What is EAC & ETC and What are its Variants?

  • Project Management
Created on :
September 1, 2014
Seema Sonkiya
Updated on :
July 4, 2023
0 Comments
Blog-Image

EAC (Estimate at Completion) and ETC (Estimate to Complete) are indeed essential dimensions of Earned Value Management (EVM). They play a crucial role in project management and are important concepts to understand for PMP exam preparation. They help assess the project’s performance and forecast future costs and completion dates.

When discussing EVM estimates, we make projections or forecasts indicating a deviation from the original plan (BAC – Budget at Completion). It is because plans often need to be revised as projects progress as they may encounter unforeseen circumstances. EAC represents a revised estimate of the total cost budget based on the current situation.

Understanding EAC in the PMP Exam: Estimate at Completion in Earned Value Management (EVM)

In the context of the PMP exam, Estimate at Completion (EAC) refers to the anticipated total cost required to complete all the work. It is calculated by summing up the actual cost incurred to date with the estimate to complete the remaining work.

 So, EAC is a forecast of the total project cost at completion. It considers the actual performance data and any variances that have occurred. EAC is useful for assessing the overall project performance and determining if the project will be over or under budget at completion.

 ETC in the PMP Exam: Understanding Estimate to Complete (ETC) in Earned Value Management (EVM)

Estimate to Complete is the expected cost to finish all the remaining project work.

So, ETC represents the forecasted cost required to complete the remaining project work. It helps assess how much additional funding will be needed to complete the project. ETC considers the actual performance data and estimates the future cost based on the current trends.

The most common formula for calculating ETC is:

ETC = EAC – AC

This formula subtracts the actual cost (AC) incurred so far from the estimate at completion (EAC) to determine the additional cost required.

Here are some important points about Estimate at Completion (EAC) and Estimate to Complete (ETC) that are often overlooked:

  • EAC and ETC are both estimates: Both EAC and ETC are forecasts or projections of future costs based on the current project conditions. They are used when it becomes evident that the Budget at Completion (BAC) will not be met due to unforeseen circumstances or changes in project scope.
  • Calculation based on actuals and future requirements: EAC and ETC are calculated by considering the actual costs incurred up to the current point in the project and the estimated costs required to complete the remaining work. This involves assessing the current project conditions and considering different variables that may impact the future cost.
  • The EAC is calculated by adding the actual costs (AC) incurred up to the present and the Estimate to Complete (ETC) for the remaining work. The formula is EAC = AC + ETC.
PMP- EAC & ETC

When calculating forecasts such as EAC (Estimate at Completion) and ETC (Estimate to Complete), it is crucial to keep in mind that the actual costs (AC) already incurred are irreversible and cannot be recovered. The focus should be on estimating the remaining work based on the current project situation. The ETC represents the expected cost needed to complete the remaining work. By summing up the actual costs (AC) with the Estimate to Complete (ETC), we arrive at the Estimate at Completion (EAC) formula: EAC = AC + ETC.

The biggest project management questions a project manager must always answer is how much more money this project will cost. Which is ETC, but how to find that out? How does the project manager figure out the money needed for the remaining work? There is no magical formula based on the project stage and variance. Earned value management suggests ways of calculating the ETC. Let’s consider the cases.

  1. When Variance Is Atypical: When encountering atypical variances, the observed variances are specific cases of time already spent on the project. However, there is an expectation to achieve the budgeted performance for the remaining work. In this situation, the primary focus should be on completing the remaining work within the budgeted values. To calculate the Estimate at Completion (EAC) in this scenario, you can use the formula EAC = AC + ETC (BAC – EV). Here, AC represents the actual costs incurred, ETC represents the estimated cost to complete the remaining work based on the budgeted values for the remaining tasks, and (BAC – EV) indicates the remaining budgeted value for the remaining work. It is important to note that additional funds may be required to complete the remaining work to account for the already occurring variances. However, the remaining work is expected to be completed within the budgeted value of (BAC – EV). For more in-depth information and insights on how to calculate ETC when variances are atypical, I invite you to read our blog post titled “How to Calculate ETC When Variances Are Atypical.”
  2. When Variance Is Typical: In this scenario, typical variances indicate that the current variances are expected to continue. During the review, it becomes evident that the observed variances are a reality, and the trend will persist.  To address typical variances, you need to factor in the rate at which you are spending money in the overall Estimate at Completion (EAC). This can be calculated based on the Cost Performance Index (CPI) or Schedule Performance Index (SPI). By considering the CPI or SPI trends, you can adjust the EAC to reflect the expected variances and ensure that the projected cost aligns with the typical rate of spending. 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?’
  3. When Initial Estimate Errors Encountered: In certain cases, when it is discovered that the initial estimate of the project contained significant errors that cannot be rectified by considering only the current variances, a re-estimation of the remaining project duration is necessary. By re-estimating the remaining project duration, you can account for the errors in the initial estimate and adjust the cost and schedule accordingly. This involves reassessing the scope, requirements, and tasks that need to be completed and considering any new information or changes that have emerged during the project. Re-estimating the remaining project duration allows for a more accurate calculation of the Estimate to Complete (ETC) by taking into account the corrected assumptions and expectations for the remaining work. It helps ensure the project is appropriately planned and budgeted based on the revised understanding of the requirements.

I trust that this blog has provided you with a comprehensive understanding of EAC (Estimate at Completion) and ETC (Estimate to Complete), as well as the significance of AC (Actual Cost) in their calculations. If you have any further questions or would like to discuss this topic further, please feel free to leave your comments in the box below. For a visual representation of these concepts, I recommend watching the following video:

If you have aspirations to pursue the PMP certification, enroll with us for comprehensive support in your PMP certification journey. We offer expert guidance in exam preparation, assistance with the application process, and help in scheduling the exam. With our assistance, you can confidently navigate the certification process and increase your chances of success.

 iZenBridge offers a wide range of comprehensive FREE resources to support you throughout your PMP certification journey. Explore our PMP Free Practice test, which provides a realistic simulation of the actual exam and helps you assess your preparedness with up-to-date questions. Our 50 Agile PMP Questions tutorial also delves deep into essential PMP Agile concepts, such as working with Requirements, value delivery, Agile Metrics, incremental delivery, and feedback. These tutorials provide detailed explanations and expose you to common Agile-related PMP exam questions. Whether you’re new to Agile or seeking to strengthen your understanding, our scenario-based PMP Agile questions are valuable tools for effective concept comprehension.

PMP

Related Post

How Much PMP Certification Cost In India 2023

PMP certificate is a gold standard certification and builds your credibility in the field of ...

December 14, 2022
Seema Sonkiya

How to become a PMP Certified Professional?

Gaining a PMP Certification is one of the best achievements for an individual in the ...

June 27, 2022
iZenBridge

Difference Between PMBOK 6 and PMBOK 7

If you have been planning to take your PMP® certification exam and have been preparing ...

August 18, 2022
Saket Bansal
PMP Webinar 4 June 2024