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PMP lesson · Cost & EVM · Cost: estimating, budget and earned value · lesson 4 of 5 · about 8 minutes

Forecasting with earned value: EAC, ETC and VAC

Predictive · also used in hybrid reportingFree preview
Goal: After this lesson you can choose the right EAC formula from the words in the question, and explain ETC and VAC in one sentence each.

1The situation

What will it cost in the end?

Back to the robot cell. At week 5: BAC $100,000, PV $50,000, EV $40,000, AC $60,000. CPI = 0.67, SPI = 0.80.

The sponsor now asks a different question: “OK, we are over budget. So what will the final cost be?”

The honest answer is: it depends on why we are over budget. If the team keeps working the same way, the final cost will be very different from a case where the overrun was one bad supplier batch that is already fixed. Earned value gives you a formula for each story.

2Three new words

Forecasting uses three new terms. All are in money.

EAC
Estimate at completion
What will the whole project cost when it is finished?
EAC = money already spent + money still needed
ETC
Estimate to complete
How much more money do we need from today?
ETC = EAC − AC
VAC
Variance at completion
Will we finish over or under budget, and by how much?
VAC = BAC − EAC

The core idea is simple: EAC = AC + ETC. AC is a fact. The hard part is predicting ETC, and that is why there are several EAC formulas.

3See it in one picture

BAC$100k: the approved budget EAC AC $60k (spent)ETC $90k (still needed) VAC = BAC − EAC = −$50k EAC = AC + ETC = $150k (if CPI 0.67 continues)
EAC is made of two parts: what was already spent (AC) and what is still needed (ETC). VAC is the gap between the budget and the forecast.

4How it looks on the exam

Exam-style question 1. A project with a budget at completion of $500,000 has an earned value of $200,000 and an actual cost of $230,000. The overrun was caused by a single shipment of defective material, and the supplier has since been replaced. What is the MOST appropriate estimate at completion?
A. $575,000
B. $530,000
C. $500,000
D. $600,000
Show the answer and the decode
Answer: B.
In simple English
The project is $30k over budget, but the cause was one bad shipment, and it is fixed.
What is the question really asking?
The right forecast of the total cost.
Key words / trigger
“single shipment … since been replaced”
PMP logic
One-time (atypical) variance: EAC = AC + (BAC − EV) = 230,000 + 300,000 = $530,000.
Why the wrong answer looks attractive
$575,000 is BAC ÷ CPI (500,000 ÷ 0.87). It looks 'standard', but it assumes the overrun will continue.

5Remember this

Your memory card

  • EAC = total final cost · ETC = money still needed (EAC − AC) · VAC = BAC − EAC
  • Typical → BAC ÷ CPI · One-time → AC + (BAC − EV)
  • Cost and schedule → AC + (BAC − EV) ÷ (CPI × SPI) · Wrong estimate → AC + bottom-up ETC
  • The words in the question tell you which future is true.
The full lesson in the PMCLEAR app also has:
  • the rest of the lesson (Four ways to predict the rest, Reading VAC)
  • a worked example
  • the common traps (wrong vs right)
  • 2 exam-style questions with the decode
  • a 3-question quick check
  • an interactive calculator
Open the full lesson → Create a free account
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