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I’m confused by alphabet abbreviations such as BAC, ETC and EAC. Aren’t the Budget at Completion and the Estimate at Completion the same thing?
Answer: A. At the project start, Budget at Completion equals Estimate at Completion—but that can change. These terms are important to help your organization plan its cash flow. Imagine your project has a $1600 budget that you plan to spend at a rate of $400 per quarter. Your Budget At Completion (BAC) is $1600. At this point, nothing has happened to make you think your numbers are incorrect. Your Estimate at Completion (EAC) is also $1600. After the first quarter, you discover you’ve spent $500, but you’ve only produced the original schedule deliverables worth $400. This $400 in Earned Value (EV) minus the $500 in Actual Cost (AC) shows you that you have spent $100 more than you expected, which is your Cost Variance (CV). EV ($400) - AC ($500) = CV (-$100). The reason? Materials increased in price. Your costs will go up for the other three quarters as well, so how do you figure what the entire project will cost? Find the rate at which your costs are increasing by using the amount of work or deliverables (EV) you produced in the first quarter, which was $400. Divide it by the amount you actually spent (AC), which was $500. This shows your Cost Performance Index (CPI). Use the .80 Cost Performance Index to find future costs. At $400 a quarter, costs remaining were originally set at $1200. Divide that amount by your CPI of .80. $1200 / .80 = $1500. These last three quarters will cost you $1500 when you include the higher price for materials. This is the Estimate to Complete (ETC). So what is the new Estimate at Completion (EAC)? It is no longer the same as the budget we originally planned (BAC), because we’ve already spent more than was in that budget. To figure the Estimate at Completion (EAC), we take the $500 you’ve spent (AC) and add the amount you calculated it would take to complete the project using the Cost Performance Index (ETC = $1500). The amount you already spent plus the amount you know you still need to spend gives you the new Estimate at Completion, or total project cost. AC ($500) + ETC ($1500) = EAC ($2,000). At an extra $100 a quarter, by project end you are $400 over your original budget of $1600. Understanding these formulas will help you alert stakeholders early about cost overruns so they can find additional funding or make decisions to enable you to minimize the impact of these unplanned costs.
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Quick Quiz 
Barbee Davis, MA, PHR, PMP, is a reviewer for the global PMI Registered Education Provider Review Team. She owns Davis Consulting and is a published author, speaker, writer of training materials and an innovator in presentation skill workshops for corporate trainers. She holds a Black Belt in MS Project and teaches at the university level. Ms. Davis encourages your |
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