Project forecasting requires refining initial budget estimates to reflect current progress and performance. Calculating the final cost of a project allows stakeholders to anticipate financial outcomes. Estimate at Completion (EAC) is a metric designed to provide a revised forecast of the total budget based on the work completed so far. It offers a dynamic view of the project’s financial health, moving beyond the static initial plan, and helps managers make informed decisions about resource allocation.
The Foundation of EAC: Earned Value Management Concepts
EAC calculations rely upon the principles of the Earned Value Management (EVM) framework. EVM provides an objective method for measuring project performance against the defined scope, schedule, and cost baselines. The framework requires the consistent tracking of four metrics that serve as inputs for EAC calculation:
Planned Value (PV): The budgeted cost for all work scheduled to be completed up to a specific point in time.
Actual Cost (AC): The total money spent for the work that has actually been performed to date.
Earned Value (EV): The budgeted cost of the work physically accomplished, measuring the true value of the work completed.
Budget at Completion (BAC): The total approved budget allocated to the project, representing the original planned total cost.
These metrics are measured against the BAC. By comparing these values, project managers determine performance indexes that will be used to extrapolate current performance into a final cost estimate.
What is Estimate at Completion (EAC)?
Estimate at Completion (EAC) is the projected total cost of a project when all defined scope has been completed. It represents a revised, data-driven forecast of the final budget outcome, accounting for performance trends observed up to the point of calculation. EAC gives management and financial stakeholders a realistic, updated expectation of the total investment required.
EAC combines the actual costs already incurred with a calculated estimate for the remaining work. When performance deviations occur, EAC supersedes the original Budget at Completion (BAC) and becomes the new total cost baseline for financial reporting and control.
The Different Calculation Scenarios for EAC
A project manager must choose from several methods to calculate the EAC, depending on the assumptions made about future performance. The chosen formula reflects the manager’s judgment on whether past cost variances were one-time anomalies or represent a sustained trend.
Scenario 1: Future Work at Budgeted Rate
This scenario assumes that cost variances observed to date are not expected to continue, and all future work will be performed at the original budgeted rate. This calculation adds the Actual Cost (AC) to the remaining budget:
EAC = AC + (BAC – EV)
Scenario 2: Sustained Current Cost Performance
This method is used when the current level of cost performance is expected to continue for the remainder of the project. It projects the total cost based on sustained efficiency levels by dividing the total budget by the Cost Performance Index (CPI):
EAC = BAC / CPI
Scenario 3: Accounting for Cost and Schedule Performance
This complex scenario accounts for both cost and schedule performance, often used for troubled projects where delays and overspending are intertwined. The formula adjusts the remaining budget by applying both the Cost Performance Index (CPI) and the Schedule Performance Index (SPI). Incorporating both indices provides a more conservative forecast:
EAC = AC + [(BAC – EV) / (CPI x SPI)]
Scenario 4: Bottom-Up Re-Estimate
This method is necessary when the original plan is considered entirely invalid, such as after a major scope change or significant disruption. The project manager performs a detailed, bottom-up Estimate to Complete (ETC) for all remaining work. The EAC is then determined by adding the Actual Cost (AC) to this fresh re-estimate:
EAC = AC + ETC. This method is used when a complete financial reset is required.
Applying EAC in Project Forecasting
Once calculated, the EAC figure is used for project control and forecasting. It allows a project manager to identify the expected final financial position of the project. If the EAC exceeds the original Budget at Completion (BAC), it signals a projected cost overrun, requiring corrective action.
Conversely, an EAC lower than the BAC indicates a projected cost underrun, which may allow for reallocating funds to other projects or seeking scope enhancements. The EAC is used to calculate the Variance at Completion (VAC): VAC = BAC – EAC. This quantifies the total expected budget deviation, providing a clear figure for stakeholders regarding the project’s final financial outcome. EAC figures support management decisions related to funding requests, scope adjustments, or resource prioritization necessary to guide the project.
Distinguishing EAC from Estimate to Complete (ETC)
Estimate at Completion (EAC) and Estimate to Complete (ETC) are closely related but describe distinct financial values within the EVM framework. EAC represents the total expected cost of the entire project from start to finish. ETC, however, is a measurement of only the expected cost required to complete the remaining, unfinished work.
ETC is the forward-looking portion of the cost, while EAC is the total sum of the actual costs incurred so far plus the ETC. This relationship means ETC is a component used in the bottom-up EAC calculation. While EAC tells stakeholders the full trip cost, ETC tells the project team how much money is still needed for the rest of the journey.