save you a lot of time, and keep you, your team, and your stakeholders confident in progressing with the project.

Unfortunately not every complication can be avoided. Crisis management skills are essential for dealing with the unexpected. Project managers need to be flexible and pragmatic. Improvise and make sharp decisions when needed.

Related post: 92 free project management templates

5. Stay focused on the details

A common problem project managers encounter is having the project aims not aligned with the organization’s objectives. A great project manager will strategize a plan for the project to lead back to the overall success of the business.

Know your project’s scope by heart and avoid wandering outside of the project’s requirements. It’s too easy to get lost in minor details and forget what your focus is, so a well-planned project scope is essential for success.

And final, you should use KPI to measure effectiveness of the project, here are full list: 76 project management KPIs