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7 - PROJECT COST MANAGEMENT

7.4.2.2 Forecasting

As the project progresses, the project team may develop a forecast for the estimate at completion (EAC) that
may differ from the budget at completion (BAC) based on the project performance. If it becomes obvious that the
BAC is no longer viable, the project manager should consider the forecasted EAC. Forecasting the EAC involves
making projections of conditions and events in the project’s future based on current performance information
and other knowledge available at the time of the forecast. Forecasts are generated, updated, and reissued based
on work performance data (Section 4.3.3.2) that is provided as the project is executed. The work performance
information covers the project’s past performance and any information that could impact the project in the future.

EACs are typically based on the actual costs incurred for work completed, plus an estimate to complete (ETC)
the remaining work. It is incumbent on the project team to predict what it may encounter to perform the ETC, based
on its experience to date. The EVM method works well in conjunction with manual forecasts of the required EAC
costs. The most common EAC forecasting approach is a manual, bottom-up summation by the project manager
and project team.

The project manager’s bottom-up EAC method builds upon the actual costs and experience incurred for
the work completed, and requires a new estimate to complete the remaining project work. Equation: EAC =
AC + Bottom-up ETC.

The project manager’s manual EAC is quickly compared with a range of calculated EACs representing various
risk scenarios. When calculating EAC values, the cumulative CPI and SPI values are typically used. While EVM data
quickly provide many statistical EACs, only three of the more common methods are described as follows:

• EAc forecast for Etc work performed at the budgeted rate. This EAC method accepts the actual
project performance to date (whether favorable or unfavorable) as represented by the actual costs, and
predicts that all future ETC work will be accomplished at the budgeted rate. When actual performance
is unfavorable, the assumption that future performance will improve should be accepted only when
supported by project risk analysis. Equation: EAC = AC + (BAC – EV)
• EAc forecast for Etc work performed at the present cPI. This method assumes what the project has
experienced to date can be expected to continue in the future. The ETC work is assumed to be performed
at the same cumulative cost performance index (CPI) as that incurred by the project to date. Equation:
EAC = BAC / CPI

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