EAC (Estimate at Completion) and ETC (Estimate to Complete) are two important dimensions of Earned Value Management. Of late, I have received many questions on these two attributes in our discussion forum and especially on the variants of it. PMP® aspirants have much confusion around this and also about which variant of formula can be used and when. In this blog, I am trying to unfold all these confusions along with formula selection points.
Before I begin explaining EAC and ETC, you should always keep in mind that where this word “estimate” comes in EVM, we should automatically assume that it’s some form of forecast value we are talking about. When we say it’s a forecast, then this means we are deviating from BAC (Budget at Completion) i.e., we are deviating from our planned values. As all of us know that no plan survives the contact with enemy and we need to keep revising our plans based on the situation in hand. EAC is a revised estimate of cost budget based on current situation.
Let’s first understand what these two dimensions are
Estimate at Completion – As per PMBOK® Guide Fifth Edition
The expected total cost of completing all work expressed as the sum of the actual cost to date and the estimate to complete.
Estimate to Complete – As per PMBOK® Fifth edition
The expected cost to ﬁnish all the remaining project work
Important points which get ignored about EAC and ETC
- Both these values are estimates i.e., forecasts in a situation where the BAC is clearly not going to be met due to the current happenings of the project
- These two values are calculated looking at actuals spent till now and the future requirements as per conditions. When I say conditions, these are nothing but different variants
- EAC is always actuals spent till now plus estimates required to complete remaining work i.e. EAC = AC+ETC
While calculating forecasts, i.e. EAC/ETC, we need to always remember that AC is already spent and that money is not going to come back anyway. The only thing we can work out on the basis of the current situation is the rest of the work. Depending on the current situation we calculate ETC. Estimate at completion is the sum total of EAC = AC+ETC
Now the biggest project management question which a project manager has to answer all the time is how much more money this project will cost now? Which is ETC, but how to find that out? How the project manager figure out the money needed for remaining work? There is no magical formula based on stage of the project and variance Earned value management suggest ways of calculating the ETC. Let’s consider the cases.
- The current variance was one of the case, going forward the initial budgeted expenses looks valid, like whatever positive or negative variance we have let’s add that much in project budget. For more details, read our blog ‘How to calculate ETC when variance are typical’
- In a difference scenario when we observe the current variance are the typical one, mean we are going to observe similar cost overrun or under run in coming days, we need to factor the variance in the initial budget by way of adjusting budget based on the variance for the remaining duration. For more details, check our blogs on ‘How to calculate EAC & ETC with the typical CPI trend?’ And, ‘How to calculate EAC & ETC with typical SPI & CPI trends?’
- There could be a case where you find the initial estimate of the project was having errors and these errors cannot be fixed just by taking into account the current variances. So what to do? Simple, we need to re-estimate for the remaining project duration, this variance is explained in blog ‘How to Calculate ETC When Initial Estimate Were Erroneous?’
I hope with this blog, You must have comprehensively understood what EAC & ETC are and what role does AC plays in its calculations. If you have some open questions on this, please feel free to put in the comments box or on our Discussion Forum. You can also log into our YouTube channel watch the video on the related topics.