Estimate at Completion vs Estimate to Complete

Estimate at Completion vs Estimate to Complete

Estimate at Completion vs Estimate to Complete is the 41st post in our PMP Concepts Learning Series.

Designed to help those that are preparing to take the PMP or CAPM Certification Exam, each post within this series presents a comparison of common concepts that appear on the PMP and CAPM exams.

 

Estimate at Completion vs Estimate to Complete

Although a project budget may be defined, actual project progress may cause a deviation from the pre-determined budget at completion (BAC). Throughout the project, it will be important to provide forecasts as to the amount of money that will actually be spent.

There are forecasts that are used: estimate at completion (EAC) and estimate to complete (ETC).

Estimate at Completion (EAC)

Estimate at completion is the forecasted cost of the project, as the project progresses. There are a number of different ways to determine the EAC.

The most common way to determine EAC is a “bottoms-up” formula where the actual costs (AC) are added to the forecasted remaining spending – the estimate to complete (ETC).

EAC = actual costs (AC) + estimate to complete (ETC)

If the project has encountered a one-time (atypical) variance, the following formula may be used:

EAC = actual costs (AC) + budget at completion (BAC) – earned value (EV)

If the project has encountered a variance that is expected to recur and continue to affect the project (typical), the following formula may be used:

EAC = budget at completion (BAC) ÷ cost performance index (CPI)

Estimate to Complete (ETC)

Estimate to complete (ETC) is a forecast of how much more money will need to be spent to complete the project.

ETC can either be determined by building a bottom-up estimate, usually by asking your work package owners, team members, or vendors for revised estimates or by deducting the actual costs (AC) from the estimate at completion (EAC).

ETC = new estimates

ETC = estimate at completion (EAC) – actual costs (AC)

Example

You are three months into the five month bathroom remodeling project. The original budget (BAC) was $1,500 and you have completed approximately 40% of the work. You currently are running over-budget, as indicated by a cost performance index (CPI) of 0.67. Actual costs to-date have been $900.

If you learn that the contractor found some mold in the sheetrock and needed to replace it, causing a one-time variance, you could use the atypical formula to forecast the EAC and the ETC:

EAC = AC + BAC – EV = $900 + $1,500 – $600 = $1,800 (how much we will spend at the end of the project)

ETC = EAC – AC = $1,800 – $900 = $900 (how much more we will spend from this point forward)

If, however, you learn that the workers that are being used are actually much more expensive than you originally estimated, this would be a typical variance as it’s going to continue to affect the project.

EAC = BAC ÷ CPI = $1,500 ÷ 0.67 = $2,239

ETC = EAC – AC = $2,239 – $900 = $1,339

Notice that for the “typical” scenario, the EAC and ETC forecasts are much higher than the “atypical” results. This is due to the fact that the variance is going to continue to affect the project.

Of course, the other option to forecast your project costs would be to simply ask your team / vendors for a new estimate to complete the remaining work. This ETC would then be added to the actual costs (the money already spent) to determine the EAC.

EAC = ETC + AC

Summary

As the project progresses, it will be necessary to forecast out the total anticipated funding required.
The two forecasts utilized are the estimate at completion (EAC) – how much the project is forecasted to cost overall – and the estimate to complete (ETC) – how much funding is required to complete the remaining work.

See all posts in our PMP Concepts Learning Series

1 Comment

  1. Edna on August 2, 2016 at 9:52 am

    OMG! Thank you so much! This has really been helpful! I wish I came a cross your website prior purchasing all the other PMP books!

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