Need Help - Calculate EAC

Submitted by Ashu on Thu, 04/18/2013 - 00:23

Hi All,


I badly need your help guys.. I am very much confused on EAC formula.


Under which condition I should use  EAC = BAC/CPI and when should we use EAC = AC+BAC-EV.


Can you please explain under which condition should I use this.


I am hereby providing an example in which I was not sure which formula I should use for EAC


 


Calculate the to-complete performance index of your project, based on EAC, given that the actual cost of your project is $125,000, cost variance is $65,000, and the budget at completion is $250,000.
 
  Choice 1  .9 
 
  Choice 2  1.52
 
  Choice 3  1.7
 
  Choice 4  .3

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Hemant Tandon

Thu, 04/18/2013 - 01:08

  • If the future project work will be completed at the original budgeted rate, then EAC = AC + BAC – EV. In this scenario, the variance which has already occurred will stay as is, and even by the end of the project, there will no change in this variance. So, all the future work will be performed without variance. In other terms, variances are ATYPICAL..
  • If furture performance will be same as past performance, then EAC=BAC/CPI. In other terms, variances are TYPICAL
  • EAC = AC + Bottom up ETC --  Used when original estimate is fundamentally flawed
  • If nothing is mentioned about furture performance, then use the formula EAC=BAC/CPI
In this question, nothing is mentioned about future performance, so, 
EAC=BAC/CPI
 
BAC=250000
CV=65000
AC=125000
CV=EV - AC
EV=CV+AC=65000+125000
EV=190000
 
EAC=BAC/CPI=(BAC*AC)/EV
=164473.68
 
TCPI= (BAC-EV)/(EAC-AC)
=(250000-190000)/(164473.68-125000)
=60000/39473.68
=1.52
 
So, the answer is option#2.
 
Let me know if you still have any question.
 
Thanks & Regards,
Hemant Tandon, PMP

Ashu

Thu, 04/18/2013 - 03:21

Hi Hemant,


Thanks for details explanation. This is really helpful. I have one more question to add, for TCPI when should we use BAC- EV/EAC-AC. here is one example


The actual cost of your project is $200,000, budget at completion is $325,000, and the cost variance is -$25,000. From the data above calculate the To-complete performance index of your project, given that , senior management did not agree to revise the estimate at completion based on current performance.
AC = 200,000
BAC = 325,000
CV= -25,000



 
 
  Choice 1  0.7 
 
  Choice 2  1.2
 
  Choice 3  0.8
 
  Choice 4  1
 
 


 

Julbrown31

Thu, 04/18/2013 - 04:19

BAC/CPI is used when it is TYPICAL.. (Which also means NOT FLAWED) 

AC + BAC - EV is used when it is ATYPICAL (which means ABNORMAL- will not happen in the future ) 

AC + ETC is used when original assumptions are NO LONGER VALID  - also when you need new estimates 

 

in summary, you have to read scenario to know which equation to use. Good luck! 

Hemant Tandon

Thu, 04/18/2013 - 05:17

  • TCPI is used for calculating the rate at which you need to perform in order to achieve the BAC or EAC.

              TCPI=Remaining Work/Remaining Budget

  • As I mentioned above, in different scenarios, there are different formulas for calculating EAC.
  • Now, being a Project Manager, if you notice any cost variance in your project, then you can calculate EAC. However, EAC is not yet approved by the management.
  • So, depending on Management's decision, your TCPI formula will change. If your management has approved your EAC, then EAC will be used for measuring your cost performance, and in this case,

              TCPI = (BAC-EV)/(BAC-AC)

  • However, if your management has asked you to stick to old cost baseline, which is BAC, then the

             TCPI = (BAC-EV)/(EAC-AC)

Thanks & Regards,

Hemant Tandon, PMP

 

pmpnewster

Sat, 04/27/2013 - 17:32

Hello Hemant,

Have you accidentally switched EAC and BAC in the denominators in your above post? Pls let us know.

Thanks.

Julbrown31

Thu, 04/18/2013 - 04:35

 My assumption for this TCPI question is that EAC should not be considered.. based on the line about senior management not wanting to revise.  

The equation used would be BAC - AC / BAC - EV.. 

On the exam, it will say given EAC, please calculate TCPI .. But I can be wrong

Can someone confirm? 

 

ANSWER IS B) 1.2

sspawar

Thu, 04/18/2013 - 07:21

 Calculated answer would be 1.145, it is nearer to 1.2, for one digit round off after decimal.

It can also be judged and marked option B without any calculation, because, all other tcpi values are below one or equal to 1, which are not possible.

the reason is that, project at this point is over budget and hence to get it completed in given amount later part ( remaining part) must be done with a CPI of above 1.

Jgrind07

Wed, 05/01/2013 - 21:17

Pawar,

Can you please elaborate the following point? It sounds intresting know some shortcuts can be used with out full calculation.

It can also be judged and marked option B without any calculation, because, all other tcpi values are below one or equal to 1, which are not possible.

Thanks

Jai

sspawar

Thu, 05/02/2013 - 01:09

My earlier reply in complete is like this:

Calculated answer would be 1.145, it is nearer to 1.2, for one digit round off after decimal.

It can also be judged and marked option B without any calculation, because, all other tcpi values are below one or equal to 1, which are not possible.

the reason is that, project at this point is over budget and hence to get it completed in given amount later part ( remaining part) must be done with a CPI of above 1.

 

please read underlined sentence. it is reply of second question not of main q.

Jgrind07

Thu, 05/02/2013 - 03:47

Thanks, Pawar

BK

Thu, 04/18/2013 - 13:19

When to use this formula then :

EAC = AC + ((BAC - EV) / CPI)

As per my understanding this is the formula for typical variance.

any thought?

AP

Thu, 04/18/2013 - 21:13

EAC = AC + (BAC-EV)/CPI is the formula that was given in PMBOK guide third edition.

In fourth edition, the same formula is simplified to EAC = BAC / CPI. Both the formulae are correct.

Kindly refer this url which clearly derives the equation.

http://www.deepfriedbrainproject.com/2010/01/solving-estimate-at-completion-puzzle.html

pmpnewster

Sat, 04/27/2013 - 17:32

Hello Hemant,

Have you accidentally switched EAC and BAC in the denominators in your above post? Pls let us know.

Thanks.

 

Hemant Tandon

Sun, 04/28/2013 - 19:43

Yes....Thanks for highlighting it.

Regards,

Hemant, PMP