Estimate to Complete (ETC) is a crucial project management tool used in conjunction with earned value calculations to develop performance reports. It is a financial performance index that approximates the remaining cost required to complete a project.
Key Facts
- Estimate to Complete (ETC) is a financial performance index and project management measure that shows the remaining cost expected to complete a project.
- ETC is used to track project progress in terms of time and budget.
- ETC is one of the four calculations that comprise Earned Value Management, which allows managers to establish the actual cost of work and forecast a project’s future performance.
- ETC is calculated by subtracting the actual cost (AC) from the Estimate at Completion (EAC).
- The Estimate at Completion (EAC) refers to the expected cost of the project as it progresses.
- The EAC can be determined using various methods, with the most common being bottom-up cost estimation.
- The EAC formula is EAC = actual costs (AC) + Estimate to Complete (ETC).
Significance of ETC in Project Management
ETC plays a vital role in project management, particularly when project costs are subject to constant change. It enables stakeholders, especially clients, to stay informed about the costs associated with the remaining project tasks. Project managers can leverage proven techniques like ETC to provide accurate cost estimates to stakeholders.
Calculating ETC
There are two primary formulas for calculating ETC:
1. Bottom-Up Cost Estimation:
ETC = Estimate at Completion (EAC) – Actual Cost (AC)
2. EAC – AC Method:
ETC = EAC – AC
Understanding EAC
Estimate at Completion (EAC) represents the total cost of a project at its completion. When a project commences, the EAC is typically equivalent to the ETC. However, as the project progresses, the ETC decreases and eventually reaches zero upon completion.
ETC vs. EAC
It is essential to differentiate between ETC and EAC. While EAC signifies the total project cost at completion, ETC represents the cost required to complete the remaining project work.
Conclusion
ETC serves as a valuable forecasting tool, particularly when the initial cost estimate is no longer valid and a revised budget is necessary for the remaining project work. It is commonly used when the cost baseline deviates, and its primary purpose is to communicate this information to stakeholders for budget approval.
References:
- Study.com: Estimate at Completion (EAC) vs. Estimate to Complete (ETC)
- Primetric: How to Calculate the Estimate to Complete (ETC)
- PM Study Circle: Estimate to Complete (ETC): Definition, Formula, Example & Calculation
FAQs
What is ETC in project management?
Estimate to Complete (ETC) is a financial performance index that approximates the remaining cost required to complete a project.
How is ETC calculated?
ETC can be calculated using two primary formulas:
- Bottom-Up Cost Estimation: ETC = EAC – AC
- EAC – AC Method: ETC = EAC – AC
What is the difference between ETC and EAC?
ETC represents the cost required to complete the remaining project work, while EAC signifies the total cost of the project at its completion.
When is ETC used in project management?
ETC is commonly used when the initial cost estimate is no longer valid and a revised budget is necessary for the remaining project work. It is also used when the cost baseline deviates.
What is the significance of ETC in project management?
ETC plays a crucial role in project management as it enables stakeholders, particularly clients, to stay informed about the costs associated with the remaining project tasks. Project managers can leverage ETC to provide accurate cost estimates to stakeholders.
How does ETC help in project forecasting?
ETC serves as a valuable forecasting tool, particularly when the initial cost estimate is no longer valid and a revised budget is necessary for the remaining project work. It is commonly used when the cost baseline deviates, and its primary purpose is to communicate this information to stakeholders for budget approval.
What are some limitations of ETC?
ETC is a forecasting tool and is subject to uncertainties and changes in project scope, schedule, and resources. It relies on accurate data and assumptions, and any deviations from these can impact the accuracy of the ETC.
How can ETC be used effectively in project management?
To use ETC effectively, project managers should consider the following:
- Utilize accurate and up-to-date data for calculations.
- Regularly review and update the ETC as the project progresses.
- Communicate the ETC clearly to stakeholders and obtain their approval for any necessary budget revisions.
- Monitor project performance closely and take corrective actions if the ETC deviates significantly from the actual project costs.