Different ways to calculate the EAC (Estimate at Completion)
PMBOK states overwhelmingly how to get EAC (Estimate at completion) in different situations. I can tell this from my personal experience that you may get confused in the PMP examination in calculating EAC for your project. You have to clear your doubts on EAC to get a success in the exam. Your concept should be very clear and you should be ready to accept the situational questions on EAC. The PMP assess your ability to understand the concept of EAC and also the correct application of EAC in your project. It is not so difficult to achieve good scores on the EAC based calculations; you need to understand the different ways of calculating EAC. Make it a habit; it is very easy if you know the usage of formula as per needs.
First of all, you should know what is the meaning of EAC? EAC stands for Estimate at completion – As of now, how much do we expect the total project will cost? Let me explain with complete definitions. There are four general categories for EAC calculation.
They are as follows:
1) EAC = AC + Bottom-up ETC
This formula is used when original estimation is fundamentally crooked. It calculates actual plus new estimate for the remaining work. 2) EAC =BAC/Cumulative CPI
This formula is used when original estimation is met without any deviation. It signifies that your project is going on good. You are maintaining the CPI and SPI as 1 and you have to continue the project in the same way. It is always good for a project manager if he or she is maintaining the CPI and SPI as 1 or even more than 1.
3) /em> EAC = AC + (BAC - EV)
This formula is used when the current deviation with the original estimation thought to be different in the future. It is generally AC plus remaining value of the work to perform.
4) EAC = AC + [BAC - EV / (Cumulative CPI x Cumulative SPI)]
This formula is used to calculate actual to date plus the remaining budget changed based on the performance. It is simply used when we think that the current ratio is typical as planned. We have to meet the schedule as decided earlier and we calculate the EAC accordingly to meet that schedule.
Abraham is the project manager for an ITES project. Suddenly, there is some scope change request from the end customer and the higher management asked project manager to give the new estimate of the total cost of the project with this new implemented scope on the project. The project has already incurred an amount of $250000 and has a CPI of 1.08. Project manager after discussing with the team and all the stakeholders decided on some future investments like admin cost as $60000, quality control cost as $25000, and miscellaneous cost as $11000. What is the estimate at completion in this case?
How do you calculate this?
In this example, the original estimates are poor because they are based on a flawed approach. Therefore, you can calculate Estimate at Completion using the formula from condition 1 here: Estimate at Completion = Actual Cost + Bottom-up Estimate to Complete By using the above-mentioned formula, you can calculate: $250,000 + ($60,000 + $25,000 + $11,000) = $346,000
Priya is the project manager for a KPO organization. She is managing a large and complex project. In the mid-way of the project ongoing; the higher management asked her for an updated estimate of the total cost of the project. At the beginning of the project, the costs of the project were estimated at $150000 for development, $170000 for design costs, and $120000 for quality control. The Cost Performance Index of the project is 1.04. What is the Estimate at Completion at this stage?
How do you calculate?
In this example, the CPI is not considered abnormal. Hence the formula using CPI (condition 2) will be in use:
Estimate at Completion = Budget at Completion / Cost Performance Index
By using the above-mentioned formula, you can calculate: ($150000 + $170000 + $120000) / 1.04 = $423076.923
Ram is the project manager for a software company. He is working on a project to develop some software for the customer. During execution, the project manager realized that mistakes were made while collecting the project requirements. You have fixed the mistakes and you have placed a mitigation plan in a place. At the start of the project, the costs of the project were estimated as $200,000 for design, $300,000 for development, and $200,000 for quality control. The project has spent $400,000 so far. The value of the work completed is $500,000. What is the Estimate at Completion?
How do you calculate?
In this example, the CPI is considered abnormal. So you can calculate Estimate at Completion using the formula from condition 3:
Estimate at Completion = Actual Cost + (Budget at Completion – Earned Value)
By using the above-mentioned formula: $400,000 + ($700,000 – $500,000) = $600,000
Prem is working on a project. 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, and $225,000 for quality assurance. The project has spent $450,000 so far. The CPI for the project is 0.9 and the SPI is 0.8. The value of the work completed is $375,000. What is the Estimate at Completion?
How do you calculate?
In this example, the CPI is considered abnormal. So you can calculate Estimate at Completion using the formula from condition 4:
Estimate at Completion = Actual Cost + [(Budget at Completion - Earned Value) / (Cost Performance Index X Schedule Performance Index)]
By using the above-mentioned formula: = $450,000 + [($1,075,000 - $375,000) / (0.9 X 0.8)] = $450,000 + [$700,000 / 0.72] = $450,000 + $972,222.23 = $1,422,222.23
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