I have already done a video answering the question ‘What is Earned Value Management (EVM)?’ And the often, most important measure in EVM is the Estimate at Completion (EAC). So, in this video, I want to answer the question, what is the Estimate at Completion?
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The Estimate at Completion is the expected total cost of your project, when all work is completed.
So, if everything is running to budget and to schedule, your EAC is equal to your original Budget at Completion (BAC).
However, if your costs have drifted from plan, you can calculate your EAC from your Actual Cost of Work Performed (AC or ACWP) by adding to it your Estimate to Complete (ETC).
EAC = AC + ETC
So, how can you calculate your ETC?
If you assume that any past problems will no longer continue and that the remains of your budget estimates are sound, then you will continue according to your original plan. Your ETC is your Budget at Completion, less the Budget Cost of Work Performed (BCWP), which is your Earned Value (EV):
ETC = BAC – EV
If you already have a substantial underperformance, this could represent a serious or willful decision to ignore that fact. So, before you use this approach, ask: ‘what evidence do we have that things will change?’
If, instead, you assume that the past performance will continue, then you can calculate your Cost Performance Index (CPI) and use that to calculate your ETC.
CPI = EV/AC
ETC = (BAC – EV)/CPI
This approach simplifies to give:
EAC = BAC/CPI
The implicit assumption in this approach is that the CPI will continue at the same level through the remainder of your project.
The most sophisticated approach uses a combination of the Cost Performance Index AND the Schedule Performance Index (SPI) to calculate the Estimate to Complete:
ETC = (BAC – EV)/(CPI x SPI)
This is also the most pessimistic approach and is a reasonable one to take, if you fear additional future delays or over-runs, beyond the levels of under-performance so far.
But, the precision of this approach does not mean it is necessarily going to give you an accurate ETC.
In a truly uncertain environment, you may be best to assume your original plan is no longer a sound basis for estimating.
In this case, it will be best to calculate a new estimate from fresh assumptions. Most often this will be a bottom-up estimate that considers all the work items to be carried out.
So, I’ll represent this as:
ETC = ETC*
Firstly, the calculation of EAC is simple:
EAC = AC + ETC
But that just moves the complexity to your Estimate to Complete. But, the answer is simple. We are talking about estimates and forecasts. They are all uncertain. And to find the best way of estimating, we need to understand the situation and select the model that best suits the evidence.
Your estimate will be wrong. Your goal is to make it as un-wrong as you possibly can.
Carefully curated video recommendations for you:
I asked Project Managers in a couple of forums what material things you need to have, to do your job as a Project Manager. They responded magnificently. I compiled their answers into a Kit list. I added my own.
Note that the links are affiliated.
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Dr Mike Clayton is one of the most successful and in-demand project management trainers in the UK. He is author of 14 best-selling books, including four about project management. He is also a prolific blogger and contributor to ProjectManager.com and Project, the journal of the Association for Project Management. Between 1990 and 2002, Mike was a successful project manager, leading large project teams and delivering complex projects. In 2016, Mike launched OnlinePMCourses.
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