Good morning everyone, I'm currently reviewing the section on earned value management and have a grasp of most formulas presented save the EAC formula, in the course I'm currently doing it has shown me 2 variations of how to calculate EAC.
I was researching the differences between the formulas to see if it was a matter of preference or if one formula gave a more accurate estimate over the other and being candid and honest this is where my confusion begins...
Through my research I found out that they're 4 different ways to calculate EAC keeping in mind I have learned only 2 so far and have yet to learn the other 2, how I understand it is you use different variations of the formula dependent on the data collected...example the formula you'd use when being over budget could vary from the one you use when under budget, however this is just my interpretation and I'm not sure if I understand the concept of when to use different variations of the formulae.
Furthermore the estimations differ tremendously amongst each other at times having significant gaps when put to comparison, this worries me in the sense that in the real world if I give an estimate using one method over another my credibility could be put to question despite my math being correct, I'll illustrate an example below to better visualize the issue I'm having using the two formulae I know so far
We have determined the following
Budget At Completion (BAC) = 250,000 Earned Value (EV) = 100,000 Actual Cost (AC) = 112,000 Cost Performance Index (CPI) = 0.89 Percent complete 40 % Percent planned 55%
The various formulas differ in that they collect past performance, but have different assumptions as to whether the future performance will be the same as the past performance.
The first formula is a parametric estimate that assumes your total performance over the course of the entire project will be the same as your past performance. If you're 10% over budget 50% of the way into the project, then the formula assumes that the total spending will be 10% over the original budget.
The second formula assumes that the remaining work will be exactly on plan, and adds it to the actual spending to date. If you're 10% over budget 50% of the way into the project, then only that work is assumed to be over budget.
The reason why cost or schedule performance was off plan may have been a situation that was already resolved so past performance won't be representative of the future expectations. On the other hand, if you have an ongoing problem like the work is much more difficult to complete than originally planned, and you have no logical reason to say all the future work will go any better, then you can assume past performance = future performance. Saving Changes...
Thank you again to all of you, it makes much more sense to me now with the information provided, very appreciated I was really struggling with this and now it's much clearer thanks to you all Saving Changes...
EAC cost=JTD cost + ETC cost ; as simple as it is
JTD Cost comes from finance Team
ETC cost comes from Project Manager Saving Changes...
Peter RapinSubject Matter Expect; Project Delivery| Independent ConsultantOntario, Canada
I like to use the graphic performance report or S-curve when projecting completion costs as this will not only show you where you are and how you got there but also allow you to trend going forward. Going back to what Keith said, the trending will tell you if its getting better, staying the same, getting worse or even improving. You can also develop an envelop of expectations to see if you are within anticipated tolerances. If not, implement mitigating measures to bring it back on line.
EAC as a number at a given point is of limited value. Control is the action of measuring and adjusting to achieve the desired objective rather than changing the objective to reflect reality. Saving Changes...
