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What is Estimate at Completion?

StarAgilecalenderOctober 21, 2022book15 minseyes2119

The estimate at completion (EAC) plays a critical role in project management as it predicts the project budget during the project's progress. It is very important for project managers to work on EAC regularly for the efficient delivery of projects. 

EAC is an important part of their curriculum for professionals undergoing PMP certification. The institutes providing PMP training should ensure that all the content pertaining to EAC is covered with abundant case studies and examples for a better understanding. The Project Management Body of Knowledge (PBMOK) Guide teaches the different ways to calculate EAC during the course of PMP training. The PMP certification exam tests the candidates' EAC skills and other project management concepts.

In this article, the professionals will learn about EAC's importance in project management.

What is EAC?

Before diving deep into the details of EAC, let's understand what is EAC and its importance in project management. EAC helps the project manager provide a budget estimate for the project that would be used to complete it successfully. Different factors determine the EAC of a project. 

EAC involves unexpected expenditures during the execution of the project and realizes that initial budget forecasts won't be accurate in the long run. The EAC is also known as the project forecasting tool.

Importance of EAC

The EAC plays a crucial role in any successful project delivery. Even a detailed initial forecasted budget may sometimes be wrong. There may be some changes, unforeseen situations, and extra costs may get added to the project. 

So, using EAC is very important to track the extra expenses. PMP training equips the professionals with the skill of using EAC efficiently so that the project managers can easily track expenses and use the budget smartly to deliver the project on time and provide good profits to the organization.

 

Formula for EAC

After understanding what is EAC, it is important to understand the formula to determine EAC. There are several factors involved in determining the formula of EAC. 

Budget at Completion (BAC) - BAC signifies the amount of budget required to complete a project successfully. The BAC is the total of all expenses in a particular budget.

Cost Performance Index (CPI) - CPI indicates the amount of money spent on all aspects of the project.

Schedule Performance Index (SPI) - SPI reflects the amount of time utilized in project management.

Estimate to Complete (ETC) - ETC indicates the extra budget used for successful project completion.

There are four kinds of EAC formulas based on different factors. 

EAC = Actual Cost + Bottom-up ETC

This formula should be used when the initial estimation has fundamental errors. This formula calculates the actual cost and the remaining work estimate.

EAC = BAC/Cumulative CPI

This formula should be used when the initial estimation is correct and has no extra expenses. This indicates the project is well under control. The CPI and SPI should always be one or more than one.

EAC = Actual Cost + (BAC - Earned Value)

This formula should be used when the initial projection and the current expenses are considered to be different in the future. 

EAC = Actual Cost + [BAC - Earned Value/ (Cumulative CPI x Cumulative SPI)]

This formula should be used when the initial estimation and the remaining budget change, based on the performance of the budget.

These formulas are explained during PMP certification training with examples and case studies for a detailed understanding.

 

What is restricting companies from using EAC?

Even though EAC has several advantages and companies are aware of EAC, many are still not using it. Many companies do not have the adequate tools and skill sets to implement EAC, leading to an increase in the actual cost compared to the allotted budget. 

Calculating EAC is tedious as data from multiple sheets are collected in a spreadsheet. So, many companies do not spend their time and energy calculating EAC or do it so irregularly that there is no relevance to the project. It just acts as a monthly report. So, companies should hire project managers with PMP certification to implement EAC successfully in projects.

How does EAC help the project manager?

After knowing what is EAC, it is very crucial for project managers to stay updated with the budget and the expenses so that the project is delivered on time. If the project manager keeps their EAC dashboard updated, working on the extra expenses and managing the budget would not be difficult.

Using different filters, the project manager can understand the required information per their requirements. EAC provides all the budgetary information about the project in a single dashboard. 

Therefore, PMP training is very important for project managers to understand what is EAC, its importance in project management, and the skills to use it efficiently. PMP certification provides all the tools and skillsets to work on EAC.

 

Conclusion

EAC has been a key driver in successful project management, with different formulas to calculate the cost incurred in different situations. It helps project managers to analyze budgets and the extra expense incurred while executing the project and act accordingly. Despite so many benefits, many companies avoid EAC because of its complicated operations. This proves to be a costly mistake for the companies.

So, every company should hire project managers with PMP certification to implement EAC properly. PMP training takes on a journey from what is EAC to using EAC resourcefully in projects. The project manager can learn the effective usage of EAC through PMP training from certified institutes like StarAgile. With proper PMP certification from StarAgile, people can equip themselves with the technical knowledge of EAC and help their organization deliver projects timely and efficiently. 

 

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