How to Calculate Estimate At Completion (EAC) for the PMP Exam

Hopefully you’ve been following our series on PMP Exam calculations.

If you have,  you’ll know that one of the areas that people often struggle with when studying for the PMP is the calculations involved with the Cost Management knowledge area.

This post is about how to calculate the Estimate At Completion. Otherwise known as EAC.

Estimate At Completion is used to predict the cost of the project at its completion.

In other words,the Estimate At Completion predicts the total cost of your project.

Estimate At Completion Formula

The Estimate At Completion formula is more complicated than most.

This is because there are actually four formulas.

Each formula tackles a different scenario that you may face on your project.

 

Scenario 1 – Original estimate is no longer valid

You might discover that the original estimates for your project were fundamentally floored.
Or circumstances may have changed so much that the estimates you have are no longer valid.

In this case you would use the following formula:

Estimate At Completion = Actual Cost + Bottom-up Estimate To Complete

You can read our previous blog post about how to calculate Actual Cost.

You might be wondering how you calculate the Bottom-up Estimate To Complete. According to the PMBOK® there is no formula.
Instead this is a prediction by the team of how much work is left to complete the project.

Tip – you may see the formula written as:

EAC = AC = Bottom-up ETC

 

Scenario 2 – CPI will stay the same for the rest of the project

This scenario assumes that the Cost Performance Index (CPI) experienced by the project will stay the same until the project is completed.

In this case you would use the following formula:

Estimate At Completion = Budget At Completion / Cost Performance Index

Read our posts about Budget At Completion and Cost Performance Index if you need more information about them.

 

Scenario 3 – Current CPI is abnormal

In this case you need to calculate the Estimate At Completion but discover that your current CPI is abnormal.

Why could the current CPI be abnormal? An example might be that you have estimated $50,000 to install a new generator.
During the installation the generator is accidentally damaged and $5,000 has is spent on repairs.

You have three more generators to install but you are confident that the accident won’t happen again as you have a risk mitigation plan (and you yelled at the people who caused the damage!).

In this case it is appropriate to believe that your original estimates for installing the generators are still good.

It’s also appropriate that the current CPI (which reflects the accidental damage) does not reflect how the project will progress.

In this case you should use a formula that ignores the CPI. The formula is:

Estimate At Completion = Actual Cost + (Budget At Completion – Earned Value)

You can read our previous blog post about how to calculate Actual Cost, Budget At Completion and Earned Value.

 

Scenario 4 – Project has to meet a deadline

We’ve all worked on projects where the boss or a customer demand that a project be delivered by a certain date.
To calculate the Estimate At Completion for such a project you need to take into account the Schedule Performance Index and Cost Performance Index.

The formula is:

Actual Cost + [(Budget At Completion - Earned Value) /
(Cost Performance Index X Schedule Performance Index)]

You can read our previous blog post about how to calculate Actual Cost, Budget At Completion, Earned Value Cost Performance Index and Schedule Performance Index.

 

What does EAC mean?

After calculating the EAC you’ll have an amount in dollars, pounds, yen or whatever currency your project is using.

But what does this amount mean? The EAC predicts what you expect the total cost of the project to be.

 

Example of Calculating Estimate At Completion

Lets see some examples.

Example 1

Frank is the project manager for a software development company based in London. He is managing a project to create a new recipe sharing social network.

The project recently hit problems when the development team discovered that the software architecture they were going to use is not valid. After discussions the team has decided on a new approach.

The PMO has asked for a new estimate of the total cost of the project.

The project has already spent $210,000 and has a CPI of 1.1.

After talking with the teams on the project, he determined that the remaining costs are development – $50,000, quality assurance – $30,000 and documentation – $10,000.

What is the Estimate At Completion?

Answer: The Estimate At Completion is $300,000.

 

How did we calculate this?

In this example, the original estimates are bad because they are based on a flawed architecture approach.

Therefore, we will calculate Estimate At Completion using the formula from scenario one:

Estimate At Completion = Actual Cost + Bottom-up Estimate To Complete

Knowing this we can calculate: $210,000 + ($50,000 + $30,000 + $10,000) = $300,000

 

Example 2

Tim is the project manager for an undersea cable company based in Cyprus. He is managing a project to lay an optical fiber cable from Naples to Palermo.

The PMO has asked for an updated estimate of the total cost of the project.

At the start of the project, the costs of the project were estimated as $1,600,000 for design and permitting, $18,750,000 for optical fiber costs, $4,500,000 for installation and $2,300,000 for testing of the cable.

The Cost Performance Index of the project is currently 1.08.

What is the Estimate At Completion?

Answer: The Estimate At Completion is $25,138,888.89

 

How did we calculate this?

In this example, the CPI is not considered abnormal.

Therefore, a formula using CPI can be used.

So we will calculate Estimate At Completion using the formula from scenario two:

Estimate At Completion = Budget At Completion / Cost Performance Index

Knowing this we can calculate: ($1,600,000 + $18,750,000 + $4,500,000 + $2,300,000) / 1.08 = $25,138,888.89

 

Example 3

Gill is the project manager for a software company based in New York. She is managing a project to create a new accounting software package.

During construction, the team realized that mistakes were made while collecting requirements.

The mistake has now been fixed and a risk mitigation plan put in place.

During a review of the project, the PMO has asked for an updated estimate of the total cost of the project.

At the start of the project, the costs of the project were estimated as $200,000 for design, $300,000 for development, $200,000 for quality assurance.

The project has spent $400,000 so far. The value of the work completed is $500,000.

What is the Estimate At Completion?

Answer: The Estimate At Completion is $600,000

 

How did we calculate this?

In this example, the CPI is considered abnormal.

So we will calculate Estimate At Completion using the formula from scenario three:

Estimate At Completion = Actual Cost + (Budget At Completion – Earned Value)

Knowing this we can calculate: $400,000 + ($700,000 – $500,000) = $600,000

 

Example 4

Rajesh is working on a project to create a new inventory management system for a food manufacturer in Sheffield, England.

The CEO has told the shareholders that the new system will be in place in six months, without discussing this first with the PMO.

At the start of the project, the costs of the project were estimated as $150,000 for design, $700,000 for development, $225,000 for quality assurance.

The project has spent $450,000 so far. The value of the work completed is $375,000. The CPI for the project is 0.83 (CPI = $375,000 / $450,000) and the SPI is 0.8.

What is the Estimate At Completion?

Answer: The Estimate At Completion is $1,510,606.06

 

How did we calculate this?

In this example, the project has to meet a deadline.

So we will calculate Estimate At Completion using the formula from scenario three:

Estimate At Completion = Actual Cost + [(Budget At Completion - Earned Value) / (Cost Performance Index X Schedule Performance Index)]
Knowing this we can calculate:

= $450,000 + [($1,075,000 - $375,000) / (0.83 X 0.8)]

= $450,000 + [$700,000 / 0.66]

= $450,000 + $1,060,606.06

= $1,510,606.06

 

That wasn’t too hard to calculate, right?

 

Next in the PMP Exam calculation series is Estimate To Complete (ETC).

 

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