In this article on Earned Value Reporting we’ll closely look at the concept of Estimate at Completion. What the Estimate at Completion tries to tell us is the forecast value of the project when the project has been completed.
Much of the following was derived from the book “The Project Management Question and Answer Book” by Michael Newell and Marina Grashina.
What is the estimate at completion?
The estimate at completion, frequently shown as the EAC, is the forecast value of the project when the project is complete. It should be noted that the EAC can be calculated in a number of different ways and is only an indicator of what the project’s cost will be at the end of the project.
The estimate at completion is a value that can get project managers in trouble. In its most commonly used form it is the budget at completion divided by the cost performance index.
EAC = BAC / CPI or EAC = (BAC x ACWP) / BCWP
This is a rather pessimistic estimate of the amount of money that will be spent at project completion. It says that the things that have gone wrong in the project until now will continue to go wrong, and we will not learn how to improve them between now and the end of the project. There are many reasons why this is true. There could be bias in our estimates. If the early items in the project were underestimated, it is likely that the later items in the project will be underestimated as well. If there is a chronic problem that has been evident in the early part of the project and the same people and equipment will be used on the later project activities, then the EAC will probably be accurate by this method. On the other hand, if different estimators and team members or different pieces of equipment are being used later in the project, the EAC may not indicate the project’s true estimated cost at the end.
Unfortunately, as we will see, much of the research that has been done in this area indicates that projects that are over budget when they are 25 percent complete are very likely to finish over budget. Not only that, but these projects are likely to finish with a worse cost performance index than they had when they were 25 percent complete.