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The Budget at Completion (BAC) is how much the project is supposed to cost when finished. However, during the project it may become clear that the project will not end up costing what it is supposed to cost. The Estimate at Completion (EAC) replaces the BAC for the amount that the project is now believed to cost when it is completed. Calculating EACs are part of the tool and technique of forecasting outlined in the fourth edition PMBOK®’s Control Costs process.

One method of calculating EAC takes into consideration both the Cost Performance Index (CPI) and Schedule Performance Index (SPI). The assumptions for this formula are that the project is going poorly—the cost performance has been poor and that there is a deadline that cannot be moved. The formula is EAC = AC + ([BAC – EV] / [cumulative CPI * cumulative SPI]). Note that one may use discretion to weight the CPI and SPI. If perhaps the CPI is three times more important than the SPI for a certain project, they can be weighted at 75/25. So what has been actually spent thus far (AC) is added to the result of the total budget (BAC) with the worth of the work (EV) subtracted from it which is then divided by the product of how closely on-budget the project is (CPI) and how closely on-schedule the budget is (SPI).

For example, Carl and his siblings are working on restoring a car. The BAC is $500, but now they suspect that this project will cost more than $500. So far they have spent $450. Of all the work that the car needs done, they believe that they have 80% of it completed at this point. They expected to work 5 months on this project and spend $100 each month for the total BAC of $500. They just completed the third month of working on the car.

We already know AC and BAC, but we need to quickly calculate the Earned Value (EV) so that we can use it to calculate CPI and SPI; and we also need to calculate Planned Value (PV) for use in calculating SPI. The work is 80% complete, and 80% of the BAC (which is $500) is $400, so the EV, the value of the work completed, is $400. They planned to spend $100 per month and they have just completed the third month, so the PV is $100 x 3, which is $300. CPI is calculated by EV/ AC = $400/$450 = 0.89. SPI is calculated by EV/PV = $400/$300 = 1.33.     

Now we have all the terms we need to put into the formula. EAC = AC + ([BAC – EV] / [cumulative CPI * cumulative SPI]) = $450 + ([$500 – $400] / [.89 * 1.33]) = $450 + ($100/1.18) = $450 + 84.75 = $534.75. So now the car restoration project is expected to cost $534.75, which is $34.75 more than originally planned.

Also see the earlier postings of: Earned Value Management – Step 1 (February 26, 2009), Earned Value Management AC and BAC – Step 2 (March 2, 2009), Earned Value Management – Planned Value – Step 3 (posted March 11, 2009), Earned Value Management – CV and SV (posted August 19, 2009), Earned Value Management – CPI and SPI (posted August 20, 2009), Estimate at Completion – Bottom-Up Method (posted August 21, 2009), Estimate at Completion – Budgeted Rate Method (posted August 24, 2009), and Estimate at Completion – Present CPI Method (posted August 25, 2009).

The Budget at Completion (BAC) is how much the project is supposed to cost when finished. However, during the project it may become clear that the project will not end up costing what it is supposed to cost. The Estimate at Completion (EAC) replaces the BAC for the amount that the project is now believed to cost when it is completed. Calculating EACs are part of the tool and technique of forecasting outlined in the fourth edition PMBOK®’s Control Costs process.

One of the many EAC formulas is the budgeted rate method. The formula is EAC = AC + BAC – EV. So the Actual Cost (AC), which is how much money was actually spent at this point, is added to the Budget At Completion (BAC), which is the original estimate of the cost of the project, and then Earned Value (EV), which is the worth of the work completed so far, is subtracted from this sum. This formula makes the assumption that the remaining future project work will be completed at the original budgeted rate. Note that if the project is already falling behind, this may not be a safe assumption to make.

 For example, Carl and his siblings are working on restoring a car. The BAC is $500, but now they suspect that this project will cost more than $500. So far they have spent $450. Of all the work that the car needs done, they believe that they have 80% of it completed at this point. EAC = AC + BAC – EV. We were given AC and BAC, but we need to quickly calculate the EV. The work is 80% complete, and 80% of the BAC (which is $500) is $400, so the EV, the value of the work completed, is $400. Now we can place the numbers into the formula = EAC = AC + BAC – EV = $450 + $500 – $400 = $550. So the EAC using the budgeted rate is $550.

 Also see the earlier postings of: Earned Value Management – Step 1 (February 26, 2009), Earned Value Management AC and BAC – Step 2 (March 2, 2009), Earned Value Management – Planned Value – Step 3 (posted March 11, 2009), Earned Value Management – CV and SV (posted August 19, 2009), Earned Value Management – CPI and SPI (posted August 20, 2009), and Estimate at Completion – Bottom-Up Method (posted August 21, 2009).

The Budget at Completion (BAC) is how much the project is supposed to cost when finished. However, during the project it may become clear that the project will not end up costing what it is supposed to cost. The Estimate at Completion (EAC) replaces the BAC for the amount that the project is now believed to cost when it is completed. Calculating EACs are part of the tool and technique of forecasting outlined in the fourth edition PMBOK®’s Control Costs process.

There are many ways to calculate EAC. The bottom-up method of calculating the EAC is a simple concept. This simply adds the Actual Cost (AC), which is how much money was actually spent at this point, to the bottom-up ETC. The bottom-up ETC is the sum of how much all the remaining estimated costs will be. This may be provided by different people working on the project.

For example, Carl and his siblings are working on restoring a car. The BAC is $500, but now it’s obvious that this project will cost more than $500. So far they have spent $450. Carl’s older brother says they will need $1000 more for some engine work, Carl’s younger brother needs $200 more for some interior work, and Carl’s sister says she will need $400 more for the paint job. To calculate the EAC, add the AC to the bottom –up ETC. So, EAC = AC + bottom-up ETC. = $450 + ($1000 + $200 + $400) = $2050.

Also see the earlier postings of: Earned Value Management – Step 1 (February 26, 2009), Earned Value Management AC and BAC – Step 2 (March 2, 2009), Earned Value Management – Planned Value – Step 3 (posted March 11, 2009), Earned Value Management – CV and SV (posted August 19, 2009), and Earned Value Management – CPI and SPI (posted August 20, 2009).