The Cost Variance (CV) is a valuable metric in project management to monitor and control project costs, allowing project managers to assess the financial performance of the project.
The correct formula to calculate the Estimate at Completion (EAC) when the Estimate to Complete (ETC) work will be performed at the budgeted rate is:
EAC = AC + BAC - EV
Where:
AC (Actual Cost) represents the actual cost incurred for the work performed.
BAC (Budget at Completion) represents the total budget allocated for the project.
EV (Earned Value) represents the value of work that has been completed and approved.
If the SPI is greater than 1, it indicates that the project is ahead of schedule. This means that the value of the work completed (EV) is higher than the planned value (PV), suggesting that the project is progressing faster than expected and is ahead of the scheduled timeline.
(BAC - AC) is used to express the budget remaining on the project, while (EAC - AC) represents the variance between the projected total cost and the actual cost incurred.
The Earned Value Methodology (EVM) can be used as a means to forecast future performance based on past performance.
EVM is a project management technique that integrates the measurement of project scope, schedule, and cost performance. It involves comparing the planned value (PV), earned value (EV), and actual cost (AC) to assess the project's progress and performance.
If the CPI is greater than 1, it indicates that the project is under budget. This means that the value of the work completed (EV) is greater than the actual cost incurred (AC). This suggests that the project is performing better than expected in terms of cost efficiency.
Manual forecasting of the cost of the remaining work can be an effective approach to accurately calculate the Estimate to Completion (ETC) in project management. While there are other techniques and methodologies available, manual forecasting allows project managers to leverage their expertise and knowledge of the project to make informed estimations.
