Estimate at completion (EAC) and its use in project tracking

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The beginning of a project is always surrounded by expectations, and many ideas seem perfect when they’re still on paper. Planning every detail, setting goals, and working diligently is often the way to reach the pot of gold at the end of the rainbow. But to get there, it’s also necess

The good news is that there’s a powerful metric to guide stakeholders down this path of numbers and changes. EAC, short for Estimate at Completion, is a formula used to calculate the total cost of a project that’s faced with uncertainty. Its application is essential for understanding the impacts of unforeseen events on the future costs of a project, helping to mitigate losses and reallocate resources. In this article, we’ll explain how this formula works and how to apply it in your projects. We’ll also show you how tools can help you calculate EAC in real-time, enabling confident decision-making about the future of the project.

What is EAC?

Estimate at Completion is the current expectation of the total costs of a project once completed. The calculation is the sum of the amount invested at the time of measurement and the costs necessary to complete the work. When unforeseen events crop up, such as delays or unplanned expenses, managers use an EAC to reassess the total costs required to complete the project. In this context, an EAC helps stakeholders measure the impacts of changes more accurately and better manage available resources.

Since it reflects the expectation of the final cost of a project that’s still in progress, running EACs periodically is a smart move.

A fundamental observation needs to be made: don’t confuse Estimate at Completion with Estimate to Completion, short for ETC. While the former is a calculation of accrued and expected costs, the latter only refers to the expected costs to complete the project. With that said, it’s important to be aware of the relationship between an EAC and a BAC, otherwise known as Budget at Completion.

“Estimate at completion” is a part of our Project Management Glossary — check out the full list of terms and definitions!

EAC vs. Budget at Completion (BAC)

Both EAC and BAC are cost calculations, though for different project periods. While EAC deals with the final cost forecast of a project that’s already underway, BAC deals with the cost that was authorized at the beginning of the project — the original budget. In practice, the EAC evolves, as it takes unforeseen circumstances and financial variations into account and is calculated at various moments throughout the project life cycle. BAC, on the other hand, is static, used as a parameter to define the earned value, or EV, of the project.

An example: a team calculates $100,000 as the BAC for a 1-year project. After 3 months, scheduling delays impact the project and the team needs more resources to complete everything on time. With the added costs, a new budget is made and the project cost estimate is $160,000. In this case, it’ll be necessary to spend $60,000 more than initially anticipated, making the EAC larger than the BAC. Keep in mind, in this example, there are still 9 months to complete the project and other unforeseen events may occur, necessitating a new EAC. In such cases, the project manager’s challenge is to mitigate the impact of actionable expenses, reallocate resources, and increase the team’s performance.

EAC and tracking a project’s performance

So far, we have seen how EAC is necessary to realistically guide a project through uncertain scenarios. If you want the best chance of success in the face of uncertainty, EAC is an excellent tool for monitoring project performance. Because EAC is a calculation that forecasts the final cost based on the information available at the time, it’s not enough to use it reactively. You should also use EAC proactively.

When you periodically estimate project costs with EAC and compare the results over time, you can track project costs much more accurately.

Another strategy is to analyze the EAC together with other important KPIs, such as the BAC — mentioned before — and the CPI, short for the Cost Performance Index. The CPI calculates the difference between the EV and the actual cost, or AC, at the present moment. The CPI, which should also be calculated regularly, shows how efficiently the budget is being spent. By tracking these metrics, stakeholders know how well teams are performing and can reallocate resources to the tasks and activities that need them at that moment. These methods and calculations also help identify potential roadblocks that can seriously impact project success, which are only a few of their many benefits.

Benefits of an evolving EAC model

There’s no single method of calculating the Estimate at Completion. But for a reliable result, it’s important to use the formula most compatible with your finances. At the same time, you may need to refine your calculations during the project life cycle, which is referred to as an “evolving EAC model.” Agility in the way you calculate EAC has several benefits:

  • Helps ensure earned value: Calculating the EAC along with other indicators enables the development of new strategies that offset and prevent the accumulation of negative impacts on the EV of the project.
  • Identify waste: Calculating EAC regularly helps detect areas of overspending, which can impact project progress.
  • Better allocate resources: An adaptive EAC model helps stakeholders better understand priorities and identify opportunities for resource allocation whether they be adjusting budgets across teams or making changes to the team structures.

To better understand the benefits involved, let’s explore how an EAC calculation can help a project deal with unexpected expenses.

Using EAC to adapt a project when new expenses arise

Imagine that you’re working at a medium-sized civil engineering company and you’re managing a new venture. The initial timetable forecasts a year of work divided into four quarters. The Budget at Completion is $700,000, including all resource and material costs. The project plan indicates that $400,000 of the budget will be spent during the first quarter with the remaining $300,000 divided evenly over the last three quarters. With high investment power during the first stage, the team starts with a bang. But after a month of progress, a governmental agency hits the company with a fine due to a regulatory oversight related to the project and suspends work for four weeks. In this new reality, the EAC calculation needs to consider these variables:

  • How much of the budget was spent so far
  • A new timeline accounting for the interruption
  • Any additional costs required to complete the first stage
  • The costs of the fine
  • The cost required to complete the next stages given the changes
  • Any other loss of resources due to work interruption, such as employees leaving the company

This example illustrates the importance of the BAC since the overall objective is to keep the EAC lower than the BAC. Therefore, it’s critical to set aside a portion of your project’s budget to account for the unexpected when creating the project management plan. This budget buffering can help you mitigate waste, avoid resource cuts, and better distribute remaining resources.

Great project planning, budgeting, and knowing how and when to use an EAC will help you keep your projects on track and moving toward success. But these activities are only as good as the tools used to perform them.