What it means
Every project starts with a budget, often called the budget at completion (BAC). As work proceeds, actual costs and progress are tracked.
The estimate at completion answers a practical question: given what we now know, how much will this project really cost in the end? There are several ways to calculate it, depending on what the manager believes about the future.
If past performance is expected to continue, the estimate divides the original budget by the cost performance index (CPI), which measures how much value is being earned for each dollar spent. If the overspend was a one-off event, the manager adds the remaining budgeted work to the costs so far, and a third method uses a fresh bottom-up estimate of the remaining work.
EAC is part of a technique called earned value management, which compares three numbers: planned value (what should have been done), earned value (the budgeted value of the work actually done) and actual cost (what was spent). From these, managers can see whether a project is ahead of schedule or behind, and over or under budget.
EAC turns those signals into a forecast of the final bill. The figure helps decision makers act early.
A project forecast to overrun by 25% may need extra funding, a change of scope or a stronger grip on costs. Finance teams use it to update cash flow forecasts and to decide whether to reserve additional funds.
In some fields, EAC has a different meaning. In capital budgeting it can stand for equivalent annual cost, a way to compare assets with different lives by converting their costs into a yearly figure.
The context usually makes clear which meaning applies. Good data is the foundation of a reliable estimate.
Time sheets, supplier invoices and progress reports must be entered promptly and consistently, otherwise the CPI will be calculated on stale numbers. Many teams update their EAC monthly and present the trend to sponsors, since a figure that is slowly worsening is a stronger warning than a single reading.
In practice
Real-world examples.
Example
A software company is building a customer portal with a $1,200,000 budget. Halfway through, the earned value is $600,000 but costs are $750,000, so CPI is 0.8 and the EAC is $1,500,000, prompting a review of scope. The sponsor decides to remove two low-priority features rather than seek $300,000 of extra funding.
Example
A hospital is renovating a ward and finds hidden damage that adds a one-off $80,000 cost. The project manager treats it as a one-time event, so the EAC is the original budget plus $80,000. If the original budget was $4,000,000, the new forecast is $4,080,000, since the other work is still running to plan.
Example
A film production company uses a bottom-up estimate for the remaining shoot days because locations have changed. The new EAC is the actual spend to date plus a fresh estimate for each remaining task.
Formula
Calculation
Cost Performance Index (CPI) = Earned value / Actual cost
EAC (if current performance continues) = Budget at completion / CPI
Variance at completion (VAC) = Budget at completion - EAC
Worked example: a construction project has a budget at completion of $500,000. So far, the work completed has an earned value of $200,000, and the team has spent $250,000.
CPI = $200,000 / $250,000 = 0.80
EAC = $500,000 / 0.80 = $625,000
VAC = $500,000 - $625,000 = -$125,000
The project is forecast to finish $125,000 over budget unless performance improves.Case study
Seen in the real world.
Summit Rail Works is a fictional company building a small railway depot with a budget of $2,000,000. After four months the project manager, Mr Dube, reported that 40% of the work was complete, giving an earned value of $800,000, while actual spending was $1,000,000.
He calculated CPI as $800,000 / $1,000,000 = 0.80 and EAC as $2,000,000 / 0.80 = $2,500,000. The board was alarmed that the projection showed a $500,000 overrun, and asked what had gone wrong. The cause was an unexpected delay in steel deliveries that forced the use of costly temporary storage.
This illustrative example shows how EAC turns early signals into action. The company renegotiated its delivery contract and trimmed the project scope, and the final cost came in at about $2,200,000. Mr Dube now presents an EAC update at every monthly board meeting.
Watch out
Common mistakes.
- Using the original budget as the forecast and ignoring evidence that costs are running ahead of progress.
- Applying the CPI formula when the overspend was a one-off event, which overstates the final cost.
- Measuring progress by money spent rather than by work completed, which gives a false picture of performance. A team that has spent half its budget has not necessarily finished half the work.
Questions
People also ask.
What is the difference between EAC and ETC?
ETC is the estimate to complete, the cost of the remaining work only, and EAC equals actual cost to date plus ETC.
What does a CPI below 1 mean?
The project is getting less than a dollar of planned work for each dollar spent, so it is over budget.
Is EAC a guarantee?
No, it is a forecast that should be updated regularly as new information arrives. A forecast that is never revised quickly becomes useless.
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