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Estimate Final Project Cost

19 January, 2016 - 17:37
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If the costs of the activities up to the present vary from the original estimates, it will affect the total estimate for the project cost. The new estimate of the project cost is the estimate at completion (EAC). To calculate the EAC, the estimate to complete (ETC) is added to the actual cost (AC) of the activities already performed. Expressed as a formula, EAC = AC + ETC.

Estimate at Completion for John’s Move

The revised estimate at completion (EAC) for John’s move at this point in the process is EAC = $154.50 + $1,371.90 = $1,526.40.

Refer to Figure 9.9 for a summary of terms and formulas.

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Figure 9.9 Summary of Terms and Formulas for Earned Value Analysis 

KEY TAKEAWAYS

  • Extra money is allocated in a contingency fund to deal with activities where costs exceed estimates. Funds are allocated in a management reserves in case a significant opportunity or challenge occurs that requires change of scope but funds are needed immediately before a scope change can typically be negotiated.
  • Schedule variance is the difference between the part of the budget that has been done so far (EV) versus the part that was planned to be completed by now (PV). Similarly, the cost variance is the difference between the EV and the actual cost (AC).
  • The schedule performance index (SPI) is the ratio of the earned value and the planned value. The cost performance index (CPI) is the ratio of the earned value (EV) to the actual cost (AC).
  • The formula used to calculate the amount of money needed to complete the project (ETC) depends on whether or not the cost variance to this point is expected to continue (typical) or not (atypical). If the cost variance is atypical, the ETC is simply the original total budget (BAC) minus the earned value (EV). If they are typical of future cost variances, the ETC is adjusted by dividing the difference between BAC and EV by the CPI.
  • The final budget is the actual cost (AC) to this point plus the estimate to complete (ETC).

EXERCISES

  1. Money that is allocated for dealing with unplanned but predictable expenses is                   reserve.
  2. The formula used to calculate the cost performance index is                                    .
  3. The formula used to calculate the estimate to complete for atypical cost variances is                                                     .
  4. The sum of the budgeted amounts for the tasks that have been performed is the                                      (two words).
  5. Schedule variance is the                   minus the                   and cost variance is the                   minus the                   (use acronyms).
  6. Schedule performance index is                   /                   and the cost performance index is                   /                   (use acronyms).
  7. The revised final budget is the                   plus the                   (use acronyms).

Estimating Earned Value

Consider a project you are familiar with in which the contractor or service provider who was performing the work needed to be replaced before the job was completed. Describe how the value of the contractor’s efforts up to that point was determined and how that evaluation compared to an earned value analysis.

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