Alternative calculations of estimate at completion

Alternative calculations of estimate at completion (EAC)

Earned Value Management (EVM) measures are crucial for providing objective information to evaluate a project's status within the Plan-Do-Check-Act management cycle. These measures enable a progress check against plans by utilizing Earned Value and its related variances and indices, such as Schedule Variance (SV), Cost Variance (CV), Schedule Performance Index (SPI), and Cost Performance Index (CPI). Among the checks is the comparison of the project BAC with the EAC calculated using the CPI cost efficiency measure: EAC=BAC/CPI. In addition to checking original project estimates, like the BAC, efficiency measures are also used to check revised project estimates, especially estimates of cost at completion, like the manager’s EAC.

Forecasting with EVM measures should take project performance patterns and trends into account. The simple EAC calculations noted above assume that the cumulative CPI adequately reflects past performance that will continue to the end of the project. There may be reasons to conclude otherwise and, therefore, to use an alternative calculation.

One consideration is schedule performance. If the project is underperforming in this regard, there may be a reason to include the SPI in the forecasting calculation on the assumption that additional costs will be incurred in an attempt to recover and get the project back on schedule.

Another forecasting consideration is the trend exhibited in cost performance. An examination of periodic cost performance may show better or worse performance in the recent period, suggesting that a CPI capturing the recent trend may be a better predictor of future performance. In this case, for example, the average performance for the last three periods could be used in the calculation instead of the cumulative CPI.

All calculations of EAC are estimates of the cost to do the remaining work on the project plus the Actual Cost.

The remaining work is the total planned work minus the work performed, which is captured in the expression: BAC – EV

Here is a sample of the most common alternative ways of calculating the EAC

Future cost performance will be the same as all past cost performance

Future cost performance will be the same as the last three measurement periods i,j,k

Future cost performance will be influenced additionally by past schedule performance

Future cost performance will be informed jointly in some proportion by both indices