# Understanding EAC in Project Management.

In project management, the Estimate at Completion (EAC) plays a crucial role in forecasting the expected total cost of a project upon its completion. It takes into account the current investments made and the projected costs for the remaining work. This article will explore the concept of EAC in project management, its relationship with the Budget at Completion (BAC), calculation methods, the importance of periodic estimation, and how EAC can be used to track project performance.

## Relationship between EAC and Budget at Completion (BAC)

The Budget at Completion (BAC) represents the original budget allocated for the project at its inception. It serves as a benchmark against which the project’s financial performance is measured. EAC, on the other hand, is an evolving cost calculation that considers unforeseen circumstances and financial variations throughout the project lifecycle. Unlike BAC, which remains constant, EAC is recalculated periodically to reflect the current expectation of total project costs upon completion.

The calculation of EAC is performed at different moments during the project, allowing project managers to assess the financial health of the project and make informed decisions accordingly.

## Calculation methods for EAC

There are several formulas commonly used to calculate EAC, each applicable in different scenarios. These formulas provide insights into the project’s financial status and help project managers adjust their strategies accordingly.

One formula for calculating EAC is EAC = AC + ETC. This formula considers the actual costs incurred (AC) and estimates the costs to complete the remaining work (ETC). By summing these two components, project managers can estimate the total cost of the project upon completion.

Another formula is EAC = BAC / CPI. Here, CPI (Cost Performance Index) represents the ratio of earned value (EV) of the work completed to the actual cost (AC) of that work. Dividing the BAC by the CPI provides an estimate of the project’s total cost based on its current performance.

A more comprehensive formula is EAC = AC + (BAC – EV) / (CPI x SPI). In addition to AC and BAC, this formula incorporates EV (earned value) and SPI (Schedule Performance Index). It considers both cost and schedule performance to calculate a more accurate estimate of the total project cost.

## Importance of periodic estimation

Periodic estimation of EAC is of significant importance in project management. It allows project managers to gain insights into ongoing project costs and make informed decisions regarding resource allocation and budget adjustments. By recalculating EAC at regular intervals, project managers can monitor the financial health of the project and identify any deviations from the initial budget.

Tracking project costs accurately is essential for effective cost control. By comparing EAC results over time, project managers can identify trends and patterns in project spending, enabling them to take proactive measures to control costs and ensure project profitability.

## Tracking project performance with EAC

EAC serves as a valuable project performance monitoring tool. By comparing EAC with actual costs, project managers can identify areas of overspending, detect waste, and make data-driven decisions to allocate resources more effectively. Additionally, analyzing other key performance indicators such as BAC and CPI alongside EAC provides a comprehensive view of the project’s financial and overall performance.

## Conclusion

In conclusion, the Estimate at Completion (EAC) is an essential concept in project management. It provides a forecast of the expected total cost of a project upon its completion, taking into account current investments and projected costs for the remaining work. By periodically recalculating EAC and tracking project performance, project managers can effectively control costs, make informed decisions, and ensure the successful completion of projects. Understanding the calculation methods and significance of EAC contributes to effective cost control and project performance tracking.

Sources:

• “What is EAC in Project Management?” Wrike. Link
• “Estimate At Completion (EAC) And Its Use In Project Tracking.” Monday.com. Link
• “Calculate Estimate at Completion (EAC) in Different Ways.” Simplilearn. Link

## FAQs

### What is EAC in project management?

EAC stands for Estimate at Completion, which is a forecasting method used in project management to estimate the total cost of a project upon its completion. It takes into account the current investments made and the projected costs for the remaining work.

### How is EAC related to the Budget at Completion (BAC)?

EAC and BAC are closely related in project management. BAC represents the original budget allocated for the project at its inception, while EAC is an evolving cost calculation that considers unforeseen circumstances and financial variations throughout the project lifecycle.

### What are the common formulas used to calculate EAC?

There are several formulas used to calculate EAC, including:

• EAC = AC + ETC (Actual Cost + Estimated To Complete): This formula considers the actual costs incurred and estimates the costs to complete the remaining work.
• EAC = BAC / CPI (Budget at Completion / Cost Performance Index): This formula takes into account the ratio of earned value to actual cost and provides an estimate of the total project cost based on its current performance.
• EAC = AC + (BAC – EV) / (CPI x SPI) (Actual Cost + (Budget at Completion – Earned Value) / (Cost Performance Index x Schedule Performance Index): This formula incorporates actual costs, earned value, and performance indices to calculate a more accurate estimate of the total project cost.

### Why is periodic estimation of EAC important?

Periodic estimation of EAC is important because it allows project managers to gain insights into ongoing project costs and make informed decisions regarding resource allocation and budget adjustments. It helps in monitoring the financial health of the project and identifying any deviations from the initial budget.

### How does EAC help in tracking project performance?

EAC serves as a valuable project performance monitoring tool. By comparing EAC with actual costs, project managers can identify areas of overspending, detect waste, and make data-driven decisions to allocate resources more effectively. Additionally, analyzing other key performance indicators such as BAC and CPI alongside EAC provides a comprehensive view of the project’s financial and overall performance.

### What are the benefits of comparing EAC results over time?

Comparing EAC results over time allows project managers to identify trends and patterns in project spending. It helps in accurate cost tracking and enables proactive measures to control costs and ensure project profitability. By analyzing EAC trends, project managers can make adjustments to the project plan, budget, and resource allocation as needed.

### How does EAC contribute to effective cost control in project management?

EAC plays a crucial role in effective cost control in project management. By providing a forecast of the expected total cost of the project, project managers can proactively identify any cost overruns and take corrective actions. EAC helps in tracking project costs, making informed decisions, and ensuring that the project stays within the allocated budget.

### Is EAC the only factor considered in project cost estimation?

No, EAC is not the only factor considered in project cost estimation. Other factors, such as the Estimate to Complete (ETC) and the Estimate to Complete Schedule Performance Index (ETC SPI), are also taken into account. These factors provide additional insights into the project’s financial and schedule performance and help in making more accurate cost estimations.