What is Estimate at Completion (EAC) in project management?

What is Estimate at Completion (EAC) in project management?

Budget forecasting has always been a challenge for project managers. 

You may have many questions about it, such as:

  • What should you do if the initial budget forecast turns out to be an absolute disaster? 
  • How do you re-estimate the project cost?
  • How do you ensure the estimates are correct for the current circumstances?

Fortunately, there is a method to determine the total project costs while the project is ongoing and adjust the budget accordingly — it’s called Estimate at Completion (EAC).

In this article, we will define Estimate at Completion (EAC) and explain how it differs from Estimate to Complete (ETC) and Budget at Completion (BAC). 

Additionally, we will list all the EAC-related terms you should be familiar with and explain how to determine EAC for your project.

Last but not least, we will provide easy-to-understand examples for all EAC formula variations.

Let’s get started.

What is Estimate at Completion (EAC)?

In a nutshell, Estimate at Completion (EAC) is a project cost forecasting technique we use to determine the project cost at its completion while the project is in progress. 

Estimate at Completion (EAC) considers variables such as unexpected costs and inaccurate early estimates.

Sometimes, projects do not progress as planned, and the actual costs are way higher than anticipated.

As the project progresses, we need to develop accurate forecasts for the costs of completing the remaining workload and estimate how much the final project cost will be. 

Then, we should compare the Estimate at Completion (EAC) to the Budget at Completion (BAC).

What is the difference between BAC and EAC?

First, let’s explain the difference between Budget at Completion (BAC) and Estimate at Completion (EAC).

Budget at Completion (BAC) represents the sum of all budgets allocated to the project work.

It is the total planned value for the project, determined at the beginning of the project and based on the project work.

On the other hand, Estimate at Completion (EAC) is a forecasting tool

It is a forecasted estimate of the project costs when the project is completed, made at various stages of the project.

Estimate at Completion considers the:

  • Project’s actual costs up until the present moment, and
  • Estimated remaining costs, for a more dynamic picture of the project budget.

As project work does not always progress as planned, EAC helps us identify the final project cost under new circumstances.

If it becomes evident that BAC is no longer viable, the project manager should consider EAC.

But, what if EAC is higher than BAC?

It means your project is running over the planned costs. 

Contrarily, if EAC is lower than BAC, the project is less expensive than expected.

What is the difference between EAC and ETC?

Maybe they sound similar, but don’t let that mislead you — Estimate at Completion (EAC) and Estimate to Complete (ETC) are not interchangeable terms.

Estimate at Completion (EAC) is a projection of the total costs of completing all the project work.

On the other hand, Estimate to Complete (ETC) forecasts how much money we will need to complete the remaining project work, and it is a part of the EAC calculation.

Terms to know before calculating Estimate at Completion

Before introducing the EAC formulas, let’s list all the terms you need to know for EAC calculations.

TermDefinition
Estimate at Completion
(EAC)
Predicts the project’s cost at its completion when the project has already started.
Estimate to Complete
(ETC)
The estimated cost to complete the project’s remaining work.
Budget at Completion
(BAC)
The sum of all budgets established in advance for the project work.
Actual Cost
(AC)
The realized cost of all the work completed to a point in time.
Earned Value
(EV)
The measure of performed work. Expressed in terms of the budget authorized for that work.
Cost Performance Index
(CPI)
Measures the cost efficiency of budgeted resources.
Calculated by dividing Earned Value by Actual Cost.
Schedule Performance Index (SPI)Shows how you are progressing compared to the planned project schedule.

How do you calculate Estimate at Completion (EAC)?

There are four ways to calculate EAC in project management, depending on the current situation:

  1. Calculation with Estimate to Complete (ETC) assumption,
  2. Forecast for Estimate to Complete (ETC) work performed at a budgeted rate,
  3. Forecast for Estimate to Complete (ETC) work performed at the present cost performance index (CPI), and
  4. Forecast for Estimate to Complete (ETC) work considering both Schedule Performance Index (SPI) and Cost Performance Index (CPI) factors.

Based on that, we can use one of the following EAC formula variations:

  • Formula 1: EAC calculation with the bottom-up ETC
  • Formula 2: EAC calculation with ETC at a budgeted rate
  • Formula 3: EAC calculation with ETC based on present CPI
  • Formula 4: EAC calculation considering CPI and SPI

Let’s explain when to use each EAC formula.

EAC formula #1: EAC calculation with bottom-up ETC

We use EAC calculation with the bottom-up ETC when initial estimates are flawed.

Using a bottom-up method means every member of the project team has to estimate the cost of their remaining work — i.e. Estimate to Complete (ETC).

After doing so, we can calculate Estimate to Complete (EAC) by adding ETC determined by the bottom-up method to Actual Cost (AC).

EAC formula #1: EAC calculation with bottom-up ETC
Variation:EAC with the bottom-up method
Formula:EAC = AC + bottom-up ETC
Key terms:AC = Actual Cost
Bottom-up ETC = Estimate to Complete determined by using the bottom-up method
When to use:The initial plan is no longer valid.

EAC formula #2: EAC calculation with ETC at the budgeted rate

This formula is appropriate when the project manager believes the project will perform according to the budgeted rate moving forward, regardless of its prior performance.

EAC formula #2: EAC calculation with ETC at the budgeted rate
Variation:EAC with ETC at the budgeted rate
Formula:EAC = AC + (BAC – EV)
Key terms:AC = Actual Cost
BAC = Budget at Completion
EV = Earned Value
When to use:You assume future work will be completed at a planned rate, regardless of the project’s previous performance.

EAC formula #3: EAC calculation with ETC based on the present CPI

If you think the Cost Performance Index (CPI) won’t change until the end of the project, use the following formula to calculate Estimate at Completion (EAC).

EAC formula #3: EAC calculation with ETC based on the present CPI
Variation:EAC with ETC based on present CPI
Formula:EAC = BAC / CPI
Key terms:BAC = Budget at Completion
CPI = Cost Performance Index
When to use:You assume your future performance will be the same as your past performance and the CPI will remain unchanged until the project ends.

EAC formula #4: EAC calculation considering CPI and SPI

The fourth variation of calculating EAC is appropriate for situations where both the Cost Performance Index (CPI) and the Schedule Performance Index (SPI) have an influence on the remaining project work.

EAC formula #4: EAC calculation considering CPI and SPI
Variation:EAC considering CPI and SPI
Formula:EAC = AC + [(BAC – EV) / (CPI × SPI)]
Key terms:AC = Actual Cost
BAC = Budget at Completion
EV = Earned Value
CPI = Cost Performance Index
SPI = Schedule Performance Index
When to use:If both CPI and SPI have an influence on the remaining project work.

Estimate at Completion (EAC) examples

To make everything clear, let’s provide examples of all four calculations:

  • An example of EAC with bottom-up ETC
  • An example of EAC with ETC work accomplished at the budgeted rate
  • An example of EAC with ETC based on the present CPI
  • An example of EAC considering both CPI and SPI

An example of EAC with bottom-up ETC

Suppose your project budget is $150,000. Your team has completed 40% of the project work against 50% planned and has spent $85,000 by now. 

MeasureValue
Budget at Completion (BAC)$150,000
Earned Value (EV)40% 
Planned Value (PV)50%
Actual Cost (AC)$85,000 

As you can see, your project costs are pretty high for the amount of work performed.

Therefore, you need to revisit all project costs and add ETC to your actual costs. 

This method is suitable when you need to change your plans entirely because your current performance differs significantly from the planned performance and initial estimates are fundamentally flawed.

There is no particular formula to calculate a bottom-up ETC. 

You should use the bottom-up method to determine the cost for each remaining project activity.

Suppose you have discussed all the remaining work with your team and project stakeholders, and the sum of the remaining costs (ETC) is $112,000.

Then you can use it to calculate EAC.

EAC = AC + Bottom-up ETC

EAC = $85,000 + $112,000

EAC = $197,000

So, instead of the planned $150,000, you need $197,000 to complete your project under new circumstances.

An example of EAC with ETC accomplished at the budgeted rate

Suppose your project budget is $100,000. Your team has completed 50% of the project work against 40% planned and has spent $50,000 by now. 

MeasureValue
Budget at Completion (BAC)$100,000
Earned Value (EV)50%
Planned Value (PV)40%
Actual Cost (AC)$50,000

You believe the project team will accomplish all future ETC work at the budgeted rate.

In this case, Earned Value (EV) is 50% of the Budget at Completion (BAC).

EV = 50% of BAC

EV = ($100,000 x 50) / 100 

EV = $50.000

Now you can calculate Estimate at Completion (EAC).

EAC = AC + (BAC – EV)

EAC = $50,000 + ($100,000 – $50.000)

EAC = $50,000 + $50,000

EAC = $100,000

In this case, you can expect the project to be completed within the planned budget, as Estimate at Completion (EAC) is the same as Budget at Completion (BAC).

An example of EAC with ETC based on the present CPI

Suppose your project budget is $85,000. Your team has completed 45% of the project against the 55% planned and has spent $40,000 by now. You assume CPI will remain the same until the end of the project.

MeasureValue
Budget at Completion (BAC)$85,000 
Earned Value (EV)45%
Planned Value (PV)55%
Actual Cost (AC)$40,000

First, you need to calculate CPI (Cost Performance Index).

To do so, you should divide Earned Value (EV) by Actual Cost (AC).

CPI = EV / AC

CPI = (45 x $85,000 / 100) / $40,000

CPI = $38,250 / $40,000

CPI = 0.95625

What does the CPI value mean?

  • A CPI of less than 1 means your project is over budget.
  • A CPI of 1 means your project is performing on budget.
  • A CPI higher than 1 means your project is performing well against the budget.

As our CPI is 0.95625, it is clear that we are performing over the budget.

So, let’s calculate the new budget.

EAC = BAC / CPI

EAC = $85,000 / 0.95625

EAC = $88,888 

So, you need $88,888 to complete your project under new circumstances.

An example of EAC considering both CPI and SPI

Suppose your project budget is $250,000. Your team has completed 25% of the project against the 35% planned and has spent $75,000 by now. In addition, both CPI and SPI have an influence on the remaining workload.

MeasureValue
Budget at Completion (BAC)$250,000
Earned Value (EV)25%
Planned Value (PV)35%
Actual Cost (AC)$75,000 

First, you need to calculate Earned Value (EV).

EV = % of completed work x BAC

EV = 25 x 250,000 / 100

EV = $62,500

Then, you should determine Planned Value (PV). 

PV = % of project completed (planned) x BAC

PV = 35 x 250,000 / 100

PV = $87,500

Afterward, you should determine the Cost Performance Index (CPI).

CPI = EV / AC

CPI = 62,500 / 75,000

CPI = 0.83

In the end, you should determine the Schedule Performance Index (SPI).

SPI = EV / PV

SPI = 62,500 / 87,500

SPI = 0.71

What does this value of SPI mean?

If SPI is greater than 1, your project is ahead of schedule.

If SPI is less than 1, your project is behind schedule.

If SPI is equal to 1, your project is on schedule.

Based on the SPI value, your project is behind schedule.

EAC = AC + [(BAC – EV) / (CPI × SPI)]

EAC = 75,000 +  [(250,000– 62.500) / (0.83 × 0.71)]

EAC = 75,000 + (187,500 / 0.5893)

EAC = 75,000 + 318,174.10

EAC = $393,174.10

As you can see, you will need $393,174.10 to finish your project — which is significantly higher than your BAC of $250,000.

Making the most of your EAC calculations

Choosing the proper EAC formula for your situation will help provide accurate cost estimates.

To keep all information regarding project costs in one place, we recommend trying a project management app such as Plaky.

You can use it to plan your budget and distribute tasks within your project team.

An example of a project budget in Plaky
An example of a project budget in Plaky

Plaky offers flexibility to organize your project task as you wish and customize every detail to suit your needs. 

In Plaky, you can list all project costs, assign team members responsible for tasks, and track cost status.

In addition, you can add tags to specify which department is responsible for a particular project cost. 

Moreover, you can always see how much money your team spent on individual tasks and how large a sum remains.

By observing this data, you can see at a glance if your project is performing as planned or if Budget at Completion (BAC) is no longer viable, and you should calculate Estimate at Completion (EAC).

Wrapping up: Choose the appropriate EAC formula for your current situation

An accurate budget can make or break your project. However, we all know that costs are not carved in stone. 

As the project progresses, changes may happen. 

With the help of Estimate at Completion (EAC), you can forecast the project’s total cost under new circumstances.

It is an estimated amount of money you need to complete your project, based on the current progress. 

Depending on your project’s current state, you should choose one of the four formulas to calculate EAC and check if your project is going according to the allocated budget or needs some adjustment.

References

  • Aldridge, E. P. (2022, January 21). Budget at Completion (BAC). Project Management Academy Resources. Retrieved September 9, 2022, from https://projectmanagementacademy.net/resources/blog/budget-at-completion-bac/
  • Erin Aldrige. (2021, June 30). The EAC Formula: PMP Questions & Insights into Project Budgets. Project Management Academy Resources. Retrieved September 9, 2022, from https://projectmanagementacademy.net/resources/blog/forecasting-projects-in-progress-with-eac/
  • Project Management Institute Project Management Institute. (2021). A Guide to the Project Management Body of Knowledge (PMBOK® Guide)  Seventh Edition and The Standard for Project Management Retrieved September 9, 2022, from https://www.goodreads.com/book/show/57910154-a-guide-to-the-project-management-body-of-knowledge-pmbok-guide-sev?from_search=true&from_srp=true&qid=rNL9PN7lo8&rank=6
  • Project Management Institute. (n.d.). The Standard for Earned Value Management. Retrieved September 12, 2022, from https://www.goodreads.com/book/show/45899516-the-standard-for-earned-value-management?from_search=true&from_srp=true&qid=iMx9MFQGVZ&rank=1

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