What is Estimate at Completion (EAC) in Project Management?
In project management, Estimate at Completion (EAC) forecasts the project budget while the project is in progress. Like BAC (Budget at Completion), it is a part of earned value management. Unlike BAC, EAC takes into account variables like unplanned costs and inaccurate or obsolete early estimates.
Estimate at Completion tells us whether events, developments, or obstacles have changed the originally estimated costs of the project. It factors in the Actual Cost of the project to date, as well as an estimate of remaining costs for a more dynamic picture of the project budget.
For example, a project has estimated BAC to be $15,500. However, the unavailability and delivery delays of some particularly crucial material drive up costs. Using an EAC formula, you can create a new budget forecast based on this context.
What is the Estimate at Completion formula and how do you know which EAC formula to use?
The appropriate EAC project management formula can vary, depending on the situation. Four formulae can be used to calculate EAC.
- When the initial estimates were wrong, are now obsolete, or cannot be used as an accurate forecast, use the following formula:
EAC = AC + ETC
(Estimate at Completion equals Actual Cost plus Estimate to Complete)
- When performance is steady and has not deviated too sharply from the original estimate, use the following formula:
EAC = BAC/CPI
(Estimate at Completion equals Budget at Completion divided by Cost Performance Index).
- When there were some performance issues or one time obstacles in the project, but the rest of the original budget is expected to remain accurate use the following formula:
EAC = AC + (BAC - EV)
(Estimate at completion equals Actual Cost plus Budget at Completion minus Earned Value)
- When it is necessary to account for cost and schedule in order to arrive at an updated budget forecast, use this formula:
EAC = AC + (BAC - EV)/SPI * CPI
(Estimate at Completion equals Actual Costs plus Budget at Completion minus Earned Value divided by Schedule Performance Index times Cost Performance Index)
In our previous example, the BAC was $15,500 but some obstacles drove up costs. At 50% project completion, the AC was $8,500 instead of the projected $7,750. In this case, we can use the EAC = AC + (BAC - EV) formula because we expect that the remaining budget is accurate but must account for the previous performance issues.
EAC = 8,500 + (15,500 - 7,750)
EAC here is $16,250
Essentially, the EAC increases by the amount the actual cost exceeded the initial budget.
Forecasting is an integral part of the project management process and it does not cease to be important once the project has commenced. Your project forecasts should not be a static tool and should, instead, be adjusted as the project progresses.