Forecasting is an important practice when considering earned value management.
Controlling expenses and keeping a project on track requires a proper understanding of two metrics: estimate-at-completion (EAC) and estimate-to-completion. (ETC).
While EAC refers to the total expected cost for a project, ETC refers to the expected cost for finishing any remaining work. Therefore, both ETC and AC (actual costs) are required to calculate EAC. This equation can help keep costs in check as a project moves forward.
Calculating Estimate-to-Completion
Figuring out ETC can provide insight about the amount of resources needed to complete a project that is in progress. Using a performance index to gauge how work is performed, it is possible to find ETC by dividing this index into the total amount of work remaining. Work remaining can be calculated by subtracting earned value from budget at completion.
Since ETC is used to calculate EAC, changes to the performance factor can affect both. This kind of calculation can be used for forecasting details about the remainder of a project, and whether a given budget is appropriate.
Making Assumptions About Future Performance
The performance factor used in this case may be the cost performance factor, if the primary purpose of the calculation is to determine costs rather than schedule. When calculating ETC, the assumption is that past performance will dictate future performance.
Estimating Future Performances According to Planned Rates
When planning, it can be assumed that the CPI will be 1. This is done under the assumption that performance will be the same as the budgeted rate. Assumptions made about ETC will continue to influence EAC. In order to take into account both cost and schedule, the product of the two should be used as the performance factor when calculating ETC. In this case, EAC would equal work remaining divided by the product of cost performance index (CPI) and schedule performance index (SPI).
ETC changes based on a number of factors. When this occurs, EAC will be changed as well. Understanding how these data points are reached makes it easier to engage in accurate forecasting. With a focus on ETC and an understanding that this figure represents a performance factor and work remaining, calculating EAC will be much easier.