In my previous post, I kicked off this series of posts about forecasting. I introduced the concept depicted below of re-estimating the remaining project work as one approach.
But there are many other ways to calculate EAC (Estimate At Complete). The forecasting approach should be dictated by the respective project situation or scenario. In the previous approach, the scenario must be that the original estimates or plan have no validity or trustworthiness. So, given such a scenario, the right approach is a new estimate of the remaining project work.
But what about the scenario in which your original plan is spot on?! Even if your project had some speedbumps or earlier problems, those may have been fixed or remedied. The outlook is that the remaining project work is expected to be accomplished as originally planned. Your forecasting approach should be to follow the remaining plan that seems to have a great outlook! There is not a reason to deviate from the original plan!
If you run across this scenario during your PMP® Exam, the prescribed approach is to forecast the remaining work at the original budgeted cost of that work. In the diagram below, as of the forecast date, we KNOW how much has already been spent (whether good or bad). The EAC is simply the budgeted cost of the remaining work added to the actual cost of the work already performed. The budgeted cost of the remaining work is the total project budget (BAC = Budget At Completion) minus the Budgeted Cost of the Work Performed (BCWP), which is called the Earned Value (EV).
Therefore, in this scenario, EAC = AC + BAC – EV:
Now, THIS is the kind of objective problem that would probably appear on the PMP® Exam.
For example, Project ABC charters a portrait artist to create individual oil paintings of the six members of the Board of Directors to be hung in the corporate office. Each portrait is estimated to cost $5000 and will take three weeks per portrait. So, the total budget (BAC) is 6 x $5000, or $30,000. The entire project should take 18 weeks (3 weeks x 6 portraits).
Six weeks into Project ABC, two portraits are complete. The artist has invoiced $11,000 for the portraits, higher than expected due to some unforeseen material costs. However, he sees no problems with his original estimates for the remaining four portraits. The artist has completed two portraits at an Earned Value of $10,000 (the original budgeted cost). The total budget (BAC) is $30,000. The actual cost (AC) so far is $11,000.
Using the EAC approach for this scenario, EAC is calculated as:
EAC = AC + BAC – EV
= $11,000 + $30,000 – $10,000
= $31,000
The current forecast for Project ABC is to finish over budget by $1000.
Of course, other scenarios exist as well. In the next post, I’ll take a look at a project forecast in which the actual spending is not on track with the plan and not expected to get back on the original plan. I’ll use the concept of spending efficiency in the next forecasting approach.