Project Management Office

How a PPM Tool Can Estimate Project Costs Efficiently

Listen to this article – 2:55 minutes

Estimate at Completion, also known as EAC, is primarily used to calculate a project’s final cost once it is concluded. It provides a better understanding of project finances and how you can bolster project performance accordingly. EAC is an effective PPM tool that can allow team leaders to regulate their project requirements. If you are looking for a project tool that can forecast your firm’s financial performance, it is best to install one with EAC. In one of his articles for ProjectEngineer, Bernie Roseke shares how you can calculate the EAC based on your organizational performance.   

Estimating Project Costs with a PPM Tool

Including Budgeted Cost

This process is beneficial to use when you have an existing variance that is unique and is seemingly going according to plan. Just add the additional project budget to the actual cost (AC) up to that point.

EAC = AC + (BAC – EV)

Calculating Costs Based on Past Cost Performance

If the past performance of your financial operations is typical, using past performance is a good indicator for managing financial costs.

EAC = AC + [{BAC – EV} / CPI]

Calculating Costs Based on Past Schedule Performance

Measuring your cost performance based on past schedule performance allows you to adjust the cost performance per your project operations. For instance, if your cost efficiency (CPI) is low but schedule efficiency (SPI) is high, there is one thing you should pay attention to. Measuring your financial performance through a PPM tool based on past schedule performance would show results that are not as bad as they look in CPI.

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

Also, you can use a combination of SPI and CPI instead of the normal average:

EAC = AC + [(BAC – EV) / (0.8·CPI x 0.2·SPI)]

Using a PPM Tool When Budget and Schedule Are Not Valid

When you add a new variance, it is better to add ETC to the to-date cost (AC). It will give you a more specific value of the final EAC.

EAC = AC + ETC

Click on the link to read the original article:

https://www.projectengineer.net/estimate-at-completion-earned-value-analysis/

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