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What is the estimate at completion?

The estimate at completion, frequently shown as the EAC, is the forecast value of the project when the project is complete. It should be noted that the EAC can be calculated in a number of different ways and is only an indicator of what the project's cost will be at the end of the project.

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The estimate at completion is a value that can get project managers in trouble. In its most commonly used form it is the budget at completion divided by the cost performance index.

This is a rather pessimistic estimate of the amount of money that will be spent at project completion. It says that the things that have gone wrong in the project until now will continue to go wrong, and we will not learn how to improve them between now and the end of the project. There are many reasons why this is true. There could be bias in our estimates. If the early items in the project were underestimated, it is likely that the later items in the project will be underestimated as well. If there is a chronic problem that has been evident in the early part of the project and the same people and equipment will be used on the later project activities, then the EAC will probably be accurate by this method. On the other hand, if different estimators and team members or different pieces of equipment are being used later in the project, the EAC may not indicate the project's true estimated cost at the end.

Unfortunately, as we will see, much of the research that has been done in this area indicates that projects that are over budget when they are 25 percent complete are very likely to finish over budget. Not only that, but these projects are likely to finish with a worse cost performance index than they had when they were 25 percent complete.

Are there other ways of calculating the EAC?

Yes there are, but they are not used as widely as the calculation described above, EAC = BAC / CPI.

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Taking the actual cost of work performed and adding it to the remaining work to be done can describe a somewhat more optimistic view of the EAC. This says that the project's estimate at completion will be the sum of the remaining work to be done at the originally estimated budgets for that work plus the actual accumulated cost of the work already completed. The actual cost of the work already completed is nothing more than the ACWP, and the cost of the remaining work to be done, based on original estimates, is just the difference between the budget at completion and the work that is already completed.

Of course, the most optimistic calculation of the EAC is the one that is usually imposed on project managers. It says that in spite of the problems that have occurred on this project to date, the project is not only going to complete all the remaining tasks according to the original plans and estimates but is going to recover the budget overruns already spent. The calculation of EAC is quite simple.

While it may seem pessimistic to calculate the EAC by dividing the BAC by the CPI, it turns out that there have been a number of studies that have been done in this area.

Quentin Fleming states: "The cumulative CPI is a particularly reliable index to watch because it has been proven to be an accurate and reliable forecasting device. The cumulative CPI has been shown to be stable from as early as 15 to 20 percent in the project's percentage complete point". ^[1]

From David Christensen: "Researchers found that the cumulative CPI does not change by more than ten percent once a contract is twenty percent complete; in most cases, the cumulative CPI only worsens as a contract proceeds to completion". ^[2]

What this is telling us is that the project managers who report that although bad things have happened early in the project, they expect to recover and finish the project within the originally planned budget are not very realistic. Unless they have good reason to defend this position, it should be accepted very reluctantly. The more probable outcome of the project is that the CPI will remain the same or get worse as the project progresses.

It is even rational to think this way. If a project cannot follow the project plan early in the project when the tasks planned were relatively close to the time the planning was done, then how likely is it that the tasks that were planned further in the future will have been estimated more accurately?

^[1] Quentin Fleming and Joel Koppelman, Earned Value Project Management (Newtown Square, Pa.: Project Management Institute, 1996), p. 106.

^[2] Ibid.