What is Estimate at Completion (EAC) in Project Management? - Formula and Calculations

The estimate at completion (EAC) represents one of the most critical metrics for project managers. Accurately forecasting the total expected costs required to complete a project is essential for delivering projects within budget. Calculating EAC provides the data needed to assess whether a project will exceed approved budgets and how much additional funding may be required.

In this in-depth guide, we will dive into everything project managers need to know about EAC. Read on to learn about:

• What exactly EAC measures and why it matters

• How EAC fits within project cost management 

• The different formulas to calculate EAC

• How to use EAC data to keep project costs on target

• Best practices for managing EAC throughout the project lifecycle

Gaining a solid understanding of EAC will equip project managers with the knowledge needed to forecast, control, and optimize project costs.

What is the Estimate at Completion (EAC)?

The estimate at completion (EAC) represents the project manager's latest forecast of the total costs required to complete all the authorized project work. It is one of the most important metrics for determining if a project will be delivered within the approved budget.

EAC answers the question - "Based on current performance and trends, how much total funding will be required to complete this project?"

It represents a top-down, cumulative estimate of all the project costs from start to finish. EAC projections are updated throughout the project lifecycle as new data on actual costs and performance becomes available.

EAC provides the total projected cost at completion if the project continues as planned. It can be compared to the original cost estimate and budget to identify any cost overruns or underruns. Tracking EAC allows project managers to determine whether project changes or corrective actions are needed to align actual spending with the approved budget.

The EAC metric is a key input for project budget management, funding requests, and stakeholder reporting. It supports a range of project management decisions.

Key Components of the EAC Forecast

The EAC brings together several components to project the total cost:

• Actual costs (AC) - The total of all costs incurred to date, also referred to as the actual cost of work performed (ACWP).

• Remaining budget - The budgeted costs for completing the remaining work in the project schedule and plan.

• Estimate to complete (ETC) - The estimated additional costs necessary to complete the remaining project work.

• Cost performance metrics - Performance indices like CPI and SPI that measure how efficiently costs are being spent.

• Risk assessments - Contingency reserves or unexpected cost estimates based on a risk analysis.

• Change management - Potential changes to plans based on new scope, risks materializing, or corrective actions.

EAC represents a forecast of the total project costs considering all these variables. It answers the question of how much the project is expected to cost at completion based on progress and plans to date. EAC is not a static number, but rather it evolves over the course of a project as performance is measured and new risks emerge. This allows project managers to regularly re-forecast total costs and make any needed adjustments.

Why EAC Matters for Project Managers

There are several important reasons the estimate at completion metric is vital for project managers:

Forecast Total Project Costs

First and foremost, EAC allows project managers to forecast the total expected costs through completion of the project. The approved project budget is based on an initial cost estimate. As the project progresses, one key question is whether that initial estimate still holds or needs to be updated. Significant variances indicate the likelihood of cost overruns.

EAC offers an updated projection of total costs based on better project data, which may require revising the budget. Project managers need the most accurate estimate possible to plan and manage project spending.

Identify Cost Overruns Early

By comparing EAC forecasts versus the approved budget baseline, project managers can identify potential cost overruns early in the project. The earlier cost overruns can be detected, the sooner steps can be taken to get the project back on budget. 

Having an accurate EAC allows project managers to be proactive rather than reactive on project cost management. Actions might include reducing scope, improving efficiency, or requesting additional funding.

Support Funding Requests

An increasing EAC over the lifetime of a project clearly signals the need for more funding. Updated EAC projections provide quantitative data that can justify budget increase requests to sponsors or governance boards.

Approval bodies often require evidence that overruns are due to previously unknown or uncontrollable factors. EAC helps quantify and explain the needs for additional funding.

Assess Project Performance

Variances between EAC and budget provide insights into overall project performance. Significant differences indicate problems like inadequate estimating, uncontrolled changes, ineffective cost management, or delays driving increased costs.

Analyzing EAC trends helps project managers identify the root causes of cost overruns. Addressing these root causes is key to bringing costs back into alignment with plans.

Inform Project Decisions

EAC data is invaluable for making sound project decisions. For example, increasing EACs might drive decisions to reduce scope, bring on additional skilled resources, or change timeline expectations. Tightening change control and improving reporting are other common responses.

Reviewing EAC is an input to deciding if a project should move forward as-is, if corrective actions are needed, or if the project should be rebaselined or terminated altogether. EAC provides the fact-based project cost outlook to inform critical decisions.

Update Project Budget

When EAC diverges significantly from the original budget, a revised project budget is needed. The updated EAC essentially becomes the new budget baseline, after approval from sponsors. All further cost performance reporting is measured against the new baseline.

Updating the budget prevents project teams from continuously being measured against an inaccurate budget target. It resets the budget to match the new EAC-driven cost expectations.

Communicate with Stakeholders

Project managers need to keep stakeholders up to date on any changes in the total expected costs to complete the project work. As EAC changes over time, stakeholders including project sponsors, governance groups, and implementation teams need to be kept in the loop.

Stakeholders want to understand why project costs are changing and how it will impact them. This allows them to remain aligned to the project’s shifting budget and timeline expectations. Clear EAC communication and reporting prevents surprises.

As shown above, monitoring estimate at completion is vital for forecasting costs, managing performance, controlling changes, making decisions, requesting funds, resetting budgets, and aligning stakeholders. Multiple times throughout a project, EAC will drive project management choices and communications.

How Does EAC Fit Into Project Cost Management?

For context, it is helpful to understand where EAC fits within the overall discipline of project cost management. According to the Project Management Institute (PMI), project cost management includes four main processes:

• Cost estimating - Developing an approximation of total project costs

• Cost budgeting - Allocating the cost estimate to individual project components to establish a cost baseline

• Cost control - Controlling changes to the budget, monitoring performance, and managing variances

• Cost reporting - Documenting cost expenditures and performance against the baseline

EAC is a vital metric used in the cost control and cost reporting processes. It enables project managers to provide updated forecasts of total expected project costs. This updated projection can highlight the need to take corrective action or pursue budget changes.

Reporting EAC against the original cost estimate and baseline budget facilitates performance management decisions and stakeholder communications. EAC ties together cost estimating, budgeting, control, and reporting.

Within PMI's defined framework, EAC represents a core cost control and reporting tool for project managers.

Key Project Cost Metrics

In addition to EAC, project managers utilize other complementary cost metrics as part of project cost management processes. Key measures include:

Budget at Completion (BAC) – The originally approved budget total for the project. This cost baseline is set at project initiation but can be revised based on EAC projections.

Actual Costs (AC) – The costs incurred to date during project execution. Actual costs are measured against the budgeted costs.

Cost Variance (CV) – The difference between the budgeted cost of project work performed and actual costs. CV shows whether the project is over or under budget.

Cost Performance Index (CPI) – The ratio of completed work value to actual costs, used to forecast whether the project will be completed within budget.

Estimate to Complete (ETC) – The estimated additional costs needed to complete the remaining project work. A key EAC input.

To-Complete Performance Index (TCPI) – The ratio of the remaining budget to the remaining work, indicating if the required cost performance is achievable.

EAC brings together the current actual costs plus a re-forecast of the costs to complete based on the latest performance data and risk assessment. It converts that data into an updated projection of total costs at completion. Understanding these cost management concepts and metrics provides the full context for developing, monitoring, and using EAC projections.

Now that we have covered the essentials of EAC - what it is, why it matters, and how it fits into broader project cost management - next we will explore how to calculate EAC using specific formulas.

How to Calculate Estimate at Completion (EAC)

Project managers have several options when calculating an estimate at completion forecast. The goal is to select an EAC formula that makes realistic and supportable assumptions about how past performance will continue over the remainder of the project.

In this section we cover five different EAC formulas, along with the pros and cons of each approach.

EAC Formula #1 - Actual Costs + Estimate to Complete

The most straightforward formula for EAC is:

EAC = Actual Costs (AC) + Estimate to Complete (ETC)

Where:

• AC is the total actual costs incurred so far in the project

• ETC is the estimated additional costs necessary to complete the remaining project work

This simple EAC equation requires breaking down the full project scope into work performed to date plus remaining work. The project manager estimates the costs for the remaining work to establish an ETC. Combining that ETC with the actual costs produces the full EAC projection.

Pros:

• Easy to understand and calculate

• Can be used even if performance data isn't available yet

Cons:

• Relies heavily on the ETC accuracy

• Does not consider past cost performance

This EAC formula works well early in a project when a bottom-up ETC estimate is feasible. As the project progresses, ETC forecasting can be enhanced by incorporating CPI data.

EAC Formula #2 - Actual Costs + (Remaining Work / CPI)

A more precise EAC equation brings in the cost performance index (CPI):

EAC = AC + (Remaining Work / CPI)

Where:

• Remaining Work is the budgeted costs for the work still to be completed

• CPI is the cost performance index

With this formula, the ETC component is calculated by dividing the remaining budget by CPI. So rather than an estimate, it is now based on performance metrics.

Pros:

• Considers past cost performance

• More accurate if CPI is reliable

Cons:

• Dependent on CPI being an accurate predictor

• CPI may not account for risk, changes

This EAC works well once a stable CPI has been established and the remaining budget estimate is sound. The CPI factor helps predict future performance.

EAC Formula #3 - BAC / CPI

An even simpler formula can be used if the original budget still seems valid:

EAC = BAC / CPI

Where:

• BAC is the budget at completion

• CPI is the cost performance index

In this case, the total budget is just adjusted by the CPI ratio to forecast EAC. It assumes the initial budget estimate still holds other than variations due to CPI cost performance achieved.

Pros:

• Very easy to calculate

• Works if BAC is still a good estimate

Cons:  

• CPI may understate EAC if risks materialize

• BAC could be outdated

This EAC option is best utilized when the project scope has remained relatively stable, and emerging risks have not increased the ETC. The CPI carries the full weight of predicting EAC performance.

EAC Formula #4 - AC + (BAC - % Complete BAC)

For projects with low maturity in their performance metrics, EAC can be calculated based on the percent of work completed:

EAC = AC + (BAC - (BAC x Percent Complete))

Where:

• BAC is the total budget at completion

• Percent Complete expresses completed work as a percentage of BAC

The percent complete can be measured based on a combination of cost, labor, or milestones metrics. This EAC forecast assumes that the remaining work will be completed at the same costs as the initial budget estimates.

Pros:

• Simpler than using performance indexes

• Allows basic EAC forecasting before CPI is stable

Cons:

• Ignores cost performance problems 

• Accuracy limited by percent complete estimate

This EAC option provides a quick forecast early in a project when performance data has not matured. But it should be enhanced by CPI once available.

EAC Formula #5 - AC + [(BAC - EV)/CPI x SPI]

For projects utilizing earned value management (EVM), EAC can be forecasted combining CPI and SPI:

EAC = AC + [(BAC - EV) / (CPI x SPI)]

Where:

• EV is the earned value, or budgeted cost for completed work

• SPI is the schedule performance index

With EVM, both cost and schedule variances are factored into the EAC projection. This approach relies on the accuracy of both performance indices.

Pros:

• Full EVM integrated into EAC

• Accounts for both cost and schedule

Cons:

• More inputs required

• Dependent on EVM maturity

For organizations with strong earned value management processes, this EAC formula provides a full view of project performance. But it requires established EVM metrics to be reliable.

Now that we've reviewed the most common formulas, we will look at some recommendations on when each approach may be appropriate depending on data available.

Matching EAC Formulas to Project Maturity

Project managers do not need to stick with one EAC formula throughout an entire project. The best formula depends on the maturity of performance metrics being gathered. Here are recommendations on aligning formulas with project stage and data available:

Early Stage – When performance data is limited early in a project, a simplistic EAC can be calculated using either:

• AC + ETC (using a bottom-up ETC estimate)

• AC + (BAC - Percent Complete BAC)

These simple approaches establish an initial EAC baseline to be measured against.

Mid Stage – As actual costs and CPI data matures, formulas such as AC + (Remaining Work / CPI) provide better indicators incorporating performance.

Mature Stage – For organizations using earned value management, AC + [(BAC - EV)/CPI x SPI] provides a full-featured EAC inclusive of cost and schedule metrics.

Low Data – When even basic progress metrics are unreliable, using BAC / CPI can provide a quick forecast relying solely on CPI.

Highly Complex – For large programs with significant risks and many unknowns, even EVM-driven EACs may not adequately represent uncertainties. A bottom-up ETC estimating effort specifically addressing risks may be warranted.

By matching EAC formulas to the available data, project managers gain insights tailored to their current project maturity and performance tracking capabilities. The goal is the most realistic formula supported by the underlying project metrics.

Now that we have covered how to calculate EAC, next we will look at how project managers use EAC forecasts to control project performance and costs.

How Project Managers Utilize EAC Data

Developing an estimate at completion using a supported formula is only the first step. The key is then applying EAC insights to actively manage the project. Project managers can leverage EAC data in the following ways:

Compare EAC to BAC

A core use of EAC is comparing it against the original budget at completion (BAC). This variance helps determine if the project is on track to be completed within budget. Negative variances need to be addressed through corrective actions.

Comparing EACs over time to BAC also indicates if a project is trending better or worse than planned. A widening negative variance means a deteriorating budget outlook.

Calculate EAC Forecast Variance

Each EAC update can be compared to the prior EAC to measure changes in the forecast. This EAC variance helps identify whether cost forecasts are improving or worsening as the project progresses.

EAC variance is calculated as: Current EAC – Prior EAC = EAC Variance

Ideally, EAC should trend down over time as more actual costs replace estimates. Rising EAC variance indicates a deteriorating budget outlook.

Update the Project Budget

The most current EAC forecast represents the best projection of total project costs. When this diverges significantly from the original BAC, the project budget should be updated to match the latest EAC.

Rebaselining the budget to match the EAC prevents an unrealistic or outdated BAC from being used as the continuing benchmark. It facilitates approval of the additional funds indicated by the EAC.

Review Performance Metrics

All formulas depend on accurate performance data inputs. So when EAC changes significantly, project managers should review key metrics including:

• Are actual costs being charged accurately?

• Is percent complete realistic?

• What is driving CPI variances?

• Does ETC cover all remaining work?

• Are risks and changes reflected in EAC?

Reviewing drivers of EAC changes often spots underlying performance data issues to address.

Request Additional Funding

A rising EAC projection helps quantify how much additional funding needs to be requested. It provides data to justify an increased budget to