Forecasting the final project cost is essential for project managers to estimate the total expenditure required to complete the project. One commonly used method for forecasting final project cost is the Estimate at Completion (EAC) calculation. Here’s how to perform EAC forecasting:
- Calculate EAC Using Cost Performance Index (CPI):EAC = Actual Cost (AC) + [(Budget at Completion – EV) / CPI]
- Actual Cost (AC): The total actual cost incurred up to the current reporting period.
- Budget at Completion (BAC): The original budget for the entire project.
- Earned Value (EV): The value of work completed up to the current reporting period.
- Cost Performance Index (CPI): The ratio of EV to AC, indicating cost efficiency.
- Calculate EAC Using To-Complete Performance Index (TCPI):EAC = AC + [(BAC – EV) / TCPI]
- TCPI: The To-Complete Performance Index reflects the efficiency needed to complete the remaining work within the remaining budget.
- Calculate EAC Using Different Scenarios:
- Optimistic Scenario: Assuming all future work will be performed as per the original budget and schedule.
- Pessimistic Scenario: Assuming future work will continue at the current cost and schedule performance.
- Most Likely Scenario: Considering a blend of past performance and potential future improvements or deteriorations.
- Interpretation and Decision-making:
- Compare the calculated EAC values derived from different methods or scenarios.
- Evaluate the potential impact of different factors on the project’s final cost.
- Assess the reasonableness of forecasts by considering past trends, project complexities, risks, and potential changes.
- Adjustment and Monitoring:
- Regularly update EAC calculations as the project progresses.
- Incorporate new information, actual performance data, changes in scope, risks, or external factors that might impact project costs.
Forecasting the final project cost using EAC allows project managers to anticipate the total expenditure required to complete the project. However, it’s crucial to continuously monitor and update forecasts as the project evolves to ensure accuracy and make informed decisions regarding resource allocation, budget management, and risk mitigation.
