When we evaluate our performance, we need to also forecast how much more money is needed in this project and what could be the revised budget. Revised budget is nothing but EAC (Estimate At Completion) which will be different from initial planned numbers i.e. BAC (Budget at completion). EAC and ETC (Estimate To Complete) can be calculated in different ways depending on the reason of variations. In this blog, I’m going to discuss one of its variants that are Typical.
Before we get into details of this blog, I just want to ensure that you have a good understanding of what is EAC and ETC. You may like to give a quick recap of my blog, ‘What is EAC & ETC and What are its Variants?’
Now let’s come to the variant typical or as defined in PMBOK® Guide EAC forecast for ETC work performed at the present CPI. As per PMBOK® Guide.
This method assumes what the project has experienced to date can be required 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
In other words, Typical means, Current variations are GOING to continue at the current CPI rate. Project, from this point on-wards, has to consider current CPI variations to forecast the revised budget of the project.
Let’s take an example and try to understand and discuss on an atypical variant of EAC and ETC. Let’s assume a Movers & Packers company took a project of shifting stuff from one place to another. The full project is planned for 5 hours as below:
There are total 4 activities booking, loading, unloading and completion & handover. Booking need 1 person for the first hour and will cost 1K, loading needs 5 persons for 2 hours so planned to cost 10000, Unloading needs 5 persons for 1 hour, so planned to cost 5000 and completion and handover needs 1 person for one hour so planned to take 1000. On the basis of this we have a BAC planned to be 17000 at the end of 5th Hour
Let’s access the situation at the end of 2nd hour of work. We have observed some variation to our plan as below:
The variation we faced in the above example is “labor not available”. As we are discussing typical scenario, we are sure that current variation is going to continue at current CPI rate e.g. There is full day local festival and labor cost will be on and off, current cost variation is going to continue at the same rate or are typical in nature. The rest of the work (ETC) will be done at CPI rate we have today. In this case we can calculate the EAC as
It’s very important to understand that if we have not faced any variations and we are going as per plan AC = EV i.e. CPI = 1 and our formula will automatically reduce to EAC = BAC i.e. we are on plan. Even if we put this in full formula, we shall get same result i.e. EAC = AC + (BAC-EV) /CPI = AC+BAC-EV/1 = BAC
You may wonder what to do if variations are not typical with the CPI trend? Yes, we have other ways of calculating EAC &ETC.
In a similar scenario where we observe the current variances are typical and both CPI and SPI variations are going to continue for the rest of the work, we need to consider CPI & SPI both in our calculations for EAC, for more details check out our blog on ‘How to Calculate EAC & ETC with Typical SPI & CPI Trends?’
In a different scenario when we observe the current variance are the atypical i.e. current variances were one time and the rest of the work will be done at budgeted rate. We don’t need to consider variations in the rest of the work, for more details check our blog on ‘How To Calculate ETC When Variance Is Atypical?’
There could be a case where you find the initial estimate of the project having errors and these errors cannot be fixed just by taking into account the current variances. So what to do? Simple, we need to re-estimate for the remaining project duration; this variance is explained in the blog, ‘How to Calculate ETC When Initial Estimate Were Erroneous?’
Understanding this concept is very important from PMP® exam point. By now, you must have clearly understood ‘How To Calculate EAC & ETC With Typical CPI Trend.’ For further questions and doubts on the subject, drop us a comment on our Discussion Forum. You can also log into our YouTube channel watch the video on the related topics.
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