Are you confused which EAC (Estimate at Completion) formula should you use in which situation?
Once you understand the logic behind each formula, you will no longer need to memorize the formulas.
Formula 1 –
EAC = BAC/ CPIc
This is the most commonly used formula if no other information is available. It assumes the present cost variance to continue for the remaining project. This cost variance could have been due to inaccurate estimation, changes in the external environment or prices, etc. and will remain going forward.
This is also referred to as a typical case.
Interpretation of the formula is very simple. Let’s assume CPI (cumulative) at 50% completion is 0.8. This basically means, our EV is 0.8 times AC, or we are only getting $0.8 worth of work completed from every $1 spent. If we continue getting the same worth (same CPI), the Estimate at Completion will be 25% more (1/0.8%).
Formula 2 –
EAC = AC + BAC – EV
This formula is used when the assumption is that the present cost variance was only a one-time event and our budgeted cost will be applicable for the remaining project. A one-time cost variance could be due to unexpected delays in shipment and no further shipments are required, or an unexpected event (a major flood or fire) caused the closure of the office building for a week, etc.
This is also referred to as an atypical case.
Again, the interpretation is very simple. Our EAC is simply the sum of costs incurred so far (AC) and the budgeted cost of the remaining work (BAC-EV).
Formula 3 –
EAC = AC + [(BAC-EV)/ (CPIc*SPIc)]
This formula is used when not only the expected cost variance is typical (similar to Formula 1), but also there is no flexibility on the schedule, i.e. schedule cannot be compromised and the project has to finish as planned, e.g. a conference which has to begin on the advertised date, no questions asked.
As we can see, we estimate the cost at completion by adding the costs incurred so far (AC) and modifying the remaining budgeted cost (from Formula 2) to account for CPI and SPI.
Formula 4 –
EAC = AC + new ETC
This formula is considered the most accurate and no surprise, the most time consuming. We will typically use this formula when are estimates or assumptions are no longer relevant or while using a rolling wave planning.
The interpretation is straightforward, estimate at completion is simply actual costs incurred to date (AC) plus a new estimate of the remaining work.