Do your stakeholders ask you questions like these?
- Now we’ve approved the budget and the project has started, how much will it really cost?
- We had a big delay last month. What has that done to the budget?
- How much will we have spent on this work by the time this project is finished?
Given that plenty of studies show cost overruns, some finding that 9 out of 10 projects go over budget (averaging 28% overspent), it’s not surprising that project sponsors want to keep a tight grip on costs.
There is a project management formula that will help answer those questions. In this article, I’ll explain what Estimate at Completion is for project managers, how to use it (because there are 4 different ways) and give you examples.
Plus, there is a spreadsheet EAC template in Google Sheets format that you can download.
In this article:
- What is EAC in project management?
- What is the formula for estimate at completion?
- 4 ways to calculate EAC
- What to use EAC for
- How I use EAC
- How to interpret EAC
- How to report EAC
- What is the difference between EAC and ETC?
- Example of Estimate at Completion
- Estimate at completion template
- Your next steps
What is EAC in project management?
Estimate at completion (EAC) in project management tells you how much the project will cost when the work is finished.
It is useful because it predicts the final costs for the project, and what stakeholder doesn’t want to know that?
It’s a project forecasting tool for estimating cost in that it uses a range of inputs including what has already been spent to work out the total expected budget given project performance.
EAC is part of the Earned Value family of metrics and a key component of earned value analysis. Even if you are not using earned value management to track project performance, you can still use EAC because it’s a good way of making sure your project sponsor is on board with the costs if/when they change.
Alone, EAC is a simple concept and a handy forecasting technique, but together with a range of other EV measures it becomes part of a powerful way of managing expected costs and project performance.
PMI’s Standard for Earned Value is a good starting point for practitioners wanting to learn more about this way of monitoring and controlling project performance.
What is the formula for estimate at completion?
There are 4 formulae for calculating EAC so it’s important to understand the context so you choose the right one for the situation.
The good news is that they all make logical sense given the situation, so if you apply a bit of common sense thinking you will be able to choose the right one.
Note: While we talk about ‘estimate’ it is important that you are a bit further on with forecasting than a rough order of magnitude estimate – you’re going to need pretty accurate figures at this point to make the calculations meaningful.
4 ways to calculate EAC
Here are the 4 different methods of calculating EAC.
1. Project is going to plan
Use this formula:
EAC = BAC/CPI
(Estimate at Completion equals Budget at Completion divided by Cost Performance Index)
This way of calculating EAC uses CPI which is a reflection of how the project is tracking against the forecasted budget.
Use when: Work are going to plan and the project is likely to continue in the same vein, without too much deviation from the original estimates.
Tip: If you don’t think CPI will stay the same in the near future (because you know of some big issue, cost or delay that is coming) then choose one of the other methods of calculating EAC instead.
2. Project has struggled but is now on track
Use this formula:
EAC = (BAC – EV) + AC
(Estimate at Completion equals Budget at Completion minus Earned Value, added to Actual Cost)
Use when: The project faced some delays or performance issues but they were one-off issues. Now, you are confident that the rest of the project will continue as planned. You are not expecting any further delays or cost overruns (as far as reasonable – I know you can’t predict the future with certainty on projects!)
This method accounts for the past performance issues and schedule variance because it uses Actual Cost (AC) and allows you to use existing estimates for the remaining work.
3. Project needs new estimates
Use this formula:
EAC = AC + ETC
(Estimate at Completion equals Actual Cost plus Estimate to Complete)
Use when: You can’t rely on your original estimates, for example, if they have been proven wrong, assumptions were not true or vendors have provided updated costs if scope has changed, for example.
This EAC calculation uses your new ETC figures, so it takes what you have already committed to spend and ignores past estimates. It’s helpful to use this one when your current position is substantively different from where your cost and schedule numbers were in the past.
Tip: This method relies on your ETC numbers being up-to-date! It’s no use having old estimates in the ETC calculation because that doesn’t reflect your true position. Get your new estimate sorted out before you try to do this.
Bonus tip: This is the only one of the EAC formulas that doesn’t bring in project performance in some way – it doesn’t include SPI, CPI or EV so it is very basic. If you need to use this, go ahead, but consider it a one-off and start tracking in other ways too.
4. Project is expecting future performance issues
Use this formula:
EAC = (BAC-EV)/(SPI*CPI) + AC
(Estimate at Completion equals Budget at Completion minus Earned Value divided by Schedule Performance Index multiplied by Cost Performance Index, and added to Actual Cost)
Use when: You think there will be some schedule difference in the future. For example, when tasks are forecast to take longer than expected: this also have an impact on costs if you charge for resource time.
Generally, this is the one to use when your project is running late and already overbudget (or at risk of going over budget). Equally, if your project is flying ahead of plan with an amazing run rate, and coming in under budget, then you should also use this one (and pat yourself on the back!).
Tip: You’ll need to know your SPI and CPI for this one, so work out the planned value (PV) before you get started.
As the maths on this one is quite involved, it’s a better option to choose as part of an integrated earned value management system. You probably won’t be expected to use it without having the back up of decent spreadsheets (I have a basic template I share below, so scroll down for that) and the software to underpin the calculations.
Note: You’ll see this formula with the AC written first. However, I choose to write it this way because it’s the BAC-EV that is divided by the SPI*CPI and then that result is added to the AC. I find it easier to understand because writing it like this:
EAC = AC + (BAC-EV)/SPI*CPI
Makes me wonder whether it’s AC + (BAC-EV) that is divided by SPI*CPI.
Alternatively, you’ll see it with square brackets to make that point clearer:
EAC = AC + [(BAC-EV)/SPI*CPI]
Either way, remember to work out the rest of the formula first, then add that result to the Actual Cost.
What to use EAC for
Which parts of the project do you use EAC for? Well, you can do what I’ve talked about above and apply EAC to the whole project. Or you can use it at work package level, or for specific tasks.
It depends on what you want to do with the numbers and how granular you want to go.
How I use EAC
I do not have a full-scale EV system, so I take the simple view of EAC on my projects. I use the sum of actual cost plus forecast to complete (which is option 3 above).
I use this even if we don’t have rubbish estimates, because it requires the least math on my part and does the job. And also because our budget is fixed in stone so unlikely to change.
I do not work in construction, engineering or oil and gas where this attitude would perhaps be career-limiting, but I’m happy to share my real-life experience of using EAC! It’s just one cell on a spreadsheet and a box on a slide for reporting purposes.
Don’t get hung up on it!
How to interpret EAC
The result of the EAC formulas is a cost estimation represented as an amount of money. The monetary amount reflects the latest expected cost at project completion, taking into account past performance of the project and where you are now.
How to report EAC
EAC is a component of earned value management so if you have EV reports being produced for your project management software, then you have no worries: you’ll have the data calculated for your from your plans.
If you don’t have an earned value management system, you can still use EAC. I get that SPI and CPI are difficult to work out manually, but the other two EAC formulas don’t use performance indices, so you should be good to work those out by hand.
An Excel spreadsheet will give you the answers.
Either way, report EAC monthly or to your normal project management reporting cadence, so you can spot trends and identify issues before they become too significant. Any significant variances should be reported to the program manager or up the chain as appropriate.
What is the difference between EAC and ETC?
Are you wondering when to use EAC vs ETC?
It depends on what you are trying to work out.
EAC is estimate AT completion which represents the entire budget and all costs for the project.
ETC is estimate TO complete which represents how much money still needs to be spent.
So if someone is asking you what’s the remaining amount that the project will be spending, use ETC. If someone wants to know what the likely full cost of the project will be, use EAC.
Example of Estimate at Completion
Here’s an example of how to use EAC.
Let’s say you need to report the total forecasted cost of the project. The project has been performing relatively well, but there was an overspend. As the project manager, you choose to use this formula because it is the one that best fits your needs:
EAC = (BAC – EV) + AC
Your project is to resurface the car park outside your office. The initial estimates for the work came in at £10,000 and that amount has been put aside for the work in this year’s capex plan.
You meet with the project team at the halfway point to find out how things are going. By now, the team should have completed half the work, and they have. Go team!
However, there has been a bit of overspend due to a contractor having to work overnight unexpectedly to finish off some tasks that couldn’t be done while the car park was in use. That’s cost an extra £500.
Therefore we have:
BAC is £10,000
AC is £5,500 at the 50% complete point.
EAC = (10,000 – 5,000) + 5,500
That makes EAC £10,500.
This is a simple example but it gives you an idea of how it works. When you factor in changes in material costs, resource requirements, unplanned costs due to risk and the general dynamic situation of a project, you can see how the sums can change quite a lot over time.
Estimate at completion template
Now you know the formula, it’s pretty easy to do the calculations in an Excel spreadsheet or in Google Sheets. Set up an Excel template and then drop the numbers in.
It is far easier to rely on earned value management systems and their reporting if you are capturing this kind of data regularly, but if you don’t have those, then I have created an estimate at completion template spreadsheet for you in Google Sheets.
The Google Sheets spreadsheet is an EAC calculator that you can use to work out the EAC for each of the above formula. You do need to know your numbers. Drop your budget figures and estimates into the spreadsheet template, and the calculations will populate your EAC numbers.
Honestly, this is such a simple template that you would be better off making a copy and then including the calculations in your own budget tracking spreadsheet.
This is what it looks like:
You can download the Estimate at Completion template by going into Google Sheets. Click File/Make a copy and you can grab it for your own records.
If you have any feedback on the template, let me know!
Your next steps
- Review the EAC template spreadsheet and take a copy if you find it helpful
- Work out your project performance numbers from your project schedule and budget tracker (get a budget tracking template here)
- Choose an EAC calculation that best fits your needs
- Report your EAC as part of your normal project management reporting
- Check out how to be an estimating superhero!