How to calculate Estimated at Completion (EAC) in Project management
The project manager’s manual EAC can be quickly compared with a range of calculated EACs representing various risk scenarios. While EVM data can quickly provide many statistical EACs, only three of the more common methods are described.
The three most common methods include:
- EAC forecast for ETC work performed at the budgeted rate.
- EAC forecast for ETC work performed at the present CPI.
- EAC forecast for ETC work considering both SPI and CPI factors.
Each of these approaches can be correct for any given project and will provide the project management team with an early warning signal if the EAC forecasts are not within acceptable tolerances.
Select and use cost-analysis methods and tools to identify cost variations and evaluate alternative actions
Cost budgeting involves aggregating the estimated costs of individual schedule activities or work packages to establish a total cost baseline for measuring project performance. Cost budgeting is the process of assigning a cost to an individual work package. The goal of this process is to assign costs to the work in the project so it can be measured for performance. This is the creation of the cost baseline. Learn all about Project Management Principles By study a nationally recognised and accredited project management course - learn more by going to this website.
Creating the cost baseline:
Cost budgeting and cost estimates go hand in hand; however, estimating should be completed before a budget is requested or assigned. Cost budgeting applies the cost estimates over time. This results in a time-phased estimate for cost, allowing an organisation to predict cash flow needs. The difference between cost estimates and cost budgeting is that cost estimates show costs by category, whereas a cost budget shows costs across time.
There are many inputs required to complete the cost budgeting process, including the project scope statement. Other inputs include activity cost estimates, basis of estimates, scope baseline, project schedule, resource calendars, contracts, WBS and organisational assets.
The scope baseline is made up of the scope statement, WBS and WBS dictionary. The scope statement provides the formal limitations by period for the expenditure of project funds which can be mandated by the organisation, by contract or by other entities, such as government agencies. These funding constraints are reflected in the project scope statement.
The WBS provides the relationship among all the components of the project and the project deliverables, as well as the cost estimates for each schedule activity within a work package as they are aggregated to obtain a cost estimate for each work package.
The WBS dictionary and related detailed statements of work provide an identification of the deliverables and a description of the work in each WBS component required to produce each deliverable.
The amount and type of additional details supporting the schedule activity cost estimate vary by application area. Regardless of the level of detail, the supporting documentation should provide a clear, professional and complete picture by which the cost estimate was derived.
Supporting detail for cost estimates should be specified. Any basic assumptions dealing with the inclusion or exclusion of indirect costs in the project budget are specified in the basis of estimates.
Supporting detail for the activity cost estimates should include:
- description of the schedule activity’s project scope of work
- documentation of the basis for the estimate (for example, how it was developed)
- documentation of any assumptions made
- documentation of any constraints
- indication of the range of possible estimates (for example, $10,000 (–10% to +15%) to indicate that the item is expected to cost between $9,000 and $11,500)
Consideration needs to be given to the project schedule as it includes planned start and finish dates for the project’s schedule activities, schedule milestones, work packages, planning packages and control accounts. This information is used to aggregate costs to the calendar periods when the costs are planned to be incurred.
A composite resource calendar for the project is a good idea to use as it documents working days and non-working days that determine those dates in which a specific resource, whether a person or material, can be active or idle, including the quantity of that resource which is available. Resource calendars provide information on which resources are assigned to the project and when they are assigned. This information can be used to indicate resource costs over the duration of the project.
Contract information is related to what products, services or results have been purchased and their costs are used in developing the budget. Obtain a copy of the cost management plan, a component of the project management plan and other subsidiary plans which need to be considered during cost budgeting.
The organisational process assets that influence the budget process include any existing formal and informal cost budgeting-related policies, procedures and guidelines, cost budgeting tools and reporting methods.