Estimate at Completion & Estimate to Complete

Definition:

Estimate at Completion (EAC)
Estimate at completion is the forecasted cost of the project, as the project progresses. There are a number of different ways to determine the EAC.

Estimate to Complete (ETC)
Estimate to complete (ETC) is a forecast of how much more money will need to be spent to complete the project.

—————-In my example I will also use BAC, CPI, EV and AC.
So let’s see their definition as mentioned below
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Budget at Completion (BAC)
Budget at completion (BAC) is the total anticipated and budgeted spending for the project based on the project estimates and assumptions.

Cost Performance Indicator (CPI)
Cost Performance Indicator is an index showing the efficiency of the utilization of the resources on the project.

Earn Value (EV)
The Earned Value (EV) comes from an assessment by the project management team as to the amount of progress they have made on each task in the project. Tasks that are completed have earned the entire value for that task.

Actual Cost (AC)
Actual Cost (AC) is the number that finance often is most concerned about because this represents the actual cash that the business has had to expend on the project
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Formulas:

CPI CPI = Earned Value (EV) /Actual Cost (AC)
EV EV = Cost performance index (CPI) * actual costs (AC)
EAC If problem solved in project which is not going to occur again.
EAC = actual costs (AC) + budget at completion (BAC) – earned value (EV)
EAC If developer or worker performance is slow then will still happen
EAC = budget at completion (BAC) ÷ cost performance index (CPI)
ETC ETC = estimate at completion (EAC) – actual costs (AC)

Example:

Let’s take below problem

Management Term Usual Term For Example given value
BAC Original Budget $2000.00
CPI Cost Performance Index 0.9
AC Actual Cost $1000.00
Find Earn value (EV), Forecast (Estimate at completion) (EAC), Estimate to complete (ETC)?

 
For this above problem there are 2 solutions. Please see below:
 

If CPI less since There is infra problem which is now recovered and it wont happen again
Original Budget BAC . $2000.00 Given in question
Cost Performance CPI . 0.9 Given in question
Actual Cost AC . $1000.00 Given in question
Earn Value EV EV = Cost performance index (CPI) * actual costs (AC) 0.9 * 1000 = 900
Forecast EAC EAC = actual costs (AC) + budget at completion (BAC) – earned value (EV) 1000 + 2000 – 900 = 2100
Estimate To Complete ETC ETC = estimate at completion (EAC) – actual costs (AC) 2100 – 1000 = 1100
.
If CPI less since There is developer or worker poor performance then it will happen through out project
Forecast EAC EAC = budget at completion (BAC) ÷ cost performance index (CPI) 2000 / 0.9 = 2222
Estimate To Complete ETC ETC = estimate at completion (EAC) – actual costs (AC) 2222 – 1000 = 1222

 
Thanks!
Avinash

calendarAugust 11, 2013 · cardInfoyen · commentsNo Comments
tagPosted in: General, Project Management

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