Estimate at Completion

Definition

Estimate at Completion (EAC) is a forecast of the total cost of a project at its completion, based on current performance and other relevant factors. It allows project managers to assess how much more will be needed to finish the project compared to the original budget. This estimate can help in making informed decisions regarding resource allocation, budgeting, and performance analysis.

5 Must Know Facts For Your Next Test

1. EAC can be calculated using various methods, including the formula EAC = AC + BAC - EV, where AC is Actual Cost, BAC is Budget at Completion, and EV is Earned Value.
2. Different situations may require different approaches to calculating EAC, such as when performance trends indicate changes in future cost estimates.
3. EAC helps project managers identify potential overruns early, allowing for corrective actions to keep projects on track financially.
4. Monitoring EAC regularly throughout the project lifecycle is crucial for effective cost control and decision-making.
5. Understanding EAC enhances communication with stakeholders by providing clear insights into financial forecasts and project health.

Review Questions

• How does Estimate at Completion assist in managing project costs effectively?
  • Estimate at Completion helps in managing project costs by providing a clear forecast of what the total cost will be at the project's end. By calculating EAC based on actual performance and progress, project managers can identify whether they are likely to stay within budget or if they will exceed it. This early detection of potential cost overruns allows for timely corrective actions, ensuring better financial control and decision-making throughout the project.
• Discuss the importance of regularly updating Estimate at Completion during a project's lifecycle.
  • Regularly updating Estimate at Completion is vital because it reflects the most current understanding of project performance and potential future costs. As a project progresses, actual costs and productivity rates change, which can significantly impact overall expenses. By continually reviewing EAC, project managers can make informed adjustments to budgets and resource allocations, ultimately enhancing cost management and improving project outcomes.
• Evaluate the relationship between Estimate at Completion and other project management metrics such as Cost Performance Index and Variance Analysis.
  • Estimate at Completion is closely linked to metrics like Cost Performance Index (CPI) and Variance Analysis. CPI measures cost efficiency by comparing earned value to actual costs, providing insights into how well the project is performing financially. Variance Analysis complements this by identifying discrepancies between planned and actual costs. Together, these metrics inform the calculation of EAC, allowing for a comprehensive view of financial health within a project. This interconnectedness enables project managers to respond effectively to emerging issues and maintain control over costs.

Related terms

Budget at Completion:

The total approved budget for a project, representing the amount allocated for the entire project work.

Cost Performance Index:

A measure of cost efficiency in a project, calculated as the ratio of earned value to actual cost.

Variance Analysis: A technique used to compare planned performance with actual performance to understand variances in project costs and schedules.