Estimate at Completion – Budgeted Rate Method

Posted on August 24, 2009 by

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The Budget at Completion (BAC) is how much the project is supposed to cost when finished. However, during the project it may become clear that the project will not end up costing what it is supposed to cost. The Estimate at Completion (EAC) replaces the BAC for the amount that the project is now believed to cost when it is completed. Calculating EACs are part of the tool and technique of forecasting outlined in the fourth edition PMBOK®’s Control Costs process.

One of the many EAC formulas is the budgeted rate method. The formula is EAC = AC + BAC – EV. So the Actual Cost (AC), which is how much money was actually spent at this point, is added to the Budget At Completion (BAC), which is the original estimate of the cost of the project, and then Earned Value (EV), which is the worth of the work completed so far, is subtracted from this sum. This formula makes the assumption that the remaining future project work will be completed at the original budgeted rate. Note that if the project is already falling behind, this may not be a safe assumption to make.

 For example, Carl and his siblings are working on restoring a car. The BAC is $500, but now they suspect that this project will cost more than $500. So far they have spent $450. Of all the work that the car needs done, they believe that they have 80% of it completed at this point. EAC = AC + BAC – EV. We were given AC and BAC, but we need to quickly calculate the EV. The work is 80% complete, and 80% of the BAC (which is $500) is $400, so the EV, the value of the work completed, is $400. Now we can place the numbers into the formula = EAC = AC + BAC – EV = $450 + $500 – $400 = $550. So the EAC using the budgeted rate is $550.

 Also see the earlier postings of: Earned Value Management – Step 1 (February 26, 2009), Earned Value Management AC and BAC – Step 2 (March 2, 2009), Earned Value Management – Planned Value – Step 3 (posted March 11, 2009), Earned Value Management – CV and SV (posted August 19, 2009), Earned Value Management – CPI and SPI (posted August 20, 2009), and Estimate at Completion – Bottom-Up Method (posted August 21, 2009).