In project management, successful delivery relies on cost control and clear financial targets established during the planning phase. Budget at Completion (BAC) represents a core financial metric used to manage project finances. This figure is established early in the planning phase as the baseline for the total planned cost of a project. BAC sets the financial scope against which all future performance and spending will be measured, anchoring the project’s financial expectations from start to finish.
Defining Budget at Completion (BAC)
Budget at Completion (BAC) represents the entire budget allocated for all authorized work within a project. It is calculated by aggregating the budgets of every work component defined in the project’s scope and schedule. This includes detailed budgets for work packages, higher-level financial allocations known as control accounts, and financial reserves for less-defined work called planning packages.
BAC is the official, approved financial limit for executing the project’s scope, serving as the Total Cost Baseline. This ensures all stakeholders agree on the maximum planned expenditure before work commences. Once established, this baseline remains constant unless a formal change control process is executed to alter the project scope or budget. This rigidity ensures that any deviation from the original financial plan is formally documented and approved.
The Role of BAC in Earned Value Management (EVM)
BAC is integrated into Earned Value Management (EVM), which provides an objective way to measure project progress. EVM connects the financial plan, the actual work performed, and the money spent to determine the project’s health. Within this framework, BAC represents the total value that can be financially accounted for over the life of the project.
This concept links closely to Planned Value (PV), which defines the budgeted cost for work scheduled to be completed by a specific date. PV is the time-phased distribution of the total BAC across the project timeline. As the project progresses, completed work is quantified using Earned Value (EV), which is the budgeted cost for the work physically accomplished.
BAC provides the ultimate target for both PV and EV, as all Planned Value cumulative totals must ultimately equal the BAC. The total Earned Value at project completion should also equal the Budget at Completion. This interrelation allows project managers to continuously compare the planned financial trajectory (PV) against the actual value delivered (EV). EVM uses these three inputs—BAC, PV, and EV—to translate technical project performance into quantifiable financial terms.
Measuring Project Performance Using BAC
BAC acts as the financial standard for measuring current performance deviations through variance analysis. The most direct application involves calculating the Cost Variance (CV), which reveals whether the work performed (Earned Value) cost more or less than expected. CV is the difference between the Earned Value (EV) and the Actual Cost (AC) incurred to achieve that work.
If the CV calculation results in a negative figure, it signifies a cost overrun, meaning the project is spending more than budgeted for the completed work. A positive CV indicates a cost underrun, signaling greater efficiency in spending relative to the accomplished work. Managers monitor these variances closely, knowing that every negative deviation chips away at the overall financial buffer implicit in the total BAC.
Schedule Variance (SV) compares the Earned Value (EV) to the Planned Value (PV), which is the scheduled portion of the total BAC. A positive SV means the project is ahead of schedule because more value has been earned than planned for that time period. Conversely, a negative SV indicates a schedule delay. By continuously comparing these performance metrics against the original BAC, project managers gain immediate insight into the current financial and schedule health, enabling timely corrective actions.
Forecasting the Final Project Cost
The Budget at Completion serves a forward-looking function by acting as the anchor for financial projections to project completion. This forecasting is encapsulated in the metric known as the Estimate at Completion (EAC), which is the calculated prediction of the total cost the project will ultimately incur. The EAC uses the original BAC as a starting point and adjusts it based on the current performance trends observed.
Different formulas for calculating EAC exist, each making a distinct assumption about future performance. For instance, if the current cost performance is deemed atypical and unlikely to continue, the forecast might assume that all remaining work will be completed at the original budgeted rate. Alternatively, if the cost performance to date is seen as a stable, repeatable trend, the formula will extrapolate the current performance index to the remaining work.
Once the Estimate at Completion has been calculated, the Variance at Completion (VAC) can be determined by subtracting the EAC from the original BAC. VAC represents the projected final cost overrun or underrun relative to the initial budget. A negative VAC indicates that the project is now expected to finish over the original BAC, while a positive VAC suggests the project will finish under budget. Comparing the original BAC to the evolving EAC allows managers to proactively communicate potential budget issues and adjust resource allocation long before the project is finished.